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Home Depot, Target, Gap, Hewlett-Packard and Salesforce.com are part of Zacks Earnings Preview:

CHICAGO, Aug. 18, 2014 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Home Depot (NYSE:HD-Free Report), Target (NYSE:TGT-Free Report), Gap (NYSE:GPS-Free Report), Hewlett-Packard (NYSE:HPQ-Free Report) and Salesforce.com (NYSE:CRM-Free Report).

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Retail Sector Earnings in Focus

The Q2 earnings season has come to an end for 9 of the 16 Zacks sectors in the S&P 500. Except for the Retail sector, most of the other sectors are close to the finish line as well. We will get results from 95 companies this week, including 19 S&P 500 members.

The Retail sector is heavily represented in this week's reports, with industry leaders like Home Depot (NYSE:HD-Free Report), Target (NYSE:TGT-Free Report) and Gap (NYSE:GPS-Free Report) reporting Q2 results. Notable reports from other sectors include Hewlett-Packard (NYSE:HPQ-Free Report) and Salesforce.com (NYSE:CRM-Free Report).

The Retail sector has been struggling on the earnings front in recent quarters and this reporting cycle has been no different. The heavily promotional environment has been forcing retailers to offer discounts to stay relevant even as they deal with the growing shift to online sales. The big brick-and-mortar retailers have been trying to adjust to this shifting landscape. But as many big-box retailer struggles show, it isn't clear at this stage how the big-box business model will evolve as a result of these industry challenges.

On top of these industry-specific challenges are the issues facing consumers, who have yet to fully recover from the financial crisis. The labor market is no doubt improving, but wage growth has been essentially stagnant, restricting households' buying power. In a nutshell, it has been a tough backdrop for retailers. No doubt the stock-price performance of the retail sector in the S&P 500 has been one of the weakest in the index – down -1.1% vs. a gain of +6.5% for the index as a whole.

With respect to the sector's performance thus far, total earnings for 27 Retail sector companies in the S&P 500 that have already reported Q2 results are up +2.0% on +5.9% higher revenues, with only 40.7% beating earnings estimates and a respectable 55.6% coming ahead of top-line expectations.

The 40.7% earnings beat ratio for the sector is the weakest in the S&P 500 index, matching the sector's under-performance in the preceding quarter. But while Q1 was written off due to weather related issues, there is no handy excuse to fall back upon this time around. Retailers don't have so much of a revenue problem – revenues are good enough. They have a margin problem, with the super competitive retail environment eating into their margins.    

The Q2 Scorecard (as of Friday morning, August 15th)

Total earnings for the 470 S&P 500 members that have reported already are up +8.2% from the same period last year, with a 'beat ratio' of 66.0% and a median surprise of +2.7%. Total revenues are up +4.4%, with a revenue 'beat ratio' of 61.3% and a median surprise of 0.8%.

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