Just because Apple (AAPL) and Microsoft (MSFT) have reported their latest earnings doesn't mean the reporting season has finished.
Actually, it's far from over. Today brings three key reports ¿ Macy's (M), J.C. Penney (JCP) and Shake Shack (SHAK) (which I am calling a retailer as it sells fast food). You should pay very close attention.
Here is why.
How is the economy, right now? Investors should receive the truest insight into consumer demand from late April and early May in these reports, just as the job market bounced back with improved weather. If J.C. Penney had a solid conclusion to the quarter (it guided to not having a strong finish), it could bode well for the back to school selling season as employment gains stay above 200,000 a month. Transports would likely trade higher in sympathy.
Remember, the dollar has weakened. Shake Shack restaurants are big tourist destinations. With the dollar weakening a bit lately, I am very curious on whether tourists responded quickly by spending more than they planned. If they did, it could get me wondering if guidance on the impact of currency for companies such as Tupperware (TUP), Rubbermaid (NWL) and numerous other multinationals is too conservative (my sense is that yes, it's too conservative).
Where is the money going to flow? I think the overall performances from Macy's and J.C. Penney were on the softish side in the first quarter, and the tones in terms of guidance will be conservative. Subsequently, this could send investors rushing back into some of the hotter consumer oriented names because their fundamentals are far superior. A nice example would be the cruise line operators, particular Norwegian Cruise Line (NCLH), and Starbucks (SBUX) which I think is not done yet on announcing new products for the summer season. I believe investors will be right to rush to pay the premium to own best in breed consumer names as others in the sector struggle with their margins ¿ or simply vacate the trade and look for investable opportunities elsewhere.
In terms of specifics, Macy's earnings often don't offer much ¿ the company is rather guarded on the earnings calls. I will be on the lookout for trends in jeans and other more basic apparel sections ¿ reads there are going to be helpful in determining how well Wal-Mart (WMT) and Target (TGT) fared for Mother's Day and during a period of slight gas price creep. So, in my opinion, the big earnings reports to watch will be of Shake Shack and J.C. Penney.
It's hard for me to get excited about the setups on either pre-earnings...
Remember, the stock got whacked when the company delivered its first earnings report since going public earlier in the year. Since, the stock has acted quite well ¿ except for several odd, negative sessions on heavy volume in recent weeks. Not of a fan of seeing that, color me a conspiracy theorist. Big fan of the company's products and social mission, but not sold on the quarter being very robust as to justify the valuation. My reasons for this stance include: (1) company's key NYC hotspot remains closed for renovation; (2) company has been reluctant to raise prices to compensate for beef inflation, a problem that is weighing on Chipotle's (CMG) margins (but not for long, it's preparing to raise prices on beef products); and (3) I don't know how Wall Street will treat its darling on the earnings call if same-store sales miss. Same-store sales missed estimates throughout the restaurant sector in the first quarter.
The company mistakenly leaked its quarter-to-date same-store sales in April. Want to know what my immediate thought was (yes, for real): "stock analysts are peppering the company behind the scenes amid store tours that revealed elevated levels of discounting, sell the stock." I would like to be more optimistic on J.C. Penney, especially as Sears (SHLD) vacates more stores and hands over share to Macy's and J.C. Penney. But, first quarter sales running below long-term guidance, and the stock's negative reaction to the leak, leaves me concerned.
Today could be the day J.C. Penney tweaks its aggressive long-term sales and earnings targets. I think CEO Mike Ullman may want to make it easier for incoming CEO Marvin Ellison to beat expectations for the holiday season and beyond. Reducing his own wildly optimistic forecasts shared at an analyst day last October would be a classy move by Ullman.
Stat of the Day
Since Janet Yellen said stock valuations were "quite high" on May 6:
- S&P 500: +0.4%
- Dow Jones Industrial Average: +0.5%
- Nasdaq: +0.7%