Author: Demitri Kalogeropoulos

TGT – Target Gives Bulls Another Reason to Cheer

Investors had high hopes heading into Target‘s (NYSE:TGT) second-quarter earnings results, and the Wall Street favorite didn’t disappoint. Sales growth was strong, even compared to soaring demand from a year ago. And Target’s profit margins continue expanding despite higher expenses.

Those wins have CEO Brian Cornell and his team projecting a great second half of the year ahead, one that might deliver even more gains for shareholders. Let’s take a closer look.

A woman checks her smartphone while shopping.

Image source: Getty Images.

Market share boost

Target didn’t issue a market share estimate this quarter after noting in late May that it gained roughly $10 billion in new business since the start of the pandemic. Yet all the signs of continued growth on this core metric were there.

Sales rose 9% in Q2 on top of 23% growth a year ago. The e-commerce segment contributed to those gains, but rising customer traffic was the biggest factor. Target handled 13% more transactions this quarter than it did a year ago. For context, traffic was up 3% in 2019 and 5% in 2018.

Target’s 15% traffic spike in the first half of 2021 suggests it has hit on an unusually strong retailing platform to meet today’s consumer needs. “We’ve spent years building and investing in the durable model we have today,” Cornell said in a press release, “which is supported by a differentiated strategy and the best team in retail.”

Climbing margins

Target’s profitability continued to push further away from peers, too. While expenses rose, the chain enjoyed higher prices and a shift in demand toward premium products and less reliance on promotions.

TGT Operating Margin (TTM) Chart

TGT Operating Margin (TTM) data by YCharts

Overall, operating margin held steady at 10% of sales, or about double Walmart‘s (NYSE:WMT) rate. Those results “reinforc[ed] Target’s leadership position in retail,” Cornell said. Operating earnings jumped to $2.5 billion, compared to $2.3 billion a year ago, and beat most investors’ expectations.

A fresh outlook

Target is still busy spending cash on a long list of growth initiatives, which mainly involve building a multi-channel infrastructure around its store base that can accommodate all the extra volume it has won since early 2020. The short-term outlook is bright, with comps likely to rise in the high single digits over the next two quarters.

Profitability will fall in that period, according to management, due to rising spending and higher transportation and wage expenses. But the full-year margin rate should still be over 8%, or 2 full percentage points higher than Target had managed before the pandemic struck.

Meanwhile, the sales gains in attractive consumer niches like apparel, toys, and home furnishings have executives eager to extend Target’s presence and capitalize on its momentum as a trusted multi-channel retailer. “Even after unprecedented growth over the last two years,” Cornell explained, “we see much more opportunity ahead.”

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

BJ – BJ's Wholesale Club Earnings: 3 Takeaway Numbers

BJ’s Wholesale Club (NYSE:BJ) is a more attractive business today than it was before the pandemic struck. The retailer is winning market share in a competitive niche that has it battling with giants like Walmart (NYSE:WMT) and Costco (NASDAQ:COST). And its latest earnings report shows how BJ’s can stand out from these peers even as it works to create its own national footprint.

Let’s look at three key highlights from that earnings announcement.

An employee restocks fresh vegetables.

Image source: Getty Images.

1. Two-year sales growth: 21%

BJ’s sales declined as compared to last year’s surging results, as expected. Comparable-store sales were down 3% after excluding gasoline price shifts, marking only a modest rebound compared to last quarter’s 5% drop.

Zoom out a bit and you’ll see confirmation of BJ’s expanding market share. On a two-year basis, which smooths out the impact of the pandemic surge, comps are up 21%. Walmart (which operates Sam’s Clubs as part of its retail holdings) announced earlier in the week that its two-year bounce was 14.5%. BJ’s can celebrate having won some ground against even leading retailers like that. “We … expanded our market share and continued to benefit from elevated consumer spending trends,” CEO Bob Eddy said in a press release.

2. Gross profit margin: up 0.3 percentage points

Inflationary times like these tend to pressure earnings for warehouse retailers because low prices are a core reason shoppers visit these big-box giants. Yet BJ’s hit the right balance between price leadership and profitability.

Gross profit margin edged higher thanks to a shift toward some of the shopping categories management has targeted, like consumer electronics, fresh food, and home furnishings. That extra demand offsets rising costs across the supply chain. Adjusted net income landed at 2.7% of sales compared to Costco’s recent 2.5% rate.

These gains came despite aggressive spending on BJ’s growth initiatives. “We have invested into our team members, the value of our membership, our digital infrastructure, and physical footprint to continue to accelerate our growth flywheel,” Eddy explained.

3. Membership fee income: up 7.6%

Those improvements have all created a more valuable subscription for BJ’s shoppers this year, and investors are starting to see the benefits from that boost. Membership fee income rose nearly 8% this quarter to outpace sales growth. The increase came from several factors, including a growing membership base and improving renewal rates.

