US Retailer Rundown: Earnings Reports Show COVID-19 Accelerating Trends
Matt Weller, CFA, CMT May 20, 2020 12:02 AM
Outside of the hospitality and tourism industry, perhaps no major group of US companies has borne the brunt of the COVID-19 pandemic more than brick-and-mortar retailers.
Q1 earnings season is winding down, with over 90% of the companies in the S&P 500 having reported earnings as of last week, but there’s still one key group to watch in this week’s reports: retailers.
Outside of the hospitality and tourism industry, perhaps no major group of US companies has borne the brunt of the COVID-19 pandemic (and the associated economic disruptions) more than brick-and-mortar retailers. While an immediate spike to double-digit unemployment represents a massive headwind for all retailers, the national/international large-capitalization firms that investors will be watching this week are in a far better position to weather the proverbial storm than their small business peers, many of which will never reopen.
This “between a rock and a hard place” narrative has already played out in the earnings reports of some of the high-profile names that have reported earnings already this week:
Walmart (WMT) shares are on the rise in today’s trade after the big-box retailer reported a +10% rise in same store sales and an impressive 74% increase in e-commerce sales. Overall, the company saw $1.18 in adjusted EPS and $134.6B in revenue for the quarter. After hiring an additional 200k employees last quarter, investors believe that Walmart may be poised to benefit regardless of what happens with the virus and economy moving forward.
Home Depot (HD) failed to impress traders with its Q1 results. The home improvement retailer did report a solid 7% increase in revenues, but pandemic-related costs ultimately led to a lower-than-expected $2.08 print in EPS. The company also suspended its full-year outlook, prompting traders to take the stock almost -2% lower this morning.
Kohl’s (KSS) reported an ugly -43.5% drop in net sales through Q1, resulting in a -$3.50 loss per share. The company’s CEO, Michelle Gass, noted “We know this experience will have a lasting impact to customer behavior and the retail landscape,” but cited the company’s strong financial position (including $2.5B in cash and revolving credit) as a bullish sign. The stock is trading up 2% in early trade today.
In a different area of the retail realm, Advance Auto Parts (AAP) missed analysts’ earnings estimates by a country mile, reporting just $0.91 in EPS vs. $1.73 expected, with comparable store sales falling by -9.3%, more than anticipated. Nonetheless, the stock is rallying by 6% as of writing, perhaps on investor hopes of more demand for automobiles over public transportation as economic activity resumes despite the lack of a vaccine for COVID-19.
As the chart below shows, the stocks of these companies run the gamut from testing new record highs (WMT and HD), muddling along at low levels (KSS), and starting to recover back toward pre-crisis levels (AAP):
Source: TradingView, GAIN Capital
Looking ahead, the rest of this week’s key US earnings reports will also be in the retail sector:
- Home Depot rival Lowe’s Companies (LOW) reports before the bell tomorrow, with analysts expecting $1.30 in EPS
- Walmart rival Target (TGT) is expected to report $0.73 in EPS at the same time.
- Speciality retailers Ross Stores (ROST) and TJX Companies (TJX) are on tap for Thursday, with estimates set at a $0.07 gain in EPS and a -$0.16 loss respectively. These firms are more in the mold of Kohl’s, and are likely to see a sharp decline in business due to the massive economic disruption.
- Finally, Foot Locker (FL) reports Q1 earnings Friday morning, with analysts setting the bar at just $0.11 in EPS this quarter.
For traders, the most actionable takeaway for this week may be to stick with what’s working. In many ways, the COVID-19 pandemic has accelerated existing trends, such as the shift away from physical locations to online shopping and the importance of omnichannel distribution, and even as the US economy gradually “opens up,” it’s hard to imagine the tramautized populace piling into crowded physical locations to browse expensive designer clothes or scout for a third pair of vanity sneakers any time soon.
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.