Inventory Management, Consumer Spending Central In Big Week For Retail Earnings

Dick’s Sporting Goods (DKS), Kohl’s, Costco Wholesale, Ulta and ELF Beauty (ELF) are among the slew of retailers reporting quarterly results this week. Inventory management will be key across the sector, as companies struggle to cut back on costly stockpiled goods without stooping to discounts and price cuts that stifle earnings.

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Inventory Purge vs. Spending Cutbacks

Retail sales will also be closely watched from a consumer-spending perspective, as the Federal Reserves prepares for a crucial policy decision in June.

The U.S. Census Bureau and Department of Commerce estimate that retail sales will climb 0.9% from Q4 to $1.799 trillion for Q1, improving from a 0.2% quarter-over-quarter decline at year-end, according to a Quarterly Retail E-Commerce Sales release from May 18.

However, the retail landscape looks more challenging for the remainder of the year. Barclays noted in a May 2 research note that “consumers across all income brackets are pulling back” on discretionary products as inflation takes a chunk out of their wallets.

Meanwhile, analysts will closely watch inventory levels as companies try to offload stockpiles of excess merchandise. Storage costs for those mountains of goods, and the promotions and discounts often needed to move them quickly, tend to weigh on profits.

After struggling with supply-chain interruptions during the coronavirus pandemic, retailers now have to clear out surplus inventory while conscientious spenders change their buying habits.

Inventory Progress, Signs Of Weakness

So far this season, Target, Walmart and TJX all reported making progress on their inventory levels. Target noted that household essentials, beauty products and food and beverage offerings drove results for its earnings beat last week. But soft spending on discretionary goods — things that customers want but don’t necessarily need — offset results.

Meanwhile, Walmart (WMT) topped views and raised its guidance. Analysts noted that the Dow Jones giant has benefited from a trade-down mentality as consumers cut back. Also in the trade-down category, TJX (TJX) beat estimates as traffic trends at discount stores showed improvement.

One of the top retail sectors early in the year, footwear and apparel retailers, has started to show signs of weakness. Williams Trading downgraded Nike stock to sell on Monday and slashed its price target, citing challenges ahead for its U.S. business.

Meanwhile, Citi downgraded Foot Locker stock based on price-sensitive consumers and an “unhealthy” U.S. athletic market. The shoe retailer last week doubled its expected rate of revenue decline as rising inventories played a key role in its Q1 earnings miss.

Crocs (CROX) and Skechers (SKX) posted strong earnings surprises in late April but shares retreated on weak outlooks for their upcoming quarters.

ONON stock tumbled last week despite On Holding earnings tripling as the Swiss shoemaker warned of slowing sales growth in the second half of the year. The company said a weaker environment and more volatile wholesale orders will weigh on results.

Dick’s Sporting Leads Tuesday Earnings

Dick’s Sporting Goods reports Q1 results early Tuesday. Analysts project adjusted earnings per share to increase for the first time in four quarters, jumping 11.6% to $3.18 as revenue grows 4% to $2.8 billion. DKS stock is up about 5% for the year. Shares have pulled back from an early-March high and are now tacking toward a test of support at the 200-day moving average.

Wall Street sees BJ’s Wholesale (BJ) earnings ticking down 2.3% to 85 cents per share Tuesday morning while sales increase 7.2% to $4.82 billion. BJ stock is feeling its way along the bottom of a flat base, well below a 78.98 buy point.

FactSet projects Urban Outfitters (URBN) will kick its earnings slump late Tuesday after four straight quarters of declines. EPS is seen rising 6% to 35 cents on 3.5% revenue growth to $1.09 billion. URBN stock is in a consolidation that shows a 29.84 buy point.

Kohl’s, ELF Beauty Headline Wednesday Reports

Analysts see department-store giant Kohl’s (KSS) reporting a loss of 43 cents per share from earnings of 11 cents per share last year for its Q1 report Wednesday morning. Analysts project sales will fall for the sixth straight quarter, edging down 1.5% to $3.42 billion.

KSS stock rose almost 3% last week, its first advance in six weeks. Shares remain down 24% year to date.

ELF Beauty reports fourth-quarter 2023 financials after the stock market closes Wednesday. Wall Street sees earnings per share jumping 54% to 20 cents with revenue increasing 48% to $156.10 million. For fiscal 2023, Wall Street forecasts that profits will grow 70% to $1.43 per share and sales will leap 40% to $548 million.

ELF stock is up 60% since the beginning of 2023. It has now pulled back in a test of support at its 50-day moving average. A strong-volume rebound from that line would present a buy opportunity.

Discount, Wholesale Reports Thursday

Analysts polled by FactSet expect Dollar Tree (DLTR) earnings to tumble 35.9% to $1.52 per share for its Q1 report in the morning. Analysts project revenue will climb 5.5% to $7.28 billion. DLTR shares are basing and about 6% below a 175.78 buy point.

Costco Wholesale (COST) reports its Q3 results late Thursday. FactSet expects earnings to surge 8.6% to $3.30 per share. The sales-growth rate is seen dropping for the fourth straight quarter, with revenue rising by 3.8% to $54.6 billion.

Analysts expect Ulta‘s (ULTA) adjusted earnings growth to decelerate for its late-Thursday report, after averaging 34.8% gains the past year. The beauty giant’s earnings are seen increasing 8.6% to $6.82 per share while sales jump 12.5% to $2.64 billion, according to the FactSet consensus.

Deckers Outdoor (DECK) reports its Q4 results late Thursday. Analysts expect earnings to jump 6.4% to $2.67 per share with a 2% revenue dip to $721 million, driven by a 22.9% drop in Ugg-brand sales. Still, the spike in Hoka sales helped shares sprint nearly 20% this year. DECK stock hit an all-time high of 503.48 on May 10.

Deckers shares have pulled back below their 50-day moving average. The chart shows no standard buy point, but aggressive investors might use a move back above the 50-day line in strong volume as a possible alternative entry.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison.

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