This week the retail earnings parade begins, over the next couple of weeks we’ll hear how retailers have been impacted by coronavirus-related shutdowns. On Friday we’ll also get Retail Sales for April, so by the end of the week we should have a pretty good picture of the health of the US consumer.
As always let’s kick off by recapping last week a bit, starting with some of the tech companies that reported earnings.
Internet Software/Services Reports
Twilio was one of the standout Enterprise Tech names that reported last week. Earnings per share came in at $0.06, that’s 18 cents higher than analysts estimated, reflecting 20% growth YoY. Revenues of $365M outpaced expectations by about $30M, growing 57% YoY. Usage of the cloud communication as a service platform was up, and strength in usage from COVID beneficiaries such as DoorDash, Hulu, Netflix and Instacart offset weakness from high impact industries such as Uber/Lyft and Airbnb, which made up less than 10% of revs. The stock shot up nearly 50% after it reported.
Digital Payments: Square and Paypal
We also got interesting results from online payment companies Square and Paypal, as digital payments accelerated during this time.
Square posted EPS of -$0.02, well below the $0.11 cents analysts were expecting, yet revenues surprised to the upside at $1.38B, an increase of 44% YoY. Why such a discrepancy between the top and bottom-line? Square’s point-of-sale business which helps small businesses accept smartphone payments, was expectedly crushed in March with coronavirus related lockdowns. It’s Cash app that allows peer-to-peer payments however saw improved trends. The reporting for the quarter ends March 31, but April looks like it’s going to be even better. The Cash app reached the largest number of net-new transacting active customers that month. This news sent the stock up 10% after reporting.
Just taking a look at Square here, and you can see we have a TipRanks Smart Score of 7, just as a refresher the smart score is based on 8 market factors that have historically been a precursor of future outperformance including analyst ratings, insider and hedge fund activity, news sentiment, individual investor activity, financial blogger sentiment, as well as technicals and fundamentals. The best analysts on our platform are calling this one a moderate buy, with a price target of $67.88.
Paypal reported profits that increased 6% YoY, and revenues that increased 12% YoY. In an interview with Yahoo Finance, Paypal’s CFO John Rainey said “I do think that COVID-19 has fundamentally changed some consumer behaviors, which I think certainly play to our benefit.” Total payment volume increased 19% in Q1 and they added 10M net new active accounts during the quarter. For Q2 they expect that net new active accounts to grow by 15 million to 20 million.
Paypal has a Smart Score of 10. The best analysts on TipRanks calling this one a strong buy at $142.
April Jobs Report
Onto the job numbers, which were just as bleak as expected. Unemployment came in at 14.7%, better than the 16% estimate, but still the worst number since the great depression. Nonfarm payrolls came in at 20.5M. Yet… the markets ended the week on a high note! S&P 500 was up 3%, the first up week in three. Investors who seemed positive on re-openings going off without a hitch last week seemed less certain today, likely due to reports that South Korea, which seemed to be past the worst of it, had an uptick in infections over the weekend.
Every retail earnings season there are winners and losers, sometimes it swings more one way than the other… and with consumer spending down 7.6% in Q1 (and savings up 13%!) there are certainly going to be more losers in the space this and many quarters to come. Just in the last week we’ve gotten reports of several retailers filing for bankruptcy, including men’s apparel brand J.Hilburn, JCrew, Neiman Marcus, and Stage Stores.
However, there are some potential beneficiaries of the current situation as we have seen. One of those areas is personal workout equipment as American’s move their gyms into their homes… but unfortunately that trend doesn’t seem to be translating to athletic apparel. Under Armour reported results this morning, and they weren’t pretty.
EPS came in at -$0.34, analysts were expecting -$0.17. Sales dropped 23% YoY, with apparel sales down 23%, footwear down 28%, and accessories down 17%. We thought we might be seeing some early evidence in strength of sneaker sales as more people run outside, cycle, or pick up a home gym routine and therefore want to upgrade their footwear. Waitrose, the UK retailer, reported a 72% rise in sneaker sales since COVID related shutdowns began. And in Q1, as reported by NPD Group, sweatpants saw an increase in sales in the low single digits, the official work from home uniform.
You can see here Under Armour only has a Smart Score of 1, the best analysts calling this a Hold with a PT of $13.33.
And the news will only get worse for retailers as the week rolls on with department store reports, which were already performing poorly before coronavirus, but things have just gotten worse as lockdowns have kept their physical stores closed. Department stores have had very poor omni-channel strategies, referring to their physical and digital presence, and now COVID has only exacerbated the trend towards e-commerce.
Macy’s is expected to post a YoY decline in profits of 323%, with revenues falling 35% over the same time period. This would be the fourth consecutive quarterly decline in profits for Macys, and the third consecutive quarterly decline in sales.
Macy’s also currently has a Smart Score of 1, and is one of only 120 names on our platform that has a moderate sell consensus.
The following day we get results from Nordstrom and J.C. Penney.
Nordstrom is expected to post a YoY decline in profits of 517%, with revenues falling 29% over the same time period. Of the bunch they’ve actually performed the best.
But they still aren’t immune from that Smart Score of 1 due to bearish analyst expectations, declining hedge fund activity and technicals.
Now J.C. Penney is by far the worst of this group, with many speculating it could be the next retailer filing for bankruptcy. JCP is expected to post a YoY decline in profits of 117%, with revenues falling 39% over the same time period… marking 9 straight quarters of sales declines.
And right now they are ranked as a moderate sell, with a PT of $0.23.
April Retail Sales
And we get more insight into retail on Friday when Retail Sales for April are reported.
Trading economics right now anticipating MoM decline of 12%, up from March’s figure of -8.4%. Ex-autos that number improves to -8.6%.
Next week we continue to get results from the retailers, with a focus on home improvement, one of the only segments expecting positive reports, and the luxury space.