Nov 18, 2022

US Earnings to Watch: Best Buy, Nordstrom, Zoom, Deere, Black Friday

Natalie Lung, Crystal Chui and Redd Brown, Bloomberg News

A customer stands next to a shopping basket at the check out counter of a Best Buy Co. store in San Antonio, Texas, U.S., on Thursday, May 17, 2018. Best Buy Co. is scheduled to release earnings figures on May 24. , Bloomberg

(Bloomberg) -- Results from American retailers last week underscored trends showing consumers are tightening their budgets heading into holiday season. While Walmart, Macy’s, Home Depot and Lowe’s delivered better-than-expected results, Target performed “well below” its own expectations and provided a dim outlook, plunging its shares into their worst week since September. Investors are shifting their focus to Best Buy and Nordstrom, which report this week, and may watch for increased volatility in the sector’s stocks due to mixed expectations. The pullback in consumer discretionary spending is evident, as the segment has so far posted the fewest EPS beats during this reporting period, contributing to the poorer earnings performance overall among S&P 500 companies compared to last year. While holiday dollars spent is likely to be aided by higher prices from inflation, the growth rate is expected to be slower than in the past several years, and clearing excess inventory during the season will be a key factor for retailers’ profitability.

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Click to see the highlights to watch this week from earnings reports in Europe and Asia.

Earnings highlights to look for this week:

Monday: Zoom Video (ZM US) is due after the closing bell. The pandemic darling is expected to post low-single-digit revenue growth for the third quarter, the slowest pace of expansion since its initial public offering in 2019, as Bloomberg Intelligence said the return-to-office shift led to steep declines in online segment sales. In addition to tough comparisons from elevated revenue a year ago, shrinking IT budgets and deteriorating macro environment are likely to add challenges to new customer growth among small- and mid-sized firms, Citi analysts said when they cut the stock’s price target last week. Revenue guidance for the current quarter could also come down further due in part to slowing demand among Enterprise customers, they added.

Tuesday: Best Buy (BBY US) reports before the market open. Early promotions might not have helped boost third-quarter revenue at the electronics and home-office equipment retailer after all, BI analysts said, as Bloomberg Second Measure data suggest Best Buy’s October sales were the weakest compared with other retailers. Revenue for the quarter is expected to contract 13% year-on-year — the steepest in almost nine years — and the projected 13% fall in comp sales would be the biggest decline in at least 22 years. Investors will watch for comments on demand trends especially after Target’s lackluster outlook and the earlier management commentary on the comeback of holiday deals.

Nordstrom (JWN US) third-quarter results are due after the close. Despite reaffirming its full-year sales growth outlook in October, the department store’s revenue is expected to fall for the first time in six quarters, with analysts expecting about a 2% dip year-over-year, as demand from more affluent customers may begin to show some weakness in the period. “Clearance racks are pervasive” at Nordstrom’s stores, according to Bloomberg Intelligence, and the company’s push to move its bloated inventory — expected to reach a record $2.98 billion — with higher markdowns could erode gross margin. The retailer is expected to decelerate its merchandise growth in the third quarter, with progress on inventory rebalancing and promotions plans a key topic for the earnings call, said analysts at Telsey Advisory Group.

Wednesday: Deere (DE US), reporting before the open, is expected to post accelerated profit and sales growth in fiscal 4Q due to higher production rates, better pricing and easing input costs, BI said, improving from weaker-than-expected results in 3Q. Demand conditions remain favorable given supportive commodity prices and flush farmer cash flows, according to Citi. Coupled with an extended order book, momentum should continue to build as Cowen analysts anticipate the best year on record for both the top and bottom line when management provides their initial guidance for fiscal 2023, though the reading may represent cycle peak.

Thursday: US markets are closed for Thanksgiving.

Friday: Retailers could see mixed results this holiday season as consumers hunt for bargains on Black Friday. Holiday sales by value will be aided by elevated prices driven by inflation, yet profitability may be crimped in a highly promotional environment with aggressive markdowns to clear excess inventory, BI analysts noted. Spending at early sales events in October boded well for Nike (NKE US), Amazon (AMZN US) and Walmart (WMT US) as they recorded the strongest growth from a year ago, according to BI, while Best Buy and Nordstrom tickets contracted the most. BI said the mixed results suggest that the sector may meet Deloitte’s forecast for 4%-6% growth but could fall short of the National Retail Federation’s estimate of 6%-8%, a lower year-over-year growth rate than the past several years. And while households are expected to partly shift back to in-store shopping, both Deloitte and the NRF anticipate e-commerce sales to record low double-digit growth, outpacing traditional brick-and-mortar stores as it is still more convenient for shoppers to compare prices online.