Are we in a recession? Retail earnings preview: Costco, Dollar General, Dollar Tree, BIG

Walmart and Target have spoken, and the market did not like it.
Consumer spending is already being hit by inflation.
Next week sees more retailers report earnings.

Ivan Brian FXStreet

This week was shock and awe in terms of retail and consumer stocks. Traditionally viewed as a safe haven in times of market stress, Walmart (WMT) kicked things off with a downbeat outlook, but Target (TGT) really set investor fears on high alert with its clearly bearish outlook. Both companies reported declining margins as cost pressures ramped up. Even more worrying though was the noted shift in consumer demand to lower cost, lower margin items, meaning this could be a permanent trend. Lower margins mean lower profits for the retailers, and investors moved to immediately price in a likely recessionary outcome.

Next week is now interestingly teed up for a counter-trend rally. Retailers such as Costco (COST), Dollar General (DG), and Dollar Tree (DLTR) all report along with plenty of others in what is shaping up to be a key week to gauge the strength of the US consumer. Big Lots (BIG), Best Buy (BBY) and Williams Sonoma (WSM) complete the lineup. Our base case is the risk-reward is now favoring outperformance to the upside. We have no visibility on earnings (that would be insider trading!), but we do have a line of sight on investor sentiment and positioning. Both are now at extremely negative levels toward consumer stocks. Any positive surprises or even inline earnings will see relief rallies. Disappointment is already priced into retailer's share prices in our view. Costco stock is down 15% in the last two sessions, Dollar General is -11% for the same period, while DLTR stock dropped 15% on Wednesday. Williams Sonoma (WSM) is down 15%, and Best Buy (BBY) is down 13% this week. Certainly, things can get worse and likely will as inflation takes its toll, but the short-term risk reward is higher in our view.

Source: CNN.com

Costco Earnings Preview

Costco is expected to post EPS of $3.03 and revenue of $51.16 billion when it reports after the close on Thursday, May 26.

COST stock chart, daily

Dollar General Earnings Preview

Dollar General is expected to post EPS of $2.32 and revenue of $8.71 billion when it reports after the close on Thursday, May 26.

DG stock chart, daily

Dollar Tree Earnings Preview

Dollar Tree (DLTR) is expected to post EPS of $1.99 and revenue of $6.77 billion when it reports also on super Thursday, May 26. But Dollar Tree reports before the open.

DLTR stock chart, daily

Best Buy Earnings Preview

Best Buy will report on Tuesday, May 24, before the open. EPS is expected to be $1.59 on revenue of $10.456 billion.

Williams Sonoma Earnings Preview

Williams Sonoma (WSM) will release earnings on Wednesday, May 25, after the close. EPS is expected to come in at $2.88 and revenue at $1.81 billion.

Like this article? Help us with some feedback by answering this survey:

Author

Ivan Brian

FXStreet

Ivan Brian started his career with AIB Bank in corporate finance and then worked for seven years at Baxter. He started as a macro analyst before becoming Head of Research and then CFO.

GBP/USD retreats further, clinches three-day lows

The British Pound comes under extra selling pressure at the beginning of the week, dragging GBP/USD to fresh three-day troughs near 1.3350. Cable’s steady drop follows the improved tone in the Greenback as effervescence in the Middle East remains everything but abated.

EUR/USD posts modest gains above 1.1350 as traders await US CPI inflation release

The EUR/USD pair posts modest gains near 1.1385 during the Asian trading hours on Tuesday. Nonetheless, the potential upside for the major pair might be limited amid renewed US military strikes against Iran. Traders will take more cues from the US June Consumer Price Index inflation data, which will be released later on Tuesday.

Gold struggles below $4,000 as Iran risks benefit USD ahead of the US CPI and Fed's Warsh

Gold hits a nearly two-week low, around $3,982, during the Asian session on Tuesday and seems vulnerable as escalating US-Iran tensions continue to benefit the safe-haven US Dollar. Moreover, the closure of the Strait of Hormuz lifts Crude Oil prices higher, reigniting inflation fears and bolstering Fed hike bets. This further underpins the buck as traders look to the US CPI report and Fed Chair Kevin Warsh's testimony before placing fresh directional bets on the non-yielding bullion.

Bitcoin holds near $62K ahead of key macroeconomic reports

Bitcoin traded near $62,000 on Monday, holding onto recent gains as investors adopted little conviction ahead of key macroeconomic reports this week. In a report on Monday, QCP analysts highlighted that Tuesday's US Consumer Price Index data could be the first major catalyst to decide the market's direction.

The week ahead: Geopolitical risks rise, Warsh speaks to congress and earnings season gathers pace

It’s a shaky start to the week for financial markets. The oil price has risen by nearly 4% and Brent crude is trading above $79 per barrel. This comes after more attacks between the US and Iran in the Gulf, and statements from the Iranian regime that it has closed the Strait of Hormuz.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.