There are still a few major retailers left to report at the tail end of the earnings season. The overall earnings seasons has been good, but the market has been volatile as trade negotiations between the U.S. and China and new rising trade tensions with Mexico risk U.S. economic growth.
What we have seen this season is that the market will be quick to punish stocks that are showing any signs of weakness and pushing more money into stocks that continue to deliver bottom line growth.
As we enter into the low volume summer trading months earnings reports will dramatically slow down, but there are still several big retailers scheduled to report this month that will set the tone for the market as we exit out of the earnings season.
GameStop (GME)
Video game retailer GameStop (GME) is scheduled to report a first-quarter loss of two cents when it reports after the market close Tuesday. During the same period last year GameStop earned $0.38 with revenue of $1.93 billion. Profits are falling at the company and are expected to decline 37% per annum over the next five years as gaming moves more into the digital market. Falling profits have weighed on the stock which has been steadily losing value over the last five years and is currently just pennies above its 52-week low. The stock is trading a very low multiple at just 5 times future earnings, but the steep drop in profits will continue to keep a lid on the stock unless the company starts to consistently deliver positive earnings surprises. The street expects an in-line quarter with a loss of two pennies, and given the low expectations shares could enjoy a strong rally on the heels of a strong earnings beat. The stock trades at $7.44 and analysts have an average price target of $9.83.
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American Eagle Outfitter (AEO)
Teen fashion retailer American Eagle (AEO) reports its first-quarter numbers before the market open Wednesday. Analysts forecast earnings of $0.21 and revenue of $855.16 million. AEO was trending higher before the overall market turned lower at the start of May and is currently trading just above its 52-week high. American Eagle is trading at just 12 times earnings, but profit growth has been slowing which has kept pressure on the stock. Profits were up 35% annually the last five years but looking ahead earnings growth is forecast to slow to 7.5% per annum over the next five years. The street expects a small earnings beat with a whisper number of $0.22. Last quarter the company posted a positive earnings surprise while sales fell slightly short of the consensus. This quarter the company will need to deliver strong numbers on both the top and bottom line for investors to warm up to the stock. AEO trades at $17.90 with an average price target of $25.07.
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Five Below (FIVE)
Discount retailer Five Below (FIVE) reports Q1 earnings after the market close Wednesday with the consensus calling for profit of $0.35 per share on revenue of $365.7 million. The U.S. economy remains on solid ground with strong consumer confidence but it has been the discount retail sector that has shown the most strength of all retailers. FIVE has grown earnings by 35% annually the last five years, and analysts see more strength ahead forecasting earnings will rise 25% per annum over the next five years. FIVE remains a high value stock with shares trading at 46 times earnings. The high valuation means FIVE is priced for perfection and shares could tumble on any negative surprises. Earnings have surprised to the upside the last eight quarters, and the street is looking for another earnings beat with a whisper number of $0.36 for the quarter. Despite the high valuation, analysts continue to see upside in the stock with an average price target of $141 versus its current $124.
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At Home (HOME)
Home goods retailer At Home (HOME) will report Q1 earnings before the market open Thursday. Analysts expect the company to post earnings of $0.04 per share on revenue of $306.40. The stock was a strong performer the first two years after going public in 2016, but the stock has struggled over the last year as earnings growth has slowed considerably. Over the last five years At Home grew earnings 80% per annum, but this year profits are forecast to be down 20% and over the next five years average annual growth is expected at 14% annually. Last quarter the company reported mixed results with a small earnings miss but the street expects a small beat this quarter with a whisper number of $0.05 for the quarter. HOME is currently trading at $17.90 with an average price target of $27.44.
