As the coronavirus pandemic wreaks havoc on markets and economies, the U.S.'s largest retailers are struggling. This week, investors will get a chance to see how badly sales have been hurt as they report their latest quarterly earnings.
Markets received a broader picture on Friday of the state of consumer spending during the COVID-19 outbreak thus far when the U.S. the Commerce Department released its monthly Retail Sales report. According to the numbers, revenue at retailers and restaurants fell 16.4% from the prior month, the worst reading since data was available for this metric, going back to 1992.
Amid the bleak economic outlook, investors will be looking for relative strength among retailers, in particular those who are gaining market share in grocery sales. Other factors that could determine which outlets will survive or fail will be the strength of cash flows and levels of debt. For retailers who were already on the edge, the ability to service debt obligations now is going to be crucial. Here are three names to which we’re paying close attention:
1. Home Depot
Home Depot Inc (NYSE:HD) is scheduled to report Q1 2020 earnings on Tuesday, May 19 before the market opens. Analysts are expecting a projected EPS of $2.27 on sales of $27.58 billion.
The home improvement chain is facing an array of challenges in the current fiscal year as consumers contend with one of the worst job markets in modern history, a guaranteed catalyst for decreased spending.
Sales might have taken a severe downturn after operations at the Atlanta-based retailer's brick-and-mortar stores were disrupted by pandemic-related lockdowns, including reduced operating hours during the crucial spring season. That situation might result in the scrapping of Home Depot's current forecast that calls for comparable-store sales to expand around 4%.
That said, HD is among those retailers who are in a stronger position to weather this storm than many of its weaker peers. Just before the deadly pandemic hit, HD was reaping the reward for its $11-billion spending to modernize stores, upgrade digital options and enhance offerings for its key trade customers.
Armed with these upgrades, there is a good chance that HD’s same-store sales will revive quickly post crisis.
As well, the strength of the U.S. housing market should also help Home Depot thrive once the COVID-19 outbreak is contained, as lower borrowing costs boost home sales, making it easier for home owners to increase spending on renovations. Trading at $239.33, the stock has already gained 10% this year, outperforming the S&P 500 which fell 11% during the same period.
2. Walmart
America’s biggest retailer, Walmart (NYSE:WMT) will also report first-quarter earnings on Tuesday before the market opens. Consensus anticipates EPS of $1.13 on revenue of $131 billion.
With anxious shoppers hoarding staples and food, and non-essential retailers shuttered during coronavirus lockdowns, Walmart’s large brick-and-mortar presence has likely helped the retailer to further expand its customer base and appeal.
Hefty investment in e-commerce, health care and its 1.5-million strong workforce is a unique winning combination which has positioned the mega retailer to supply large swaths of the nation as governments and other businesses grapple with how to respond to the unprecedented health and economic threat.
With the expectation the Bentonville AR-based retailer will report strong quarterly earnings and growing online sales, investors have pushed WMT shares up 6% this year. The stock closed up 2% on Friday at $125.94.
Comparable sales and Walmart's online expansion will be the two critical numbers investors will likely focus on.
3. Macy’s
After announcing it was delaying its final Q1 2020 release until July 1 due to the disruptions from coronavirus, Macy’s (NYSE:M), the troubled department store chain with a presence in 43 states as well as Puerto Rico, will be reporting preliminary Q1 earnings during the pre-market hours on Thursday, May 21.
Most of Macy’s workforce has been furloughed since the beginning of April as it struggles to preserve cash after the closure of all 775 of its physical stores due to the pandemic.
The New York City-based chain was struggling even before the virus hit as a turnaround plan pursued by its CEO Jeffrey Gennette failed to revive sales. Investors will be keen to know whether the company has a financial cushion to survive a potentially long and painful recession.
A Bloomberg report said last month that Macy’s was exploring ways to use its real estate to secure fresh cash and ride out the coronavirus pandemic. The department store would issue new bonds backed by certain property and other assets to bolster its liquidity, the report said.
Macy’s shares, which closed at $5.31 on Friday, have plunged about 70% this year.