Retailers Rebound as Earnings Season Ends on a Strong Note

Retailers Rebound as Earnings Season Ends on a Strong Note

Retail stocks rebounded from a selloff last week as investors shrugged off tariff fears and looked for strong earnings into the holidays.

Target (TGT), Home Depot (HD), Lowe’s (LOW) and Nordstrom (JWN) are among the market’s biggest gainers in the last week. Some had terrific numbers, while others were mixed. A couple of companies even inched higher despite missing estimates — a potential sign of bad news being priced in.

TGT led the charge after successfully getting shoppers to use its online services like same-day delivery. That boosted the company’s margins by monetizing its previous investments in e-commerce. Earnings, revenue, same-store sales and guidance all surprised to the upside. The result? TGT spiked 29 percent to new record highs over $100. It turns out Wal-Mart Stores (WMT) isn’t the only survivor in the digital age.

Target (TGT) chart with 50- and 200-day moving averages.
Target (TGT) chart with 50- and 200-day moving averages.

JWN was another Internet success story as online sales offset weakness at its established department stores. However the stock remains near its lowest levels of the decade as investors worry about traditional shopping malls going extinct. JWN’s 21 percent gain in the last week ranks it No. 2 in the S&P 500 behind TGT.

Home Improvement Heads Higher

Home-improvement chains Lowe’s (LOW) and Home Depot (HD) also pushed higher despite less-than-stellar results. LOW beat earnings estimates after strong same-store sales showed traction at established locations. That can be a good sign for profit margins down the road.

HD also said contractors were spending more money, which drove strong earnings despite a top-line revenue miss. Management warned that President Trump’s tariffs on Chinese products could hurt business. Investors shrugged it off.

Two other retailers popped on strong numbers. BJ Wholesale (BJ) rallied more than 20 percent after healthy margins fattened the bottom line. CEO Christopher Baldwin added that “sales were particularly strong in the second half of the quarter as weather improved, and we ended with strong momentum.”

Dick’s Sporting Goods (DKS) beat estimates on the top and bottom lines as its longer-term turnaround continues. The company has been shifting away from golf and towards athletic footwear. It’s also been investing to grow on line. Will it one day reap the rewards like TGT?

Home Depot (HD) chart with 50- and 200-day moving averages.
Home Depot (HD) chart with 50- and 200-day moving averages.

Tech Stocks Rally

Most technology stocks reported earlier in earnings season, but the last week saw a few big movers.

Nvidia (NVDA), one of the most active symbols on the TradeStation platform, enjoyed strong demand for its latest video-gaming and artificial-intelligence chips. Earnings and revenue both exceeded estimates. Management sees demand for newer products lifting margins. (CRM), the trailblazer in cloud-based enterprise software, had a similarly strong set of numbers: profit, revenue and guidance. Co-CEO Keith Block also named names, declaring that “major brands, like FedEx, AXA and Unicredit, turned to Salesforce in the quarter to propel their growth.”

Keysight Technologies (KEYS) broke out to new all-time highs on its own blowout quarter. Ever heard of 5G networking? Investors view this company as a one of the clearest-cut players in the space. It’s also one of the newer members of the S&P 500, having joined the index last November.

Baidu (BIDU), China’s version of Google, also tried to rally after beating estimates. However it hit resistance at its falling 50-day moving average and continues to suffer from the trade war between Washington and Beijing.

Estee Lauder Breaks Out

Cosmetics firm Estee Lauder (EL) broke out to new highs as traction in Asia continued to offset weakness at U.S. department stores. Intuit (INTU), the parent of TurboTax, was also set to rally into new record territory after beating estimates. Ditto for medical-device provider Medtronic (MDT).

Tractor maker Deere (DE) managed to bounce 8 percent despite missing consensus on virtually every front. But it was already down because of a previous selloff in grains.

Retailer L Brands (LB) wasn’t so lucky, breaking under $20 for the first time in a decade. Weakness at its once-mighty Victoria’s Secret division continued to drag on sales and margins.

In conclusion, the last week of earnings seemed to confirm TGT is adapting successfully to the digital era. Other retailers showed signs of improvement and NVDA, CRM and KEYS stood. Several companies had positive margin trends. Overall it was a strong end to a so-so earnings season.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.