Rising Consumer Spending: 8 Retailers Boosting Profit Projections

(Written by Rebecca Lipman, list compiled by Eben Esterhuizen, CFA. EPS data sourced from Yahoo! Finance.)

American shoppers gave a better-than-expected boost to retail sales in October and left retailers with an encouraging outlook for the fourth quarter.

Bloomberg reports the 0.5% gain followed a 1.1% increase in September, according to figures released today by the Commerce Department. “The median forecast of 81 economists surveyed by Bloomberg News called for a rise of 0.3 per cent.”

Electronics proved to be the greatest part of the increase. Sales at electronic stores jumped 3.7% in October, the most since November 2009. Non-store retailers (internet and mail order companies) saw a 1.5% increase – the most in nine months. Consider also that the iPhone 4S, which sold over 4 million in the first three days on sale, debuted in stores on October 14th.

Consumer spending accounts for roughly 70% of the US economy and its recovery, especially during the holiday season, is essential to retailers. Fortunately, details of the Commerce Department report showed optimism in other categories as well. As reported by Bloomberg:

The report showed cheaper raw materials and partially finished goods, indicating companies may pass along the cost savings to customers as their profit margins are under less pressure.

The Federal Reserve Bank of New York’s general economic index rose to 0.6 from minus 8.5 in October. Readings higher than zero signal companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are expanding.

Taking into account today’s sales data, the U.S. economy is growing at about a 3 per cent annual rate this quarter from a previously projected 2.5 per cent pace, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a note to clients. Economists at Morgan Stanley boosted their running estimate up to 3.5 per cent from 3.3 per cent.

Sales rose 0.4 per cent at automobile dealers, after a 4.2 per cent increase the prior month, today’s report showed. The results are in sync with industry figures.

On the downside, unemployment still hovers around 9% and only 80,000 jobs were added to the payroll in October, the smallest increase since June.

Investing Ideas

So, which retail stocks are expected to benefit from these trends?

For ideas, we collected data on profit projections, and identified a list of companies that have seen increases in their profit projections over the last 30 days (i.e. increase in the earnings per share projection, or EPS).

Wall Street analysts think there’s more profit upside to these names–do you agree?

analyse These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. visualise annual returns for all stocks mentioned

1. Aeropostale, Inc. (ARO): Designs, markets, and sells casual sportswear and other fashion merchandise under its own brands, principally targeted at customers 11 to 18 years old. The EPS estimate for the company’s current year increased from 0.65 to 0.86 over the last 30 days, an increase of 32.31%. This increase came during a time when the stock price changed by 31.14% (from 12.75 to 16.72 over the last 30 days).

2. Collective Brands, Inc. (PSS): Engages in the wholesale and retail of footwear and related accessories worldwide. The EPS estimate for the company’s current year increased from 0.84 to 0.85 over the last 30 days, an increase of 1.19%. This increase came during a time when the stock price changed by -2.26% (from 14.62 to 14.29 over the last 30 days).

3. Dollar Tree, Inc. (DLTR): Operates discount variety stores in the United States and Canada. The EPS estimate for the company’s current year increased from 3.94 to 3.95 over the last 30 days, an increase of 0.25%. This increase came during a time when the stock price changed by -1.14% (from 79.9 to 78.99 over the last 30 days).

4. 99 Cents Only Stores (NDN): Engages in the retail sale of consumable general merchandise with focus on name-brand products. The EPS estimate for the company’s current year increased from 1.12 to 1.15 over the last 30 days, an increase of 2.68%. This increase came during a time when the stock price changed by 0.79% (from 21.55 to 21.72 over the last 30 days).

5. Tuesday Morning Corp. (TUES): Engages in the retail sale of upscale decorative home accessories, housewares, and gifts. The EPS estimate for the company’s current year increased from 0.16 to 0.2 over the last 30 days, an increase of 25.%. This increase came during a time when the stock price changed by -1.66% (from 3.62 to 3.56 over the last 30 days).

6. Dunkin’ Brands Group (DNKN): Operates, and franchises quick service restaurants worldwide. The EPS estimate for the company’s current year increased from 0.89 to 0.9 over the last 30 days, an increase of 1.12%. This increase came during a time when the stock price changed by -6.47% (from 27.5 to 25.72 over the last 30 days).

7. Carrols Restaurant Group, Inc. (TAST): Carrols Restaurant Group, Inc., through its subsidiary, Carrols Corporation, owns and operates quick-casual and quick-service restaurants in the United States. The EPS estimate for the company’s current year increased from 0.75 to 0.83 over the last 30 days, an increase of 10.67%. This increase came during a time when the stock price changed by 8.86% (from 9.37 to 10.2 over the last 30 days).

8. Morton’s Restaurant Group Inc. (MRT): Engages in the ownership and operation of restaurants. The EPS estimate for the company’s current year increased from 0.46 to 0.47 over the last 30 days, an increase of 2.17%. This increase came during a time when the stock price changed by 1.84% (from 5.106 to 5.2 over the last 30 days).

Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


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