If last week was a sneak preview of what’s to come in the next five days of earnings reports, investors might be best off plugging their ears and closing their eyes.
Macy’s (ticker: M) slumped 15 percent after reporting its fifth consecutive revenue decline, Kohl’s Corp. (KSS) dropped off 9 percent on its worst comps since 2009, and even higher-end Nordstrom (JWN) wasn’t immune, collapsing more than 13 percent last Friday as profits plummeted. JCPenney Co. (JCP) shed nearly 10 percent in the week leading up to its Friday announcement, so while it “only” dropped 3 percent following its earning statement, it hardly walked away unscathed.
That and other weak reports were enough to drive the SPDR S&P Retail exchange-traded fund (XRT) 5 percent in the hole in just five days. Not great news, considering that this week’s most anticipated reports will come from some of the biggest names in retail.
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Here are five stocks that should be on your radar this week:
Wal-Mart Stores (WMT). Wal-Mart enters its first-quarter earnings report looking much weaker than it did just a few weeks ago, when it was up 14 percent for the year and among the Dow Jones industrial average’s best components. That’s in part because of a sudden 5 percent drop in WMT last week.
In a way, though, this might be a blessing in disguise for Wal-Mart when it reports Thursday before the opening bell.
Wall Street already isn’t expecting much out of the big-box retailer, with earnings expected to dip 14 percent to 89 cents per share, on sales expected to dip 1.5 percent to $113.14 billion. Between the losses sustained last week and that low bar, a beat is certainly more doable, and anything positive could spur a recovery.
Still, it’s unsure just how likely a beat is, considering a few things Wal-Mart has in the cooker. For one, costs are soaring as WMT slowly raises its wages (it hiked its pay to $10 per hour in February) and pumps money into its e-commerce efforts to fend off Amazon.com (AMZN). Moreover, Wal-Mart plans on closing 269 stores, and it’s actually moving staffers back to the greeter position and also have some employees check receipts — an admission that theft must be having a significant impact on the bottom line.
Target Corp. (TGT). Wal-Mart’s rival will report a day prior, on Wednesday before the bell. Like Wal-Mart, Target suffered mightily last week (dropping 6 percent), but it has a separate issue of its own.
That would be Target’s stance in support of transgender rights, in response to a North Carolina law passed that requires transgender people to use a bathroom that corresponds to their birth gender. Target says transgender people can use the bathroom that matches the gender they identify with.
That sparked a boycott that has now been signed by 1.2 million people, as well as a number of protests — and TGT shares are off 12 percent since the company announced its stance.
Just a little less than two weeks’ worth of sales could be affected for the quarter about to be reported, which ended April 30 — bad news considering that while TGT is expected to grow earnings 9 percent in the period, sales already were projected to decline 4.7 percent.
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It’s possible that enough negativity has been baked into shares already, but with Target CEO Brian Cornell refusing to yield, investors have reason to keep worrying regardless of what first-quarter earnings show. A YouGov BrandIndex report says the number of consumers who consider shopping at Target is on the decline, says BusinessInsider’s Hayley Peterson, as is consumer perception of the brand.
Home Depot (HD). If there’s a bright spot for retail this week, it might come from Home Depot.
The home-improvement retailer is hardly looking strong this year as a whole, just fractionally in the black for the year-to-date. But it has rebounded well out of the February trench, and it didn’t suffer nearly the pain that more traditional retailers did last week.
Home Depot is expected to post robust earnings growth of 16 percent for the first quarter on revenues that should improve by 7 percent. And Jeffries analyst Daniel Binder thinks there’s a good chance that it and rival Lowe’s Companies (LOW) could beat Wall Street’s estimates. In fact, thanks to a warm remodeling season, Benzinga reports, Binder upped his earnings projections and price targets for both stocks. Specifically, Binder sees HD earning $1.40 per share, up from its mark of $1.32 per share.
But does that mean a big bounce is coming? “We are now above the Street on both names, but for shares to move higher on the prints, they will likely have to see big beats,” Binder says.
That might prove difficult for Home Depot, which has only registered small beats and even one match of earnings estimates over the past four quarters.
Staples (SPLS). Staples is in a world of hurt, and its first-quarter earnings report out Wednesday morning is really the least of its problems.
Still, investors will want to see that the company can generate some sort of directional positivity on its own, given that it won’t be merging with Office Depot (ODP) anytime soon.
A federal judge last week knocked down a proposed merger between the two office supply giants, saying that the marriage would “substantially impair competition” in the industry. The problem? Both companies were struggling plenty on their own, thanks to the encroaching danger of Amazon. Staples in specific has watched revenues dwindle year after year, with sales of $21.1 billion last year marking a 15 percent decline since 2012.
The slow bleed is expected to continue this quarter, with projected earnings of 16 cents per share a penny off last year’s number, and revenues estimated to decline 3.3 percent to $5.1 billiion — en route to another annual decline this year (2.7 percent) and yet another in 2018 (0.8 percent) if Wall Street is right.
Staples’ plan for now? Just about everything, actually. The plan to sell off its large corporate contract business (meant to help grease the wheels for the ODP merger) is off, and it also will pursue more small-company business. However, it will explore options for its European business and close 50 stores in North America.
Staples also was dealt a goodbye kick, as it’s required to pay $250 million — or nearly 30 percent of its current cash hoard — to Office Depot as a breakup fee.
Cisco Systems (CSCO). Cisco doesn’t sell T-shirts, groceries, ink toners or garden shears, but its prospects for its fiscal third quarter look just as anemic as the retailers on this list. Wall Street expects CSCO to grow earnings less than 2 percent on revenues that should decline by more than 1 percent.
But Cisco might have enough in the tank to get over those low estimates Wednesday afternoon.
In a note reiterating his “buy” rating on CSCO, Citi analyst Jim Suva expects a mostly positive quarter. “Cisco is profiting from three of technology’s fastest growing trends, cyber security, data analytics and IoT,” Suva says, specifically expecting growth in SourceFire products to help offset weakness elsewhere. Security was a strong point in the second quarter as well, leading product revenue growth with an 11 percent spike in sales.
And the company’s second-quarter slowdown in data center sales, which saw growth fall from 24 percent in the first quarter to just 3 percent, was likely less a harbinger of things to come, and more just an effect of having to follow up a 40 percent improvement in the year-ago period.
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Even if CSCO does disappoint, expect shares to be buoyed longer-term by Cisco’s continued policy of stuffing cash in investors’ pockets. Last quarter, the company tacked another $15 billion in share repurchases onto a previously $97 billion buyback program, and it hiked its dividend by 24 percent, giving it a yield of nearly 4 percent at current prices.
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Retail Earnings Are in the Spotlight (WMT, TGT) originally appeared on usnews.com
