US Consumer: The 5 Big Earnings Themes And 10 Stocks In Focus

By Scott Feiler, Goldman VP and consumer discretionary trader

5 Themes & 10 Stocks in Focus

• Better top-line: In general, most companies posted top-line results that were slightly better than consensus and the bogies (WMT, HD, TJX, ROST, PFGC). 

• Good exit rate: July was called out as the strongest month of the quarter and most spoke to a slightly better start to August as well.  

• Margins were also generally intact or better, with TJX and TGT two of the margin upside stories.

• Some market share issues:  It was not a rising tide lifts all boats though, as a couple companies did put up sluggish results, though these have mainly been company specific issues with market share (TGT & EL), as opposed to an industry issue.

• Week ahead: Largely expected to be fine/good prints, with beats expected from DKS, LOW, M, JWN, ANF, BURL, ULTA & DLTR, with a miss out of WSM and the most uncertainty around GPS & BBWI.

 Sentiment & Interest Levels in 10 of the Most Topical Names into This Week:

• DKS (7): Expectations have picked up throughout the quarter. Believe investors started the quarter short on promotional concerns and “lack of upside” but feedback is the data has gotten progressively better as the quarter has gone on. Now believe ~200 bps of comp upside is expected. Just unsure if investors want to own the name on the back of the beat into 3Q or will try and re-engage on the short side.

• LOW (6):  They were always expected to have a modest sales beat this quarter, like HD. Feels like the bar moved a touch higher after the bigger HD comp beat. Let’s call the bogey a 100 bps beat, so a -1.5% type comp and like HD, a reaffirmed FY guide. Despite the move higher in rates, think investors are modestly long here, just due to the stock trading at <15x out-year consensus and with small upside expected this quarter.

• M (5) & JWN (7): Believe investors want to have a long bias in Macy’s, but have seen sentiment notably cool some and some HF long supply on the desk, with comp checks (vs consensus) fine still, but just not showing the magnitude of upside seen elsewhere. Think a very modest sales beat expected (under 100 bps) and investors are trying to decide what to do with a very cheap stock that could beat, but which still has sales growth running down high-singles on an absolute basis. JWN at a 7 is one of the names where there was a clear trade into the long side this quarter. This is the department store where most have the highest conviction of a beat (200 bps). The question revolves around whether this is just a 2Q trade or something more. Stock has pulled back notably into the print, depsite some expected upside. Currently, most of the inbounds are strictly around 2Q. 

• ANF (8):  Highest expectation print into next week, with a sizeable EPS beat expected, similar to last quarter. 

• BBWI (6): Probably the most asked about specialty name into EPS, despite our view that few are looking for any significant divergence vs consensus on the quarter. We have heard a bit of everything as it relates to expectations on this print, but the most common feedback has centered on a -1-1.5% comp (modest upside to consensus) and also modest upside to EPS. There is a positive bias on the name still, though most investors we ear from are not long just due to a view on this quarter. 

• WSM (2): One of the lower expectations prints on the weak, with comps expected to miss small. Most seem to be in the -9 or -10% comp range vs Consensus -8.3%. Despite many realizing “they are in the crowd,” it does not seem to be one investors are stressed about, as they appear to be short for the go-forward theoretical margin contraction, not just a play on 2Q. 

• BURL (6): One of the more fascinating prints into this week. The highest inbound count of any stock this quarter on our desk. Quarter started off with a view that they were missing but checks were better later on. Unclear if that was a +4% comp or a +5%, but after the sizeable beats at ROST and TJX, seems clear it needs to be a +5% and an EPS beat. The stock has underperformed the peer average by over 20% YTD so it’s a name investors seem inclined to own, but are perpetually nervous given last year’s comp misses. 

• DLTR (6): Modest upside to the comps expected here, unlike at DG. The upside mainly appears to be coming from Dollar Tree brand, with the magnitude seemingly around 150 bps. Seems most expect a reaffirm or a modest raise. Picking up small new long inquiries in the name as its moved lower and gotten back below 20x P/E the out-year consensus number.

• GPS (3):  Next to VSCO, we think GPS is the specialty stock with some of the lowest expectations this quarter. Channel checks on Old Navy and Athleta have both leaned fairly cautious, though the “bogey” on that has been all over the place. Despite us marking positioning as just at a 3, we think the incremental interest in the name is from longs who seem willing to look past this quarter and see what new management is going to have to say about fixes on the go-forward.

• ULTA (6): This is similar to DKS, in that investors were cautious earlier in the quarter on management’s comments about promotions on the 1Q call.  However, as the quarter went on and data implied another beat, sentiment has improved. We’d call the bogey a +8% vs Consensus +6.5%, with nobody likely to be surprised if they do more like a +9%. The focus though and concern seems to be on commentary from management about shrink. There was clear feedback that mgmt. spoke about this during the quarter at conferences, but a lack of conviction as to whether this was in management’s guide or not (after all, consensus gross margins are -45 bps this quarter vs just -10 bps last quarter). There is a little bit of a wall of worry to be climbed here.

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