Genesco (GCO), the seller of footwear, hats, clothing, and accessories, is gearing up to release its earnings for the quarter ended July 2024 on September 6th. Wall Street analysts anticipate a decline in both earnings and revenues year-over-year. While this consensus outlook provides a valuable starting point, the stock’s immediate price reaction could be heavily influenced by how the actual results measure up to these expectations. If Genesco exceeds these estimates, the stock could experience an upward surge. Conversely, a miss could lead to a downward movement.
While the sustainability of the initial price change and future earnings forecasts will largely depend on management’s commentary during the earnings call, it’s worthwhile to analyze the likelihood of a positive earnings surprise.
Zacks Consensus Estimate
The consensus expectation is for Genesco to report a quarterly loss of $1.12 per share, representing a year-over-year decline of 31.8%. Revenue is projected to reach $512.19 million, down 2.1% from the same period last year.
Estimate Revisions Trend
The consensus EPS estimate for the quarter has been revised upward by 9.68% over the past 30 days, reaching its current level. This adjustment reflects the collective reassessment of initial estimates by covering analysts during this period. It’s essential to remember that the individual revisions made by each analyst may not always be reflected in the aggregate change.
Earnings Whisper
Estimate revisions ahead of a company’s earnings release offer valuable insights into the business conditions during the period under review. Zacks Earnings ESP (Expected Surprise Prediction) is a proprietary model that leverages this insight. It compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate represents a more recent version of the Zacks Consensus EPS estimate. The underlying principle is that analysts revising their estimates right before an earnings release have access to the latest information, potentially making their predictions more accurate than earlier consensus estimates. Therefore, a positive or negative Earnings ESP reading theoretically suggests a potential deviation of actual earnings from the consensus estimate. However, the model’s predictive power is demonstrably significant only for positive ESP readings.
Positive Earnings ESP: A Key Indicator
A positive Earnings ESP acts as a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Research indicates that stocks exhibiting this combination achieve a positive surprise nearly 70% of the time. A solid Zacks Rank further enhances the predictive power of Earnings ESP. Importantly, a negative Earnings ESP reading does not reliably indicate an earnings miss. Research shows that predicting an earnings beat with confidence is challenging for stocks with negative Earnings ESP readings or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).
Genesco’s Outlook: A Potential Beat?
In Genesco’s case, the Most Accurate Estimate surpasses the Zacks Consensus Estimate, suggesting that analysts have recently grown optimistic about the company’s earnings prospects. This has resulted in an Earnings ESP of +3.14%. Furthermore, the stock currently holds a Zacks Rank of #1. This combination suggests a strong likelihood of Genesco exceeding the consensus EPS estimate.
Earnings Surprise History: A Past Indicator
Analysts often consider a company’s past earnings surprise history when calculating estimates for future earnings. It’s beneficial to examine this history to gauge its influence on the upcoming results. In the last reported quarter, Genesco was expected to post a loss of $2.66 per share but delivered a loss of $2.10, exceeding expectations by +21.05%. Over the past four quarters, the company has beaten consensus EPS estimates twice.
Bottom Line: Beyond the Numbers
While an earnings beat or miss may not be the sole determinant of a stock’s direction, it certainly carries significant weight. Many stocks experience declines despite exceeding earnings expectations due to other factors that disappoint investors. Conversely, unforeseen catalysts can propel a number of stocks upward even with an earnings miss. Nonetheless, placing bets on stocks expected to beat earnings expectations enhances the odds of success. This is why examining a company’s Earnings ESP and Zacks Rank before its quarterly release is crucial.
Genesco appears to be a compelling candidate for an earnings beat. However, investors should remain mindful of other factors as well before making a decision to buy or sell the stock ahead of its earnings release.
J.Jill: A Contrast in Expectations
Another company in the Zacks Retail – Apparel and Shoes industry, J.Jill (JILL), is also expected to announce its earnings soon. The consensus estimate for the quarter ended July 2024 is for earnings of $0.94 per share, a year-over-year decline of 14.6%. Revenue for the quarter is projected to reach $155.13 million, down 0.4% from the same period last year. The consensus EPS estimate for J.Jill has remained unchanged over the past 30 days. However, a lower Most Accurate Estimate has resulted in an Earnings ESP of -1.33%. When combined with a Zacks Rank of #3 (Hold), this Earnings ESP makes it difficult to definitively predict whether J.Jill will surpass the consensus EPS estimate. The company has beaten consensus EPS estimates in each of the trailing four quarters.
