It was a busy week on the earnings front for retailers, with names like Home Depot (NYSE: HD), Kohl’s (NYSE: KSS), Lowe’s (NYSE: L), Macy’s (NYSE: M), Target (NYSE: TGT), and Walmart (NYSE: WMT) all reporting.
And the results certainly shined a light on what consumers are spending on amid the growing coronavirus pandemic.
Target, Walmart and Home Depot all delivered earnings beats as shoppers continued to stock up on home goods and home improvement. While Kohl’s and Macy’s both missed on estimates as consumers shifted away from buying clothes.
“If you look at the places where [consumers] are spending money, we would put those into two big themes – cheap and easy,” said Gina Sanchez, CEO of Chantico Global and chief market strategist for Lido Advisors. “So, things that are lower cost because consumers are very concerned about spending right now, and things that can be easily delivered to the without them having to go out to stores.”
Both Target and Walmart saw surging online sales in the last quarter, with Walmart seeing its e-commerce sales soaring by 79%, while Target’s comparable digital sales grew by 155%.
Target CEO Brian Cornell said of the results, “We’re seeing a guest who’s shopping all of our categories, taking advantage of our one-stop solution. We’re seeing many families coming to us to pick up a new Barbie or something for their kids – a Lego item. But while they’re there, they’re shopping for Microsoft (NASDAQ: MSFT) items or Apple (NASDAQ: AAPL). Even during the pandemic, children are outgrowing their clothes, so guests are coming to us for Cat & Jack, but while they’re there they’ve discovered that we have Levi’s (NYSE: LEVI) Red Tab available for them and their families. They’re also visiting food and beverage and discovering our Good & Gather brand.”
Of the big names in retail, Sanchez said she likes one in particular right now: Walmart.
“This is a name that’s probably going to have some negative news this earnings quarter,” Sanchez said. “We’re seeing a lot more… pantry restocking again, which are very, very low-margin paper products, so that might squeeze profitability. But, you know, we see that Walmart like many other names that have gotten their e-commerce game going have really benefited from being able to deliver right to people’s homes.”
Oppenheimer’s Ari Wald is also bullish on Walmart, and sees the stock benefiting from broad tailwinds in food retailing. But there’s one other name Wald has his eye on.
“Another standout for us… would be BJ’s Wholesale (NYSE: BJ),” Wald said.
BJ’s Wholesale reported record third quarter results on Thursday, posting adjusted earnings per share of $0.92, beating estimates for earnings of $0.65 per share, up 124.4% year-over-year, with digital sales growth of roughly 200%.
“The third quarter was another remarkable quarter with robust comp growth, significant market share gains and record profitability. As we look ahead, we are confident our business will continue to thrive given the structural shift in consumer behavior, our market share gains and our strategic investments in digital capabilities, membership, assortment, marketing and geographic expansion,” said Lee Delaney, President and CEO, BJ’s Wholesale. “Our team members across our business are working hard to execute at the highest standards and meet our members’ increased demand for our products and services. We remain grateful for their continued dedication and hard work in helping us drive industry-leading results.”
Looking at BJ’s chart, Wald says the technical setup looks positive.
“It really kind of started acting favorably and trading well when it reported first-quarter earnings back in May, and on the reaction to that release, it broke through big resistance above its 2018 peak,” Wald said. “The stock went on to continue to rally, it peaked in August, and has since corrected back into the rising slope of its 200-day average.”
The pullback since August gives investors a “near-term opportunity to buy long-term strength,” Wald added. “We think the breakout is still intact, and we think a stock like that is positioned to make a new high above its $47 August high.”