With warning signs already flashing on the health of the US consumer, quarterly earnings from big-box and budget retailers this week will be examined for insight into the depth and duration of the economic slowdown.
(Bloomberg) — With warning signs already flashing on the health of the US consumer, quarterly earnings from big-box and budget retailers this week will be examined for insight into the depth and duration of the economic slowdown.
The likes of Best Buy, Costco and Dollar Tree are expected to echo the cautionary note sounded last week by retail peers Walmart, Target and Home Depot as tightened household budgets continue to crimp demand for big-ticket items and curb discretionary spending.
Customer loyalty and the ability to offer discounted offerings will come into focus as indicators as to how well these companies can weather the downturn.
- To subscribe to earnings coverage across your portfolio or other earnings analysis, run NSUB EARNINGS
- Click to see the highlights to watch this week from earnings reports in Europe and Asia
Highlights to look for next week:
Monday: Revenue growth at pandemic darling Zoom Video’s (ZM US) enterprise business — a unit comprising large corporate clients — is projected to decelerate further in the first quarter. Piper Sandler analysts see new buyback plans and a small earnings beat, but warn of a slowdown in current-quarter guidance. Focus will be on the sales prospects of non-video offerings as the firm is betting on the new products to hold on to corporate customers. Zoom is due to report after the close.
Tuesday: First-quarter earnings for Lowe’s (LOW US) will reveal the impact of unfavorable weather, deflating lumber prices and a pullback in home-improvement spending. Bloomberg Intelligence forecasts a 3% drop in the home-improvement retailer’s comparable sales. Lowe’s will report pre-market.
- Just as it did in the previous two quarters, Dick’s Sporting Goods (DKS US) is set to derive strong sales from heavy discounts, likely resulting in a first-quarter comparable sales beat, Citi says. Yet that metric could significantly decelerate or even turn negative in the second half of the year, as the retailer pulls back on promotions after whittling down excess inventory. Any updates from management on shoppers’ behavior will be of interest. Though cautious on the broader economy, the company issued a full-year outlook in March that was ahead of projections.
Wednesday: Investors will focus on management comments about inventory levels and store promotions when apparel retailers Abercrombie & Fitch (ANF US), American Eagle Outfitters (AEO US) and Kohl’s (KSS US) post results. Abercrombie, due premarket, is likely to guide second-quarter sales and earnings below consensus, as sales for teens and children remain “very weak” overall, Citi analysts say. In contrast, Urban Outfitters (URBN US) may beat earnings expectations when it reports on Tuesday, thanks to its exposure to higher-income customers through the Anthropologie and Free People brands. However, executives may strike a less optimistic tone given macro uncertainty, Citi adds. Kohl’s efforts to reduce inventory in the first quarter is likely to have resulted in a temporary sales boost, BI says; still, the retailer’s returning customers are expected to have spent less compared to a year ago.
Thursday: Best Buy’s (BBY US) same-store sales decline likely worsened to double-digits in the first quarter as demand for consumer electronics and new appliances wanes. The company recently cut the price of its top-level membership plan and introduced a cheaper tier to build brand loyalty and improve sales. BI says the Totaltech membership offering has become a contributor rather than a detractor to the retailer’s margins, which have come under pressure due to heavy sales markdowns.
- Costco (COST US) also faces slowing sales growth as shoppers pull back on big-ticket discretionary items. The company’s comparable sales in March were weaker than expected. Nonetheless, BI sees continued strength in food and sundries sales as consumers spend more selectively. Easing inflation in some categories may also allow Costco to lower prices, helping sustain high membership-renewal rates. Analysts remain bullish on Costco’s ability to weather headwinds due to its loyal customer base, which could be subject to a possible fee hike in the future.
- Dollar Tree’s (DLTR US) efforts to improve pricing at its Family Dollar chain could propel comparable-sales growth at the unit to 5.5%, Bloomberg consensus shows. The first-quarter report, due before the opening bell, is expected to reveal a continued squeeze on gross margins at both Dollar Tree and Family Dollar, though BI expects the pressure to ease in the second half of the year.
Friday: Big Lots’ (BIG US) same-store sales decline could deteriorate further in the first quarter, according to estimates. Piper Sandler downgraded Big Lots to underweight from neutral last month, citing weakening demand for home furnishings and mattresses. With limited room for further cut costs, Big Lots could cut dividend payments as it faces more downside risk to free cash flow, the brokerage says.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.