Dollar Tree tumbled this week after lowering its guidance in its mixed Q1 report. Kohl's (KSS) and Russel 2000 component ELF Beauty (ELF) surged Wednesday as the week's wave of retail earnings reports continued. Dick's Sporting Goods (DKS), Costco Wholesale, Ulta were among the slew of retailers reporting quarterly results this week.
XInventory Purge vs. Spending Cutbacks
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. 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 (TGT), Walmart (WMT) and TJX (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 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 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 earnings rose for the first time in four quarters Tuesday, jumping 19% to $3.40 per share while sales climbed 5.3% to $2.842 billion. Analysts projected earnings of $3.18 per share on $2.8 billion in sales for Q1.
Net inventories rose 7% to just over $3 billion. Dick's Sporting reaffirmed its full-year outlook, projecting earnings between $12.90 and $13.80, compared to $12.04 in 2022. FactSet projects full-year earnings at $13.38 per share.
DKS stock fell 2.8% this week after initially surging 2.9% premarket Tuesday following results. Shares have pulled back from an early-March high and are now tacking toward a test of support at the 200-day moving average.
BJ's Wholesale (BJ) adjusted earnings ticked down 2.3% to 85 cents per share early Tuesday, matching Wall Street estimates for Q1 results. Net sales rose 5% to $4.62 billion, shy of the 7.2% growth to $4.82 billion.
Inventory increased by $69.9 million during the quarter to $1.53 billion, but was still $77.5 million than Q1 2022 levels. BJ's guided flat year-over-year earnings for fiscal 2023 on 4% to 5% comparable club sales growth.
BJ stock slid lower Friday and retreated 11.2% this week after earnings. Prior to the report, shares traded along the bottom of a flat base, well below a 78.98 buy point.
Urban Outfitters (URBN) kicked its earnings slump late Tuesday after four straight quarters of declines. Earnings rocketed nearly 70% to 56 cents per share while revenue rose 5.9% to a record $1.11 billion. Analysts expected 6% EPS growth to 35 cents on $1.09 billion in sales.
Total inventory declined 6.3% compared to last year to $590 million. Urban Outfitters noted wholesale inventory decreased 23% which was in-line with the reduction in wholesale sales.
URBN stock rose Friday after it leapt 17.6% Wednesday following its late Tuesday report. Shares broke out from a consolidation after surpassing the 29.84 buy point.
Kohl's, ELF Beauty Headline Wednesday Reports
Department-store giant Kohl's reported an 18.2% spike in earnings to 13 cents per share early Wednesday while revenue fell for the sixth straight quarter, sliding 3.8% to $3.57 billion. FactSet analysts expected a loss of 43 cents per share on $3.42 billion in sales.
Inventory fell 6% over the year to $3.5 billion in Q1.
For the year, Kohl's maintained its guidance for a 2% to 4% net sales decline and earnings between $2.10 to $2.70 per share. FactSet predicts earnings of $2.32 per share for the year.
KSS stock pared losses Friday after it carved 5.1% lower Thursday surged 7.6% Wednesday after earnings. Shares marked their first advance in six weeks last week. KSS stock remains down 22% year to date.
ELF Beauty (ELF) reported fourth-quarter 2023 adjusted earnings catapulted 254% to 46 cents per share while sales rocketed 78% to $187.4 million for its late Wednesday results. The results beat analysts' high expectations of a 54% earnings jump to 20 cents per share on 48% revenue growth to $156.1 million.
Full-year adjusted earnings nearly doubled to $1.66 per share on 48% revenue growth to $578.8 million. Wall Street predicted a 70% profit increase and 40% sales jump.
ELF projected its fiscal 2024 sales to spike up to 24% to range from $705 million to $720 million, well above forecasts of $637.7 million. The company guided earnings rising to $1.73 to $1.76 per share, up from $1.66 per share and surpassing FactSet estimates of $1.64 per share.
Russell 2000 component ELF stock soared 20.4% Thursday following results and is up 88% since the beginning of 2023. Thursday's move left shares extended after a strong-volume rebound from support at their 50-day moving average.
Discount, Wholesale Reports Thursday
Dollar Tree (DLTR) adjusted earnings fell 38% to $1.47 per share for its Q1 report Thursday morning, which excluded a 12 cent per share legal reserve contribution. Net sales climbed 6.1% to $7.32 billion. Analysts polled by FactSet expected earnings of $1.52 per share on $7.28 billion in revenue.
Inventory for the quarter was $5.11 billion, down from $5.45 billion at year-end but increasing from $4.8 billion Q1 2022, respectively.
Dollar Tree narrowed its fiscal 2023 guidance due to margin impacts from inventory shrink and a product mix shift toward consumables. The company lowered its earnings projection to range from $5.73 to $6.13 per share from its Q4 forecasts of $6.30 to $6.80 per share. It revised its sales outlook slightly higher to range from $30 billion to $30.5 billion. FactSet analysts expect full-year earnings of $6.64 per share on $30.34 billion in sales.
DLTR shares bounced 3% Friday at midday and dove 12% Thursday after results. Shares were basing prior to the release but retreated well below the 175.78 buy point.
Costco, Ulta Afternoon Reports
Costco Wholesale (COST) reported its Q3 results late Thursday. Earnings faded 3.6% to $2.93 per share, well below FactSet estimates of $3.29 per share. Sales growth slowed for the fourth straight quarter as revenue rose 1.9% to $52.65 billion. Analysts projected sales increasing to $54.5 billion.
The wholesaler did not provide an outlook with its release.
COST stock climbed 2.7% midday Friday.
Ulta's (ULTA) adjusted earnings growth decelerated for its late-Thursday report after averaging 34.8% gains the past year. The beauty giant's earnings rose 9.2% to $6.88 per share on 12.3% revenue growth to $2.6 billion. FactSet analysts expected EPS of $6.82 on $2.64 billion in sales.
ULTA increased its fiscal 2023 sales outlook to range from $11 billion to $11.1 billion, from the previous forecast of $10.95 billion to $11.05 billion in revenue. The company maintained its earnings guidance of $24.70 to $25.40 per share. FactSet sees full-year earnings climbing 5.4% to $25.31 per share.
ULTA stock traded 12% lower at midday Friday, after earnings.
Deckers Struggles To Find Its Footing After Results
Deckers Outdoor (DECK) net sales jumped 7.5% to $791.6 million its Q4 results late Thursday while earnings bolted 37.8% to $3.46 per share. Analysts expected EPS of $2.69 on a 2% revenue dip to $723 million. HOKA brand sales soared 40.3% during the quarter while UGG brand sales dropped 16.1%.
Deckers guided up to an 11.5% surge in fiscal 2024 earnings to range from $21.10 to $21.60 per share on $3.95 billion in sales, up 8.9% from the record $3.63 billion from fiscal 2023. FactSet forecasts full-year earnings of $21.77 per share on $3.97 billion in revenue.
DECK stock reversed higher 4.5% Friday. Shares climbed Thursday 2.2% leading up to the report. DECK stock hit an all-time high of 503.48 on May 10 and sprinted 13% this year.
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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