Earnings season for the most part has come to an end. And for the most part earnings reports were pretty good. As far as the broad market goes, however, “pretty good” wasn’t quite enough.
Indeed, according to Factset data, 79% of the S&P 500 companies that reported earnings beat Street estimates on earnings. 72% topped consensus for revenue. Yet over the last month, the S&P 500 gained just 0.3% — and it still sits below January highs.
Whether it’s external concerns surrounding tariffs and trade, geopolitical worries (among them the Turkey crisis) or simply valuation questions, strong earnings haven’t been enough to drive the market materially higher. But there’s another group of reports on the way that could move one key sector: retail. Most retailers operate with a fiscal year that ends at the end of January, meaning that they report a month later than calendar-year reporting counterparts.
A number of key retailers will report over the next two weeks — with these 3 key earnings reports coming next. The leader of one of the sector’s strongest categories will try to keep its reputation intact. A Chinese giant will look to quell doubters. And a major turnaround play will aim to keep its momentum going. These reports likely will set the tone surrounding the retail sector for at least the next few weeks — and potentially calm, or inflame, some broader market worries as well.
3 Earnings Reports to Watch: TJX Companies (TJX)
Earnings Date: Tuesday, August 21 before market open
Over the past few years, off-price retailers like TJX Companies (NYSE:TJX) mostly have been spared the carnage that has hit many brick-and-mortar retail stocks. But investors still worried that the e-commerce growth spearheaded by Amazon.com (NASDAQ:AMZN) might eventually hit the off-price model. TJX stock was basically flat from early 2015 through late last year, by which point it traded at a rather conservative 15-16x P/E multiple.
But as retail as a whole has rallied since November, TJX and peers have followed. TJX has risen 50% from November lows. Ross Stores (NASDAQ:ROST) has gained over 40%, and smaller rivals Burlington Stores (NYSE:BURL) and Ollie’s Bargain Outlet Holdings (NASDAQ:OLLI) have performed even better.
That seems to leave the sector with very little room for error ahead of a key week. TJX reports on Tuesday morning, followed by Burlington and Ross on Thursday. And the numbers, at this point, likely have to be stellar. Any sign that the off-price channel is weakening — whether in terms of supply or demand from more inventory-focused retailers — could lead the recent gains to at least partially reverse.
Admittedly, I whiffed on TJX late last year, but I still believe at some point, it and its peers may see some pressure. If the group’s earnings reports for fiscal Q2 show even a hint of weakness, that pressure may come next week.
3 Earnings Reports to Watch: Target Corporation (TGT)
Earnings Date: Wednesday, August 22, before market open
Target (NYSE:TGT) seems to have a reasonably important Q2 report ahead of it. TGT stock is trading at its highest level in over two years. A turnaround narrative has taken hold, with the stock already up 26% so far this year.
Rival Walmart (NYSE:WMT) posted a strong fiscal Q2 report itself, with its best same-store sales in over a decade. So the obvious question is whether Walmart is simply benefiting from a solid economy or if its omnichannel investments have allowed it to start taking share from Target.
Here too, it looks like any weakness will be punished. But a Q2 beat could be good news for Target stock. Operating margins remain thin, and signs of further improvement could boost investor optimism. I wrote in June that there was a relatively straight path for TGT to clear $100 — assuming execution and strategy fulfilled market expectations. Q2 can either be a step down the path or a warning sign that the path might be closed.
3 Earnings Reports to Watch: Alibaba (BABA)
Earnings Report Date: Thursday, August 22, before market open
Unlike U.S. retail plays, Chinese e-commerce giant Alibaba (NYSE:BABA) isn’t trading near the highs — or even close. BABA has dropped 19% from June highs as trade war concerns, a weakening yuan, and a bear market in Chinese stocks have pushed Alibaba stock near its lowest levels in almost a year.
As such, Alibaba’s earnings report would seem likely to be good news. BABA stock is trading near multi-month support levels around $165. History suggests an earnings beat is likely. A strong quarter would seem to remind investors that this is a high-growth stock trading at less than 22x forward earnings.
We’ll see. As I wrote earlier this month, Alibaba stock isn’t quite as cheap as it appears. And I’m not sure investors are ready to embrace Chinese stocks just yet. The same bull case could have been made for rival JD.com (NASDAQ:JD) heading into its Q2 report last week. JD posted a decent, if mixed, quarter — and that stock is at a 52-week low.
It’s going to take a huge quarter for BABA to shake off the market’s concerns. That said, if any mega cap can post a huge quarter, it’s Alibaba.
As of this writing, Vince Martin has no positions in any securities mentioned.