Normally the final weeks of the March quarter US earnings season are ignored by most investors, analysts and others in the markets because there are no big names reporting – mostly smaller retailers and some ‘rats and mice’ – the usual market-moving megatechs, energy giants and industrials having already slipped out their reports and moved on to holding their annual meetings.
But after last week’s shockingly weak results from Walmart and Target and the big market sell-off, this week’s reports assume greater importance, especially when Friday saw another surprisingly weak report from discount department store chain Ross Stores.
As a result of these poor figures (and a weak one from Kohl’s department stores as well – the shares were down 13% on Friday alone), America’s March quarter earnings season is having the sort of finish no one had expected.
Yes – earnings growth overall for the S&P 500 is better than first forecast – more than 11% from a year ago against a first estimate of just over 4% but that’s because energy and some tech companies did better than expected.
But there were enough holes emerging in some key reports to trigger doubts (thanks to some less than stellar reports from Amazon, Netflix and Facebook among the megas) that were well and truly confirmed last week by firstly a weak report from Walmart and then really poor figures from rival Target.
Investors were all the more surprised since they thought the retailing sector was more defensive.
It obviously hasn’t been – the big two and other retailers did add to the costs because they took conscious decisions to boost inventories to limit out of stocks on their shelves and other shortages which frustrate customers (as the big baby formula shortage scandal last week showed).
Target shares suffered the most – though they edged up in Friday’s turnaround, they still lost a record 29% in value for the week.
Walmart shares also edged up on Friday but still ended the week down a record 19.6%.
Ross Stores, a discount rival to TJX Cos, revealed weak figures, higher costs and cut their forecast for the rest of the year. The shares fell nearly 25% on Friday and ended the week off 22%. That weak result hit the shares in its larger rival, TJX Cos (the sector leader which has earlier reported higher sales and earnings, but cut its sales outlook) which fell more than 5% on Friday but ended up 1.2% for the week. That gain was a rarity.
This week it’s the turn of department store majors, Macy’s and Nordstrom with quarterly reports, along with smaller retail chains, Urban Outfitters, American Eagle Outfitters, Sketchers, Ralph Lauren, Burlington Stores, Williams Sonoma, Dicks Sporting Goods and the big electronics chain, Best Buy (its shares fell more than 16% last week).
Discount chains Dollar General and Dollar Tree are also down to report and, if their figures are weak, then this will confirm the huge US retailing sector – the heart of US consumer spending – is in some sort of existential crisis.
Costco, the ultra-cheap grocery warehouse chain reports this week (its shares fell more than 16% last week as well) – it has a small but active chain of outlets in Australia.
Up to Friday 95% of S&P 500 companies have now reported March quarter earnings with 76% beating expectations which is in line with the norm.
And while consensus earnings expectations for the quarter have now moved up to 11.8%yoy from 4.3% at the start of the reporting season, there’s growing scepticism about the quality of earnings from retail and other consumer-facing companies.
Energy, materials and industrials have seen the strongest earnings growth and earnings growth in Europe & Asia has been stronger though averaging 14.8%yoy, according to the AMP’s Shane Oliver.
Other US companies reporting include chipmaker, Nvidia, a group of major Canadian banks led by Toronto Dominion and Royal Bank of Canada. Dell Technologies reports (its shares were down 11% last week) and Hess (down just 0.8% last week, being an energy company).
There are also quite a few annual meetings being held in the US and the UK – the most interesting with be Twitter’s on Wednesday (May 25).
Twitter shares fell 6% last week, Tesla was down 14%. Elon Musk just kept tweeting his displeasure at life in general. Will he show his face here or do more of the same?