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The earnings calendar turns to retail next week. And that might not be a good thing for the sector.
To be sure, Walmart (NYSE:WMT) did post a strong Q2 report on Thursday, with raised full-year guidance leading WMT stock to rally 6%. But that followed a disastrous report from Macy’s (NYSE:M), which cut its outlook and saw its stock plunge to a post-financial crisis low.
That split isn’t a surprise to anyone who has followed the retail industry in recent years. Those companies with the scale to manage through a quickly changing environment have been able to at least survive, if not thrive. (Walmart stock, for instance, has roughly doubled from late 2015 lows.) Smaller operators, with few exceptions, have taken a beating.
Earnings reports next week seem unlikely to change that trend. But specialty retailers like Gap (NYSE:GPS) and department store operators Kohl’s (NYSE:KSS) and Nordstrom (NYSE:JWN) will do their best to fight the tide. Meanwhile, three more leaders in the sector will try and keep pace, while a struggling tech giant attempts a turnaround of its own. Broad markets will struggle with their own external challenges, but retailers, in particular, have a big week ahead.
Home Depot (HD)
Earnings Report Date: Tuesday, Aug. 20, before market open
Fiscal second-quarter earnings from Home Depot (NYSE:HD) will be closely watched. After all, Home Depot sits at the intersection of several of the fears rattling the market right now. Investors are worried that a recession is coming: Any weakness in consumer demand could be reflected in Home Depot sales.
Increased — and then delayed — tariffs have amplified those cyclical concerns. Home Depot said after Q1 that it was working to mitigate the impact of those duties, but still forecast a potential impact of $1 billion annually.
HD stock already has pulled back about 8% amid those worries. Any weakness in Tuesday morning’s report could add to the declines.
Meanwhile, rival Lowe’s Companies (NYSE:LOW) follows on Wednesday. If both reports disappoint, that would be a signal that even two of the country’s strongest retailers aren’t immune to external factors. And that would be a big problem for the rest of retail, and maybe even the rest of the market.
Earnings Report Date: Wednesday, Aug. 21, before market open
For Target (NYSE:TGT), Wednesday morning’s report will help answer which side of the retail divide the company sits. Is Target a real competitor to the likes of Walmart and Amazon (NASDAQ:AMZN)? Or is it not quite large enough, or strong enough, to completely determine its own destiny?
Trading in TGT stock over the past few quarters shows that investors haven’t quite figured out which side to take. Target stock touched $90 less than a year ago and was at $60 three months later. A 25% rally so far this year shows some confidence, while an ~8% drop in recent weeks (not coincidentally similar to that of HD stock) reflects the rising external risks.
And so this seems like an important, and maybe even crucial, earnings report for Target. Walmart’s blowout quarter sets the bar high. Target has tariff and macro issues of its own. The stock is cheap enough that it can rise if margins keep expanding. But it’s expensive enough that it can fall if they don’t.
In short, the question is whether Target is a retail leader? Wednesday’s report will help answer that question.
Source: Sundry Photography / Shutterstock.com
Earnings Report Date: Thursday, Aug. 22, after market close
Key earnings reports next week go beyond the retail space. Software developer VMWare (NYSE:VMW) has an important report on Thursday afternoon. And it won’t just impact VMW stock.
VMWare earnings will move shares of Dell Technologies (NASDAQ:DELL) whose majority stake in VMWare is worth more than its current market capitalization. (Dell has earnings of its own, but VMWare numbers will be the big mover.) Meanwhile, the company’s reported interest in Pivotal Software (NYSE:PVTL) could be a topic of conversation on the post-earnings conference call.
But the Pivotal deal and Dell’s potential plans for its VMW stake are just noise. VMWare simply has to stem the bleeding. The stock has dropped by 30% just since May. Here, too, cyclical fears are a factor, but soft fiscal first-quarter earnings in late May didn’t help the cause. At 20x forward earnings, VMWare stock can rally if the company can deliver. At the moment, however, that seems like a big if.
As of this writing, Vince Martin is long shares of Gap, Dell and is short call options in VMWare.
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