TNC…where curious minds can access wholesome news commentary

TNC…where curious minds can access wholesome news commentary


What to know in the week ahead

The strength of the U.S. consumer will be the key focus this week for markets.

A host of major retailers including big-box giants Walmart (WMT) and Target (TGT) will round out one of the last waves of earnings reports this quarter, offering a look at consumer shopping trends heading into the holiday shopping rush. And the U.S. Commerce Department is also set to release its October retail sales report this week, which is expected to show a rise in consumer spending for the sixth straight month.

Walmart, Target earnings

Earnings results and commentary from Walmart, America’s largest retailer, are set to serve as a bellwether for consumers’ demand for goods as the coronavirus pandemic continues to tear across the U.S.

Revenue growth is expected to slow in the third quarter through the end of October as the panic-buying that took place earlier on during the pandemic slowed down. Consensus analysts see quarterly sales rising 3% to about $132.5 billion, after a jump of 9% in the first quarter and 6% in the second quarter. And comparable same-store sales in the U.S., excluding fuel, likely slowed to a rise of 4.5%, down from a 9.3% jump in the second quarter.

Walmart, as well as peer big-box retailer Target, had also benefitted considerably from the additional consumer spending that came in the wake of the U.S. government’s stimulus checks and augmented federal unemployment benefits, which ended in late July. Executives from both companies had flagged during their last earnings calls in August that they would likely see sales moderate while another stimulus package hangs in the balance.

“We certainly hope there’s a second round of stimulus for small businesses and American consumers,” Target CEO Brian Cornell said during Target’s third-quarter earnings call on August 19.

But with coronavirus cases back on the rise in the U.S., Walmart CEO Doug McMillon recently noted that pantry-stocking behavior has started to creep back up among Walmart consumers.

“Today there has been some leveling out, but with the case counts coming back up there are some areas we see stock-up behavior again locally,” McMillon said during Yahoo Finance’s All Markets Summit in late October.

A woman wearing a facemask walks past a sign informing customers that face coverings are required in front of a Walmart store in Washington, DC on July 15, 2020. - Walmart will require shoppers to wear face masks starting next week, the US retail giant announced on July 15, joining an increasing number of businesses in mandating the protection amid the latest spike in coronavirus cases. (Photo by ANDREW CABALLERO-REYNOLDS / AFP) (Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)
A woman wearing a facemask walks past a sign informing customers that face coverings are required in front of a Walmart store in Washington, DC on July 15, 2020. – Walmart will require shoppers to wear face masks starting next week, the US retail giant announced on July 15, joining an increasing number of businesses in mandating the protection amid the latest spike in coronavirus cases. (Photo by ANDREW CABALLERO-REYNOLDS / AFP) (Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)

But with pantry-stocking typically boosting sales of lower-margin products like groceries and paper goods, profit may come back under pressure during the reported quarters and beyond. Walmart’s adjusted earnings per share are expected to rise just 2% in the third quarter, trailing its sales growth rate. Analysts expect Target to avoid this margin compression, however, with fiscal third-quarter adjusted EPS likely rising 18% over last year to $1.60 per share, and revenue rising 13% to $20.72 billion.

Digital sales trends will also be in focus for both Walmart and Target, after both companies reported massive surges in their e-commerce channels last quarter. Digital sales at Target rocketed 195% during its second quarter, while Walmart’s online sales nearly doubled. A pick-up in foot traffic in late summer, however, may have curbed some of this growth in their third quarters.

Finally, analysts will also likely be closely listening for commentary from Target and Walmart over their preliminary holiday shopping forecasts. Both companies began offering Black Friday-type sales weeks earlier than usual this year, hoping to capitalize on pent-up consumer demand and keep in-person traffic in check at stores on the day after Thanksgiving.

Target had offered “Deal Days” on October 13 and 14 to compete with Amazon’s annual Prime Day sales extravaganza. Target said that online sales during the two-day event grew by more than 2.5 times compared to last year, as customers stocked up on electronics, beauty supplies, home goods and toys ahead of the usual holiday shopping season. Sales from “Deal Days” will factor into results in Target’s third quarter report, and the company has also offered additional sales throughout the month of November in the lead-up to Black Friday on November 27.

Walmart also announced a new “Deals for Days” plan for this year, with the company offering staggered markdowns online and in-stores from November 4 through Black Friday. While these began after the end of the fiscal third quarter, company executives may address preliminary results from these sales, and their expectations for the balance of the holiday shopping season.

