By Emily Bary
U.S. retail companies will be eagerly watching Alibaba Group Holding Ltd.’s next Friday morning report, when the Chinese e-commerce giant will show what it was like to operate in the heart of the COVID-19 pandemic and emerge on the other side.
Business lockdowns imposed to combat the spread of the coronavirus are complicated for e-commerce players because the limitations on in-person activity can help entice people to shop online, but they also bring economic uncertainty that pressures discretionary spending.
Chinese government data showed slower overall growth for online purchases of physical goods in January and February, but the April growth numbers were back near pre-virus levels in what one analyst said was a positive sign for Alibaba. /zigman2/quotes/201948298/composite BABA -6.11%
Many U.S. retailers are set to report earnings in the week ahead as well, though they’re still bearing the brunt of the pandemic. And unlike Alibaba, which does almost all its business online, retailers like Walmart Inc. /zigman2/quotes/207374728/composite WMT +1.62% and Target Corp. /zigman2/quotes/207799045/composite TGT +2.63% have physical stores to worry about.
U.S. retail companies likely have a limited sense of what the rest of the year looks like for their businesses, given questions about the trajectory of the COVID-19 outbreak and what governments will do in response. Investors can expect little in the way of forward-looking financial commentary, in keeping with a broader trend that’s spanned sectors.
Roughly half of the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.85% companies that made financial announcements by May 12 yanked their earnings forecasts, according to a recent Gartner analysis, and a fifth more revised their outlooks. Only 11% maintained their prior forecasts.
Analysts currently model a 42% drop in earnings for the second quarter, compared with their forecast for an 11% drop as of the end of March. They also project a 20.5% decline for the full calendar year, while they had been expecting only a 1.1% contraction as of March 31.
Most companies have declined to offer second-quarter forecasts, according to Gartner, and the overall dynamics with corporate guidance highlight the “depth of uncertainty company leaders are coping with at present,” Gartner Finance director Steve Adams said in a release.
Of those companies that entirely withdrew their forecasts, 20% were in the industrials sector, which “includes airlines, construction companies, and manufacturing companies—all of which are deeply struggling to forecast consumer demand across 2020,” Adams said. Industrial companies accounted for the largest proportion of rescinded outlooks, followed by the consumer discretionary sector, and the IT and financial sectors.
We’ll hear more from the technology sector in the week ahead with several big names on tap, including Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -1.40% , Expedia Group Inc. /zigman2/quotes/202291990/composite EXPE +1.70% , and Take-Two Interactive Software Inc. /zigman2/quotes/204008930/composite TTWO -1.13% In retail, Alibaba and Walmart will be joined by Best Buy Co. Inc. /zigman2/quotes/205918291/composite BBY +1.37% , Home Depot Inc. /zigman2/quotes/208081807/composite HD +2.31% and others.
Here’s what to watch for as 24 members of the S&P 500 and two Dow Jones Industrial Average components post results.
A rush of retail
The coming week offers a glimpse at how U.S. retailers have been dealing with store closures and managing their shifts to e-commerce. Walmart, Home Depot, and Kohl’s Corp. /zigman2/quotes/210414114/composite KSS +0.05% kick things off with their Tuesday morning reports, followed by Lowe’s Companies Inc. /zigman2/quotes/205563664/composite LOW +2.29% and Target on Wednesday morning and L Brands Inc. /zigman2/quotes/202062875/composite LB +0.57% Wednesday afternoon. Best Buy gives a read on personal-tech spending Thursday morning.
Walmart recently “accelerated the development” of a new two-hour delivery offering that will cost $10 on top of existing delivery charges. The company began a pilot of the service in 100 stores in April and planned to expand it to 1,000 in early May. Morgan Stanley analyst Simeon Gutman will look to see if that service helps Walmart attract more middle- and upper-income customers.
L Brands’s report is expected to show the “increasingly stark bifurcation between the performances of Bath & Body Works and Victoria’s Secret” given “increased soap demand,” wrote Deutsche Bank analyst Tiffany Kanaga. The company will also discuss its new strategic vision now that the deal for Sycamore Partners to buy Victoria’s Secret is off the table, with L Brands now planning for Victoria’s Secret to operate as a standalone company.