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3 Things to Watch in the Stock Market This Week

Demitrios Kalogeropoulos, The Motley Fool

Stocks fell last week, with both the S&P 500 (SNPINDEX: ^GSPC) and the Dow Jones Industrial Average (DJINDICES: ^DJI) declining slightly while remaining in positive territory for the year.

^SPX Chart

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In the new week, shareholders of Winnebago (NYSE: WGO), Kroger (NYSE: KR), and CarMax (NYSE: KMX) will be set to learn more about how business is going at each endeavor. Each of these companies is posting an earnings report over the next few days, and below we'll take a look at the key trends that investors will be watching in those announcements.

Winnebago's expenses

Winnebago stock isn't exactly cruising into its earnings report on Wednesday, with shares down more than 25% so far in 2018. The RV specialist didn't clear up key questions about its business at its last quarterly outing in late March. On one hand, demand was strong, especially for its towable products. However, Winnebago struggled with elevated costs in its core motorized RV division, and management hinted that these challenges would likely continue for at least a few more quarters as Winnebago invests in its manufacturing lines.

Investors will be keeping a close eye on costs this week after rival Thor Industries reported reduced profitability driven by steel and aluminum tariffs. Shareholders should also focus on demand indicators, particularly backlog, for signs that the RV industry is still on pace to log its ninth straight year of expansion. Management said that growth rate might land around 7%, but cautioned back in March that this figure could change significantly due to rising interest rates and increasing cost pressures.

Kroger's profit margin

Kroger, one of the nation's largest retailers, will post its earnings on Thursday morning. The supermarket chain has managed four consecutive quarters of accelerating sales gains, yet its current growth pace, between 1% and 2%, is far from the 5% or more rate that investors witnessed as recently as 2015.

A man with a shopping cart in a grocery aisle, inspecting a jar of olives

Image source: Getty Images.

The good news is Kroger is still gaining market share against rivals like Walmart with help from its online sales and aggressive pricing strategies. Yet these initiatives have significantly reduced the retailer's earnings power, and adjusted profits could decline for the third straight fiscal year in 2018.

CEO Rodney McMullen and his team project that Kroger's sales will inch higher by as much as 2% this year, and they might adjust that projection on Thursday to account for the latest customer traffic trends. But the retailer's long-term profit power will depend on how it manages the transition into multichannel retailing.

CarMax's sales volume

Used-car retailer CarMax will post its earnings report on Friday morning. The company recently wrapped up a tough fourth quarter that was marked by an 8% slump in comparable-store sales. CEO Bill Nash said in early April that sales volumes were impacted by price cuts at new car dealerships, but that management was still "disappointed in our ... performance."

A customer shops for a car.

Image source: Getty Images.

That means the spotlight will be on sales growth this week as investors try to judge whether CarMax's fourth-quarter drop was just a temporary setback. If it was the result of a pricing imbalance between new and used cars, then the issue should correct itself over time.

The company's profitability, meanwhile, has been holding up well, with profit per vehicle staying steady at about $2,100. CarMax is making solid progress at building out its e-commerce infrastructure, too, including a new website functionality that allows a customer to perform almost all elements of a purchase before heading to the lot and collecting their car in as little as 15 minutes.

Growth in that digital channel should be supplemented by an aggressive store growth pace that calls for 15 new lots to be opened in each of the next two fiscal years as CarMax continues building scale in this fragmented industry.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CarMax. The Motley Fool has a disclosure policy.