BJ’s is laying the foundation for additional increases in its annual fee structure, which will flow almost directly toward higher earnings. The retailer is entering the second half of 2021 with lots of cash, too, that executives can direct toward lower prices over the short term. Looking further out, they can target a more aggressive expansion into new markets and more attractive yet competitive neighborhoods.

Management couldn’t venture a 2021 fiscal-year outlook this week, citing major risks including new COVID-19 outbreaks and uncertain consumer demand trends. But shareholders have every reason to expect the chain to stay on the offensive when it comes to growth. BJ’s customers are telling the chain that they love the expanded merchandise categories and new services like curbside pickup. The company’s task now is to keep rolling those offerings out to a selling footprint that reaches beyond its current regional focus.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

EBAY – eBay Earnings: 5 Numbers You Should Know

eBay (NASDAQ:EBAY) isn’t growing like it was in the early days of the pandemic. The online marketplace just posted some of its weakest sales metrics since 2019 as the stampede toward e-commerce slows. Its pool of active buyers shrank, and eBay handled lower volume than it did a year ago.

Still, its second-quarter results contained mostly good news for shareholders, including booming cash flow and encouraging growth in new business lines like advertising and payments processing. Let’s look at a few of the standout numbers from eBay’s second quarter.

A woman checks her smartphone while working on a laptop.

Image source: Getty Images.

1. Buyer pool: 159 million

One of eBay’s core growth metrics, its pool of active buyers, shrank 2% year over year to mark a sharp turnaround compared to the previous quarter. That figure was not only solidly positive through the past year but had accelerated in each of the last four quarters (rising from 1% in early 2020 to 8% at the start of 2021). The slump was reflected in falling gross merchandise volume (GMV), which fell 11% compared to a better-than-20% rise in each of the last four quarters.

2. Revenue: Up 11%

Management wasn’t surprised by the GMV pullback, and growth in the core business is still impressive compared to 2019. Meanwhile, eBay is getting a big boost from its advertising and digital payments offerings, which helped overall revenue rise 11% despite declining volume.

Executives had predicted between 8% and 10% growth on that metric back in May. “On an apples-to-apples basis,” CEO Jamie Iannone said in a press release, “all key business metrics met or exceeded expectations.”

3. Transaction fees: 11.3%

eBay’s financial metrics were noisy due to the portfolio transformation project that’s produced several major divestments since 2019. Strip out those temporary impacts, and the news is all good. eBay’s operating expenses fell as a percentage of revenue, free cash flow improved to 34% of revenue, and its transaction income — the fees it charges sellers to use the platform — rose to 11.3% of the top line compared to roughly 9% before the pandemic struck.

4. Cash returns: $1.6 billion

Management took advantage of the gushing cash flow and extra funds from the sale of its classifieds business. Stock-buyback spending jumped to $1.5 billion, up from less than $40 million in the prior-year period. Executives say they intend to deliver “meaningful returns” to shareholders from buybacks and dividends, and these latest figures back up that promise. “We are simplifying our portfolio,” Iannone said, “and growing our core while delivering significant shareholder value.”

5. The Q3 outlook: 6% to 8% organic growth

eBay called for another growth slowdown as organic revenue growth decelerates to between 6% and 8% in the third quarter (down from 11% this past quarter and 38% at the start of the year). Investors should be happy with that outlook, since it implies a soft landing from the volume spike in 2020.

There are many reasons to expect higher annual earnings from here too. Three of the biggest reasons include eBay’s new business lines, its double-digit transaction fees, and its aggressive share repurchase activity. These factors should amplify shareholders’ returns from holding this growth stock over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

TJX – TJX Companies Earnings: 3 Things to Watch

TJX Companies (NYSE:TJX) announces its latest earnings results in just a few days, and Wall Street will be watching. The off-price retailer’s stock has been trailing the market in 2021, but its performance gap is closing. Investors are hoping to see evidence of a gathering growth rebound and improving profitability thanks to economic reopenings through the early summer.

That recovery will ideally spur an upgrade to management’s fiscal year outlook, too. So, let’s look at three key metrics to watch when TJX Companies announces its results on Wednesday, Aug. 18.

Three shoppers in an outdoor mall.

Image source: Getty Images.

1. Sales rebounds

There’s been a lot of noise in TJX’s last few announcements. But most indications are that this week’s report will be a head-turner. Comparable-store sales gains were 16% in Q1, the company revealed in early May. Management raised its outlook just a few days later, too, after those trends continued deep into the second quarter. Many peers have been describing unusually strong selling conditions for apparel and home furnishings so far in 2021.

