Wedbush Previews Retailers, Recommends Ross Stores Ahead Of Earnings

Morry Brown of Wedbush previewed Ross Stores, Inc. ROST, TJX Companies Inc TJX and Zumiez Inc. ZMZ ahead of their earnings reports.

Ross Stores: Favorite Name

Ross Stores is Brown's favorite name heading into the third quarter given the company's conservative guidance and market share gains. The analyst expects the company to report an earnings per share of $0.89 due to a "favorable buying environment" that will support margins, a view that the analyst believes isn't fully factored in to consensus estimates.

TJX: Less Room For Top-Line Upside

According to Brown, TJX laps its toughest comparison of the year in the third quarter and the company has exposure to unfavorable foreign exchange rates. As such, the analyst sees less room for top-line upside compared to Ross Stores.

However, Brown does note that the company's gross margin guidance for flat to down 30 basis points appears to be "quite conservative," especially in the favorable buying environment.

Brown is projecting TJX to earn $0.87 in the third quarter.

Zumiez: Fourth Quarter Guidance A Concern

Brown expects the company to earn $0.53 in the third quarter, in-line with the consensus estimate. However, the analyst notes that there may be "modest headline risk" on the company's fourth quarter guidance.

Brown explains that the company issued "cautious" guidance during its second quarter conference call, resulting in the stock dropping 8 percent. The analyst adds that the company's management typically issues conservative guidance and may guide its fourth quarter on a low-digit comp expectation, vs. the analyst's projections of a 4 percent to 5 percent comp increase.