Retail sales

Consumer spending has so far held up strongly since May, even as coronavirus cases began to creep higher to make new daily records in the U.S.

October’s retail sales figures are likely to have grown again. The Commerce Department’s monthly report is expected to show that retail sales climbed another 0.5% in October month-over-month, following what had been an unexpectedly strong 1.9% rise in September. This would mark a sixth straight monthly rise, with retail sales having risen back above pre-pandemic levels over the summer.

“Through late October, we find that consumer spending and continuing jobless claims have responded much less strongly to virus spread recently compared to the summer wave,” Goldman Sachs economist Jan Hatzius said in a note last week. “One partial explanation is that state and local governments have imposed limited virus-related restrictions so far, compared to the summer when many of the hardest-hit states imposed restrictions such as closing bars, restricting indoor dining, and limiting gatherings, with a pause or reversal in reopening in the vast majority of the country.”

“This may soon change, with an increasing number of states and regions recently imposing or considering new restrictions,” Hatzius added.

As some economists have pointed out, the ongoing pandemic has helped boost spending on discretionary items, with many consumers purchasing goods rather than spending on leisure and travel as they continue to stay in place.

In September, for instance, sales at food services and drinking places rose month-over-month but remained more than 14% below levels from the same month in 2019, suggesting spending on dining out and other similar activities was staying weakened by the pandemic. The vast majority of the other retail sales categories had risen back to pre-pandemic levels or beyond.

Other events in October are expected to help boost sales. Amazon Prime Day (AMZN) was moved to October from July this year due to the pandemic, with the online shopping extravaganza likely to help to support retail sales figures at the start of the fourth quarter.

“Looking ahead, however, momentum in consumer spending is fading,” Sam Bullard, senior economist for Wells Fargo Securities, said in a note Sunday. “First, disposable personal income should see a decline in October as unemployment benefits dropped sharply. Second, new COVID-19 cases have surged in recent weeks and may have curtailed spending.”

“There is no relief in sight from Congress with another sizable fiscal stimulus deal,” he added. “That, in combination, with rising COVID cases and the increasing potential for localized lockdowns, present downside risk to the near-term consumer spending outlook.”

Economic calendar

Monday: Empire Manufacturing, November (13.9 expected, 10.5 in October)

Tuesday: Retail sales advance month-over-month, October (0.5% expected, 1.9% in September); Retail sales excluding autos and gas month-over-month, October (0.6% expected, 1.5% in September); Import price index month-over-month, October (0.2% expected, 0.3% in September); Import price index year-over-year, October (-1.1% in September); Export price index month-over-month, October (0.3% expected, 0.6% in September); Export price index year-over-year, October (-1.8% in September); Industrial production month-over-month, October (1.0% expected, -0.6% in September); Capacity utilization, October (72.3% expected, 71.5% in September); NAHB Housing Market Index, November (85 expected, 85 in October); Net long-term TIC flows, September ($27.8 billion in August); Total net TIC flows, September ($86.3 billion in August)

Wednesday: MBA mortgage applications, week ended November 13 (-0.5% during prior week); Building permits, October (1.568 million expected, 1.545 million in September); Housing starts, October (1.450 million expected, 1.415 million in September)

Thursday: Initial jobless claims, week ended November 14 (720,000 expected, 709,000 during prior week); Continuing claims, week ended November 7 (6.786 million during prior week); Philadelphia Fed Business Outlook index, November (22.0 expected, 32.3 in October); Leading Index, October (0.7% expected, 0.7% in September); Existing home sales, October (6.44 million expected, 6.54 million in September); Kansas City Federal Reserve Manufacturing Activity Index, November (13 in October)

Friday: N/A

Earnings calendar

Monday: Tyson Foods (TSN), AECOM (ACM), Palo Alto Networks (PANW), (JD) before market open; SmileDirectClub (SDC) after market close

Tuesday: Home Depot (HD), Walmart (WMT), Kohl’s (KSS) before market open; Nio (NIO) after market close

Wednesday: TJX Cos. (TJX), Target (TGT), Lowe’s (LOW) before market open; L Brands (LB), Sonos (SONO), Nvidia (NVDA) after market close

Thursday: Macy’s (M), BJ’s Wholesale Club (BJ) before market open; Intuit (INTU), Ross Stores (ROST), Workday (WDAY), McAfee (MCFE), Williams-Sonoma (WSM) after market close

Friday: N/A

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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