Most analysts are expecting soaring sales gains, with revenue projected to jump 66% compared to a year earlier when most stores were temporarily closed. Yet TJX might even surpass that forecast if it was able to stock the right merchandise for shoppers seeking apparel and home furnishings. The HomeGoods franchise should lead the way higher, just as it did last quarter.

2. More normal margins

There’s no shortage of profit pressures out there, including higher transportation and labor costs. TJX might also have struggled to find its usual deep discounts on apparel and home furnishings during the cyclical industry upturn. Full-price retailers haven’t had to resort to much discounting in recent months, after all.

Yet Wall Street is nevertheless hoping to see improving margins. TJX’s peers are enjoying rebounds in this arena as they rely less on promotions and as shoppers opt for more premium products. The off-price giant should benefit from that situation.

TJX Operating Margin (TTM) Chart

TJX Operating Margin (TTM) data by YCharts

TJX Companies enjoyed double-digit operating margin before the pandemic scrambled its business. Look for another step back toward that industry-thumping result on Wednesday.

3. Looking out to the holidays

A strong Q2 should convince CEO Ernie Herrman and his team to lift their 2021 outlook again. However, investors must brace for some volatile operating metrics in the second half of the year due to further COVID-19 outbreaks and wild demand swings compared to late 2020.

The good news is that TJX appears to be regaining all of the impressive momentum it had before the pandemic struck. And cash returns are rising, with the dividend reinstated and stock repurchase spending back. Combine those direct returns with the prospect for a full rebound, and TJX looks like an attractive retail stock to consider holding through 2021 and beyond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

ATVI – 3 Big Takeaways From Activision Blizzard's Earnings Call

Shareholders of Activision Blizzard (NASDAQ:ATVI) are in for another banner fiscal year. The video game developer recently lifted its 2021 outlook after players stayed engaged in franchises like Call of Duty in the early summer. The worries of a sharp slowdown were overblown.

While the company’s short-term outlook is brighter than that of peers like Take-Two Interactive, Activision is still facing some unusual workplace challenges that could hurt investor returns. CEO Bobby Kotick and his team discussed those hits and misses in a conference call with Wall Street analysts, and below are a few highlights from that presentation.

Two people playing a video game.

Image source: Getty Images.

1. It’s a Call of Duty world

Activision enjoyed strong gamer engagement across the portfolio, but the standout franchise was Call of Duty. The audience size declined compared to a year ago, when social distancing was at its peak. But people are spending much more time and money in the ecosystem than they did in 2019.

And the free-to-play mobile and battle royale offerings are funneling demand toward premium titles like Black Ops: Cold War and Modern Warfare. In-game spending was over four times the level from the second quarter in 2019. The audience size was three times higher, executives said. “We continue to see robust engagement even as regions continue to reopen,” Kotick said.

2. The pipeline is stacked

Unlike Take-Two Interactive, which disappointed investors by delaying a few of its core releases, Activision Blizzard is flooding the market with new content. There’s a new premium Call of Duty game set to hit around November and lots of content updates attached to the World of Warcraft (WoW), Candy Crush, and Diablo franchises.

Executives are especially excited about Diablo‘s push into the mobile platform. That’s part of their wider strategy of applying the successful Call of Duty approach to other franchises.

In a nutshell, that involves building a bigger audience through free-to-play options, which end up driving demand for more premium titles. “Our current plans contemplate compelling new experiences across Call of Duty, WoW, and Candy [Crush],” COO Daniel Alegre said, “alongside several major new titles across PC, console, and mobile.”

3. Looking ahead

It’s too early to know whether the regulatory challenge involving Activision’s workplace safety and diversity will cost the company much in terms of penalties or further management changes. But the current outlook is bright for both sales and earnings.

Activision is expecting a strong second half of 2021, including more year-over-year growth, even compared to last year’s surge. Investors will know much more by the third quarter earnings report in three months, which occurs right around the official launch of the annual Call of Duty installment.

But right now, Activision has a clear path toward another record fiscal year. “Our expanded teams are focused on delivering epic in-game and upcoming content,” CFO Armin Zerza said. The reception of those releases will determine whether the growth stock improves just modestly on 2020’s results or turns in another market-thumping performance this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

BJ – What to Look for in BJ's Wholesale Club's Earnings

BJ’s Wholesale Club Holdings (NYSE:BJ) investors are in for a volatile trading week. The stock has rallied in 2021, but that surge will be tested when the retailer announces its latest earnings results on Aug. 18.

Expectations are high heading into the report, even though growth is sure to slow compared to a year earlier when people were busy stocking their pantries in the early days of the pandemic. So, let’s take a look at the metrics that might keep BJ’s running ahead of the market, and of peers like Walmart (NYSE: WMT) and Costco Wholesale (NASDAQ: COST).

