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The second quarter corporate earnings season is starting to run out of steam, but a host of retailer earnings should still be the focus this week. A large number of reports on housing in the United States will also be released, including data on housing starts, building permits and sales of existing homes.
Retail Results
This week’s corporate earnings results schedule will cover big box retailers Walmart and Target, home improvement giants Home Depot and Lowe’s, as well as a host of other names in the industry, including parent company Kohl’s. TJMaxx TJX Companies, L Brands and Ross. Stores.
The results come against a difficult backdrop for many retailers during the pandemic period, with the outbreak and forced shutdowns of physical businesses that have pushed dozens of big names, including Lord & Taylor, Tailored Brands and Ascena Retail Group, to file for bankruptcy in recent weeks. . The pandemic favored retailers who had already built strong e-commerce operations, widening the gap between those with and without robust omnichannel positioning.
To that end, both Target and Walmart should be watched closely, after the two companies reported exceptional sales results in the first quarter, as customers flocked to those stores’ websites to purchase products. produced during the pandemic.
In its first fiscal quarter ended May 2, Target reported digital sales that jumped 141% from last year, and April alone saw online sales increase 282%. All methods of purchase combined, Target’s first quarter sales increased 10.8%.
Walmart, for its part, posted same-store sales growth of 10% in the first quarter, its largest increase in nearly two decades. Its e-commerce sales grew 74% in the three months ended April 30.
For their fiscal second quarter, Target and Walmart are expected to increase sales again year over year. However, those increases have likely occurred at a decelerating rate, as consumer home storage declined after the peak of the virus-related shutdown in the United States in the spring. Walmart’s second-quarter revenue is expected to have grown 4% from a year ago to $ 135.5 billion, following a 9% jump in the last quarter. And Target’s revenue has likely slowed to an 8% growth rate from a year ago to $ 19.86 billion, a growth rate three percentage points lower than its first quarter.
The profitability of both companies, however, will likely remain under pressure in both companies, with consumers focusing on purchasing low-margin items like paper goods, food and other necessities, as opposed to higher margin items such as higher priced clothing and discretionary items. during the pandemic. Rising fulfillment costs due to increased e-commerce sales also reduced profitability, and gross profit margins at Target and Walmart declined in the first quarter compared to last year.
For its fiscal second quarter, Target’s adjusted profit is expected to fall 13% from a year ago to $ 1.59 per share. However, that percentage drop would be a big improvement over the 61% drop in earnings per share the company posted in the first quarter. For Walmart, adjusted earnings are expected to fall 2% from a year ago to $ 1.25 per share, following a 4% increase in adjusted earnings per share in the first quarter.
Meanwhile, as part of other retail earnings this week, Wall Street analysts and market participants will also be following the results and commenting on company inventory levels, with business closings in the spring contributing to a slump. glut of unsold items in many stores. This prompted retailers to sell items at discounts to entice shoppers to purchase surplus items, which reduced profitability. Ross Stores executives said in May that they expected the majority of markdown activity to occur in the second fiscal quarter.
A man walks near a sign advising customers that face masks are required outside a Walmart store in Washington, DC on July 15, 2020 (Photo by ANDREW CABALLERO-REYNOLDS / AFP) (Photo by ANDREW CABALLERO-REYNOLDS / AFP via Getty Images)
Housing data
On the economic data front, reports on the state of the US housing market will also serve as the focal point this week.
Each of these reports should reflect the continued recovery in the housing market from the lows in March and April. Low interest rates, a decelerating rise in house prices, and a resumption of construction and home tourism activities after virus-related closures have contributed to a relatively rapid rebound in housing market activity . At the end of July, economists at the Bank of America called the housing market a “shining star” in the US economy.
Housing starts, which show the pace of new home construction and are expected to be released on Tuesday, are expected to have increased 4.6% in July month over month. This follows a 17% jump in June, which marked the largest month-over-month increase in nearly four years. Such a result for July would bring the seasonally adjusted annualized housing starts rate to 1.24 million – a significant increase from the April low of 934,000, but still lower than in February, as housing starts were 1.6 million.
Tuesday’s printing of building permits is expected to show acceleration from July. Consensus economists expect forward permits, an indicator of future home construction, to rise 4.9% month-over-month to an annualized rate of seasonally adjusted $ 1.32 million . That would extend June’s 3.5% jump, but still leave permits below their pre-February pandemic level of over 1.4 million.
Existing home sales will round out the week in economic data on Friday. Consensus economists expect sales of previously owned homes to increase 14.4% in July from June, to a seasonally adjusted annualized rate of 5.4 million, after the record monthly increase of 20, 7% from June to 4.72 million.
“Covid-19 has pushed back the spring sales season, but buyers seem poised to make up for lost time,” Sam Bullard, senior economist at Wells Fargo Securities wrote Friday. “Although the level of sales remains depressed after a cumulative decline of 32.1% over the previous three months, sales likely continued to rebound in July.”
“The housing market remains a rare strength in this young economic recovery. Even during the months of foreclosure, demand for housing appears to remain robust, ”he added. “While changing preferences and demographics should continue to support the housing market, the sector is not without headwinds. Low inventories continue to put upward pressure on prices, while rising mortgage delinquency and the use of forbearance have led to stricter lending standards.
Earnings calendar
Monday: N / A
Tuesday: Advance Auto Parts (AAP), Home Depot (HD), Kohl’s (KSS), Walmart (WMT), Analog Devices (ADI) before the market opens; Jack Henry & Associates (JHY) after market close
Wednesday: Lowe’s (LOW), Target (TGT), TJX Companies (TJX) before the market opens; L Brands (LB), Nvidia (NVDA) after market close
Thursday: Alibaba (BABA), Estée Lauder (EL), BJs Wholesale Club Holdings (BJ) before the market opens; Ross Stores (ROST) after market close
Friday: Deere (DE), FootLocker (FL) before the market opens
Economic calendar
Monday: Empire Manufacturing, August (15.0 expected, 17.2 in July); NAHB Housing Market Index, August (74 expected, 72 in July); Long-term net ICT flows, June ($ 127.0 billion in May); Total net ICT flows, June (- $ 4.5 billion in May)
Tuesday: Housing starts, July (1.24 million forecast, 1.186 million in June); Building permits, July (1.3 million expected, 1.258 million in June)
Wednesday: MBA mortgage applications, week ended August 14 (6.8% the previous week); Minutes of the FOMC meeting, July meeting
Thursday: Philadelphia Fed Trade Outlook Index, August (21.0 expected, 24.1 in July); Initial unemployment claims, week ended August 15 (expected 925,000, 963,000 the previous week); Continuing jobless claims, week ended August 8 ($ 15.486 million the week before); Leading index, July (1.0% expected, 2.0% in June)
Friday: Markit US Manufacturing PMI, August preliminary (52.0 expected, 50.9 in July); Markit US Services PMI, August preliminary (50.8 expected, 50.0 in July); Markit US Composite PMI, August preliminary (50.3 in July); Sales of existing homes, July. (5.4 million expected, 4.72 million in June)
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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