This week is set to see an array of second-quarter earnings releases from retail bigwigs. There isn’t a better group to test the strength of the U.S. consumers.
Notably, the pandemic has compelled brick-and-mortar businesses to shut down and pushed many retailers to file for bankruptcy in recent times. J.C. Penney has filed for Chapter 11 bankruptcy protection and closed more than 242 stores. Similarly, major retailers like Neiman Marcus, J. Crew, True Religion and GNC faced bankruptcy issues. What’s more, most of the stores were opened for lesser number of hours, meaning less opportunity to ring up sales, something that nearly all retailers experienced. The pandemic, however, favored retailers that had strong e-commerce operations and a robust omni-channel strategy.
Nonetheless, some analysts believe that the unemployment benefits and checks that the U.S. government provided during the quarter may have motivated consumers to spend, thereby boosting retail sales. But the GDP data for the second quarter showed a record 34.6% drop in consumer outlays on an annualized basis and an overall 32.9% drop in GDP on an annual pace, the economy’s worst since 1875, according to the Bureau of Economic Analysis. And with consumer spending declining, things may not look up for retailers for the said quarter.
And with that in mind, let us take a look at how the three big-box retailers, The Home Depot, Inc. (HD - Free Report
) , Walmart Inc. (WMT - Free Report
) and Target Corporation (TGT - Free Report
) fare when they announce fiscal second-quarter earnings results over the next few trading days –
Home Depot is scheduled to report results on Aug 18, before market open. Expectations are running high for Home Depot’s earnings results, with its stock roaring into the release, up 28.6% year to date, nearly doubling from March lows.
Primarily, the coronavirus pandemic has led to an exodus from the cities, and subsequently higher demand for homes in the suburbs, and in turn for home improvement products and services. Thus, higher demand for homeownership is expected to overshadow the negative impacts of higher unemployment and negative macroeconomic growth.
But the pandemic has certainly bumped up costs of labor and cleaning. However, the company’s initiative to venture into online platform did provide a boost to its sales volume in the said quarter. Moreover, Home Depot kept most of its stores open, so its sales growth is expected to be stronger compared to peers who have mostly closed their stores.
The company’s earnings are also expected to have improved for the said quarter as Home Depot’s interconnected retail strategy and underlying technology infrastructure have been more relevant amid the coronavirus crisis, delivering record web traffic for weeks without disruption.
The company’s expected revenues for the fiscal second quarter is $34.42 billion, indicating an increase of 11.6% from the year-ago period. Similarly, earnings per share are expected to come in at $3.71, indicating a year-over-year increase of 17%.
Walmart is set to announce results on Aug 18, before market open. The importance of Walmart’s earnings to the market is obvious, as it is the biggest retailer in the United States. The retail giant’s earnings report, no doubt, will give the clearest picture on how the retail industry has reacted to the pandemic.
Social-distancing measures in the second quarter led consumers to stay indoors and only step out for essentials. This has spiked demand for Walmart’s consumer staple items like groceries, toilet paper, disinfectants, masks, gloves, packaged water and medicines for infants. As a result of the surge in demand, Walmart’s revenues are expected to have improved in the said quarter.
Walmart has also gained from its sturdy comps record, which in turn is driven by its constant omni-channel efforts. Lest we forget, the company posted positive comps in the U.S. division for the last 23 straight quarters.
Nonetheless, the company’s profit margin for the fiscal second quarter is expected to have been under pressure as the shift away from in-person shopping toward contactless home delivery has resulted in huge cost spikes.
The company’s revenues for the fiscal second quarter are estimated at $134.23 billion, indicating an increase of nearly 3% from the year-ago period. But the company’s earnings per share are expected to come in at $1.20, indicating a year-over-year decrease of 5.5%. Having said that, the Zacks Rank #3 company has an Earnings ESP of +1.67%.
Target is scheduled to report results on Aug 19, before market open. It has already provided some evidence of success amid the pandemic in its first-quarter report in May. Its first-quarter sales improved 11% year over year, and the same positive results are expected in its second-quarter announcements.
To be fair, Target’s digital business is the one that investors are betting onright now. After all, the COVID-19 pandemic led to an increase in online shopping demand. Lest we forget, Target’s digital demand growth accelerated heading into the fiscal second quarter earnings season. Its digital growth rose from 33% in February to 282% in April.
At the same time, Target’s initiatives, including the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores should certainly have improved sales in the said quarter. But the company also saw surging costs related to shift toward digital spending, which might have weighed on earnings.
The company’s expected revenues for the fiscal second quarter is $19.91 billion, indicating an increase of 8.1% from the year-ago period. But the company’s earnings per share are expected to come in at $1.56, indicating a year-over-year decline of 14.3%. Nevertheless, the Zacks Rank #3 company has an Earnings ESP of +13.85%.
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