How Will Earnings Impact These 3 Consumer Stocks To Watch This Week?
Retail earnings season has gotten underway. This comes as top consumer stocks like Target (TGT Stock Report), Walmart (WMT Stock Report) and BJ’s Wholesale Club (BJ Stock Report) all surprisingly reported better than expected sales numbers. Investors are dialed in for this reporting period to see how COVID-19 has impacted other players in the industry.
It’s no surprise that the retail industry has been flipped upside down by the coronavirus pandemic, forcing nonessential retail stores to close their doors, while leaving shoppers scrambling to find essential items like food and household cleaning products.
With consumer spending responsible for 70% of the U.S. economy, I think it’s fair to say that retailers have a strong understanding of the trends regarding U.S. consumers. With COVID-19 still very much front and center, it will be crucial for investors to read and listen to the results by management.
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The reasons being, these reports are going to cover the month of April, which we currently have limited information on. We’ll also get to hear insight directly from these retail executives on what they’re seeing. That’s with regard to the current climate around consumer confidence. Obviously, tides have changed drastically since the start of this pandemic.
There have been a few consumer stocks that have been able to maintain or even grow sales during this crisis. Listed below are two consumer stocks to watch for next week’s reporting.
Consumer Stock To Watch #1: Costco
Costco Wholesale Corporation (COST Stock Report) is set to report fiscal third quarter earnings after the closing bell on May 28th. Analysts have reported they expect earnings to increase by 7.9%.
Analysts’ consensus estimate is, Costco will report an EPS of $2.04 and revenue of $37.52 billion. That’s a spike from the numbers last year of $1.89 and $35.4 billion. This would equate to an increase in EPS of 7.9% and a jump in revenue of 6.0%.
Can Costco’s Membership Model Withstand COVID-19?
The company’s membership model has proven to provide a loyal customer base. The company reported membership renewals of 88% globally in its second quarter report. This tells me that Costco’s business model has shown strong customer retention during uncertain times. It also show that the membership model could be recession-resistant.
Can E-Commerce Give Costco Stock The Boost It Needs?
Costco has built up its e-commerce division. Recently, the company acquired its own logistics company, Innovel Solutions. This was done to help support efforts of shipping and delivering things such as furniture and other big items.
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E-commerce sales grew as the fear surrounding the COVID-19 pandemic heightened. According to its April sales report, Costco reported a 1.8% year-over-year revenue drop. This came as stay at home orders and government restrictions impacted its in-store traffic. But its e-commerce division saw a massive 85.7% increase in year-over-year growth.
Costco’s resilience during the midst of the pandemic is encouraging. That’s why it’s #1 on the list of consumer stocks to watch ahead of earnings this week.
Consumer Stock To Watch #2: Dollar Tree, Inc.
Dollar Tree, Inc. (DLTR stock report) is another one of the consumer stocks to watch this week. The company reports its first-quarter fiscal 2020 results on May 28th. Analysts estimate that the discount retailer should report an EPS of $0.92 per share, and revenue at $6.1 billion. This is a 19.3% decline and a 4.5% increase from the prior-year’s reported numbers.
During Dollar Tree’s last earnings call, the company predicted that sales for the fiscal first quarter would seen an effect by the pandemic. Specifically, weaker than expected sales for certain discretionary products due to a lackluster Easter season. This will likely impact the top line revenue during the reporting period. This resulted in management following suit with other companies, withdrawing its first quarter and fiscal 2020 view.
It’s important to note, the company’s gross and operating margins have witnessed drab margins for quite some time. Dollar Tree has seen margins decrease because of an increase in tariffs and distribution costs, higher SG&A, and more occupancy. If the company experiences another increase in costs it will likely show in its Q1 results.
With that being said, the increase in consumer demand for essential goods could be a bright spot for the company. It could see a boost to the company’s top-line performance for this quarter’s earnings report.
What Do Analysts Expect From DLTR Stock This Reporting Period?
Analysts expect the company to report a year-over-year drop in earnings on increasing revenues for the period. DLTR stock may see a pop in activity if key numbers beat expectations. However, if they miss, the stock could see a move to the downside.
Yes, Covid-19 will have a big impact on this reporting period. But, the good news for investors is they will get more clarity about where the U.S. consumer confidence levels are and how these companies have been able to grow their business during some of the most uncertain times our world has ever faced.
Here are other top consumer stocks to watch that are on the calendar to report earnings this coming week: