Some retailers could report record earnings when they post first-quarter financial results over the next few days, thanks to the return of consumer demand and continued cost cuts.
"We are talking about all-time first-quarter highs," says Craig Johnson, the president of Customer Growth Research. "It won't be just top-line growth, but huge jumps in the bottom line."
The expectation makes perfect sense, given the deeply depressed levels to which profits fell in the first quarter of 2009. The only place left to go is up.
Shoppers gave retailers a satisfactory spring selling season, prompting several companies to raise their earnings outlooks on May 6. Same-store sales in April were weaker than March's blowout numbers because of the earlier Easter this year.
Overall revenue at stores open at least a year rose 0.8% last month, compared with a 2.7% decline a year earlier, according to the International Council of Shopping Centers Index of 30 retailers. The index showed a 9% gain in March, the largest in 11 years.
Investors will be most interested in guidance updates, which came from several companies this week, including Macy's (M, news, msgs), Target (TGT, news, msgs) and J.C. Penney (JCP, news, msgs).
Stability and cautious optimism will no longer be enough. Most of the good news in the retail sector seems to already be factored into share prices; the retail group has run up 25% year to date.
"With stocks where they are, all of the retailers will need to put out some big (earnings) numbers to satisfy investors," says Chandi Neubauer, an analyst at Majestic Research.
With that in mind, here are several stocks poised to do just that:
Target appears to be benefiting from possible weakness at Wal-Mart Stores (WMT, news, msgs), which reported a decine in traffic in the fourth quarter.
Now the big question is whether Wal-Mart regained customers in the wake of its aggressive price rollbacks. If not, it is highly likely that shoppers migrated from Wal-Mart to Target, says Wall Street Strategies analyst Brian Sozzi.
Target's discretionary categories, -- home goods and apparel -- have seen significant improvements. The discounter recently launched fashion and accessory lines from high-profiled designers including Zac Posen, Cynthia Vincent and Eugenia Kim.
As the demand for apparel grows, and Target's P-Fresh food section is being received favorably, shoppers may chose to pay slightly more for groceries if they can pick up trendy apparel in the same place.
In offering its upbeat earnings outlook, the Minneapolis company cited strong sales of women's clothing, home furnishings and other high-profit categories. Analysts are calling for Target to post earnings of 85 cents a share on revenue of $15.61 billion when it reports on May 19.
Nordstrom is among the few department stores, along with Saks (SKS, news, msgs), expected to post positive April same-store sales, as it faces easy comparisons.
The high-end retailer is planning on opening an off-price Nordstrom Rack store in New York City's Union Square this month, Johnson says. Lines at the store are expected to stretch around the corner when it opens, giving the company a major boost.
Nordstrom's personal shopper program, flexible return policy and breadth of inventory are expected to help drive sales, Citigroup analyst Deborah Weinswig wrote in a note.
Wall Street predicts a first-quarter profit of 55 cents a share on revenue of $1.95 billion. The company is scheduled to post earnings May 13.
Aeropostale (ARO, news, msgs) continues to win with its trend-right merchandise and value message.
Click graphic for interactive chart
Aeropostale
The New York company, which operates about 960 stores, now expects earnings per share of 46 cents in the first quarter, up from previously raised guidance of 44 cents.
The key for Aeropostale going forward, says Majestic Research's Neubauer, will be how much it beefs up inventory levels in order to drive the top line.
Continued: Costs cut, profits raised
More from MSN Money and TheStreet.com
- 10 bulk-buying bargains
- Retail takeover rumors run rampant
- The new way marketers make you buy
- 4 new smart phones with top-notch cameras
- Should you live like 'The Waltons'?
- The iPhone's top 5 challengers
