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Earnings to Watch: Walmart, Target, Home Depot, Deere

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Corporate America’s better-than-feared results, paired with cooling US inflation trends, may have offered some relief to equity investors this week, but the gains are masking earnings misses this season. The proportion of S&P 500 firms falling short of second-quarter EPS estimates so far hasn’t seen much improvement from last week’s 19.9%. As big-box retailers take center stage, this level could face more pressure when report cards from Walmart, Home Depot and Target surface, and Wall Street

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(Bloomberg) — Corporate America’s better-than-feared results, paired with cooling US inflation trends, may have offered some relief to equity investors this week, but the gains are masking earnings misses this season. The proportion of S&P 500 firms falling short of second-quarter EPS estimates so far hasn’t seen much improvement from last week’s 19.9%. As big-box retailers take center stage, this level could face more pressure when report cards from Walmart, Home Depot and Target surface, and Wall Street has been bracing itself over the past month and slashing earnings-per-share estimates. Bloomberg Consensus estimates have trended lower for nearly all companies in the S&P 500 Consumer Staples and Discretionary indexes that are reporting next week, with Bath & Body Works’ (BBWI US) profit projection getting cut by 24%.

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Earnings highlights to look for next week:

Monday: Li Auto (LI US) reports before the bell. Consensus estimates point to a sequential decline in revenue and deliveries for a second straight quarter, as Covid lockdowns in China forced a cut in output, Bloomberg Intelligence said. Investors could seek details from the Beijing-based maker of luxury electric SUVs on plans to shore up the supply chain as the company aims to almost double its car sales by 2025. 

  • Niu Techologies (NIU US) may post a sequential 50% sales growth when it reports before market open on Monday, based on the midpoint of its second-quarter revenue forecast given in May. BloombergNEF forecasts that global sales of electric two-wheelers will reach 32.8 million in 2022, up 6.4% from last year, according to its 2022 Long-Term Electric Vehicle Outlook.

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Tuesday: Walmart (WMT US) is expected to report before the bell. After the company warned that quarterly and yearly earnings will be lower than first expected, investors will be looking for details on which products are still attracting consumer spending. Walmart has been hard done by inflation that has forced customers to step-up purchases of food and other staples over higher margin, discretionary items, according to Bloomberg Intelligence, with more markdowns likely needed to move overstock inventory in some areas. Management might field questions on plans to diversify the business after a New York Times report that Walmart held talks with several streaming companies over a possible partnership. 

  • Home Depot (HD US) reports before market open. The home-improvement retailer is expected to continue to grow revenue and earnings as its preference among professional contractors, still working through elevated backlogs, should insulate the company from the broader slowdown in the do-it-yourself market, according to Bloomberg Intelligence. Home Depot’s same-store sales are expected to show more growth compared to last quarter, albeit still below the double-digits seen in 2021 and earlier this year, largely due to inflation increasing ticket sizes, says BI, which should be enough to offset declining transaction volumes. Competitor Lowe’s (LOW US), reporting before the bell Wednesday, is also seen expanding its top- and bottom-lines, but at a slower pace then Home Depot, as its customers curb home-improvement plans.

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Wednesday: Target (TGT US) is due to report premarket. The retailer’s EPS is expected to sharply fall by around 80% year-over-year as the company took drastic steps to rapidly liquidate its excess inventory, according to Bloomberg Intelligence, with further markdown expenses possible if customers continue to shift consumption into essential categories. The company has already cut its profit outlook twice in three weeks during the second quarter, as soaring stockpiles left the company unprepared to deal with changing demand. Still, inventories are expected to grow by 13% from a year ago, based on consensus estimates. Gross and operating margins are seen falling from last year again in the quarter, as discounts and higher supply-chain costs eat into profits. Target’s results could also give insights into what to expect for back-to-school shopping season, says BI.

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  • TJX’s (TJX US) second-quarter results are expected to reveal flat year-over-year revenue growth as pent-up demand in apparel is negated by normalizing sales at the company’s HomeGoods stores, according to Bloomberg Intelligence. TJX may benefit from the inflationary environment by attracting more value-conscious consumers looking to trade down into items offered at the company’s T.J. Maxx and Marshall’s branded off-price retail locations. Furthermore, excess inventory levels in the retail sector might present a buying opportunity for TJX, says BI, with consensus estimates calling for stockpiles to grow by about 12% from a year ago. TJX’s second-quarter report is due before the bell.

Thursday: Estee Lauder (EL US) fourth-quarter results are due premarket. The fragrance and beauty company is expected to record its first year-over-year contractions in EPS and revenue in seven quarters as the Asia business, which drives nearly a third of revenue, was weakened by China’s Covid lockdowns during the period, prompting the firm to cut its full-year guidance. Its premium skin care, fragrances and cosmetics are still in demand despite inflation pressures, Bloomberg Intelligence wrote, though entry-level products could be vulnerable in the months ahead as consumers adjust their discretionary spending habits. The gradual return of airport shoppers as well as China reopenings could help offset such risks. Investors may also watch for management commentary on the reported $3 billion deal to buy luxury fashion brand Tom Ford, which would be the company’s largest acquisition so far, according to data compiled by Bloomberg.

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  • Applied Materials’ (AMAT US) spending and demand outlook will be closely watched when it reports premarket. Bloomberg Intelligence wrote that orders from customers like TSMC and Samsung remained strong in the reporting period, but demand deceleration will be a focus of the conference call after semiconductor peers like Micron and Nvidia recently lowered full-year guidance on slowing demand. Potential supply chain disruptions in the parts for its chip-making tools may have crimped sales growth, which could come in flat based on consensus estimates. Longer term, both Jefferies and BI analysts noted that the firm’s advanced tools could help it maintain or gain market share, contributing to profit growth.

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Friday: Deere’s (DE US) third-quarter results are due before market open. Analysts for the agriculture equipment manufacturer are expecting EPS and revenue gains of more than 20%, thanks to higher production, slightly better price realization and gradual easing in the supply chain, BI said. Similar factors could push 4Q sales and margin to the highest levels of the year. Separately, Citi analyst Timothy Thein wrote that one of the largest commercial farms with operations across the western parts of US and Canada will soon replace equipment from competitor Case with an all-Deere fleet, something that can be seen as a testament to the company’s “precision and intelligence offering, well-capitalized dealer network and product portfolio,” and could help increase market share.

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  • ESG in Focus: Deere, along with iPhone maker Apple, have been seen as primary targets of the so-called “right-to-repair” movement, which the Biden administration has shown backing for with its executive order calling for regulation to prohibit manufacturers from barring independent repair of devices. Deere has been involved in a now consolidated class action lawsuit filed by farmers who want full repair control over their own equipment without having a company technicians “gate-keep” the authorizations to fixes. It had said in March that it will offer a consumer-facing version of its diagnostic tool in 2023, which is still a far cry from what farmers are asking for. Some farmers have resorted to older tractor models as they know they can repair them, Politico reported in July, which could have implications for its business and operations, BI ESG analyst Gail Glazerman said.

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