An employee stocks fresh vegetables.

Image source: Getty Images.

Market share

BJ’s gained more than its fair share of new shoppers during the pandemic, with sales jumping 17% in fiscal 2020, which ends in late January. Its rivals have slightly different fiscal years, but Walmart’s Sam’s Club grew at a 12% rate over the comparable period. Costco’s gains were closer to 14%.

BJ’s comparable-store sales and customer traffic numbers will be judged against the latest results from these retailing giants for signs of continued market share growth. Walmart posts its updated numbers two days before BJ’s announcement. Costco already revealed solid sales gains for the month of July with comps landing at 8%. Look for CEO Bob Eddy and his team to highlight BJ’s two-year growth numbers this week. The warehouse giant’s recent expansion pace by that metric landed at 22%.

Passing along higher prices

BJ’s said back in May that it was well positioned to weather industry challenges like inflation, supply chain stresses, and slowing growth. The early 2021 profitability pinch was just a temporary swing, management predicted.

BJ Operating Margin (TTM) Chart

BJ Operating Margin (TTM) data by YCharts

Investors can judge that forecast against BJ’s profit margins in Wednesday’s report. Higher membership fee income should help it keep operating margin at 4% of sales or higher, keeping BJ’s in good company compared to industry peers. Success on this score is crucial to fund management’s greater ambitions of establishing a national selling footprint over time.

Looking ahead

That growing footprint is a major selling point for the stock. BJ’s is planning to open six new warehouses in fiscal 2021, including two in brand-new markets for the retailer. The company currently operates roughly 220 warehouses across 17 states. Costco operates 562 locations across the entire country.

BJ’s ability to quickly ramp up toward a national footprint will depend on its ability to keep growing in this competitive niche. While the chain is likely to announce a sharp slowdown this quarter when compared to year earlier, its sales are still running much higher than they were in mid-2019. And BJ’s has a bigger cash holding today than it did before the pandemic struck.

These assets should be valuable for the company’s next growth phase that involves consolidating recent market share wins while reaching out into new markets that put it in more direct competition with established retailing rivals.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

TGT – Target Earnings: 3 Numbers to Watch

Target‘s (NYSE:TGT) stock has been one of the biggest surprise winners of the pandemic. Its recent list of successes reads like a Wall Street wish list. Market share gains in an expanding industry? Check. Rising profit margins? Yes. Soaring cash returns? You bet.

It’s no wonder that investors are feeling optimistic heading into the retailer’s second quarter earnings report in just a few days. But that enthusiasm might lead to disappointment for shareholders if the company stumbles in the upcoming report.

With that backdrop in mind, let’s look at some metrics to follow in Target’s Aug. 18 earnings announcement.

Three young women shopping together at an outdoor mall.

Image source: Getty Images.

1. Market share

There’s no doubt that investors are in for some head-turning sales numbers. Revenue should land at about $25 billion, according to Wall Street estimates, compared to $23 billion a year ago. Also keep in mind that the prior-year figure was up 25% due to soaring demand for staples and home supplies during the early days of the COVID-19 pandemic. Target is looking to put significant gains on top of that blockbuster performance.

Market share is the more important thing to watch, since that’s been the key factor supporting the stock’s epic run in the last year. Target has gained about $10 billion of new business since the pandemic began, and that’s thanks to competitive advantages like its premium but affordable products, ultra-fast fulfillment, and multichannel selling platform. CEO Brian Cornell will likely give an updated estimate of that market share performance on Wednesday.

2. Margin questions

Sales spikes are nice to see, but it’s that combined with rising profitability that’s catapulted earnings into a higher gear in recent quarters. In contrast with peers like Walmart (NYSE: WMT), which focus more on consumer staples, the retailer has been able to take full advantage of shoppers’ desire for premium merchandise, whether in the apparel, home furnishings, or electronics niches.

TGT Operating Margin (TTM) Chart

TGT Operating Margin (TTM) data by YCharts

Investors are worried that these good times might end because of inflation, slowing economic growth, or increased spending needs. That’s why all eyes will be on Target’s operating profit margin as the business heads into the second half of 2021. That figure touched double digits last quarter, but it’s not yet clear where it will settle over the long term. The metric sat at roughly 6% in 2019, before the pandemic scrambled industry trends.

3. Looking out to the holidays

Target’s outlook heading into this week’s report calls for sales to rise as much as 9% in Q2, even following last year’s 19% surge. Management might again decline to issue a full 2021 forecast due to all the uncertainty around the pandemic and consumer demand swings. But its Q3 outlook should be similarly bullish, especially if customer traffic trends were strong in recent weeks.

This is usually the time of year that Target starts making comments about the holiday season, but don’t expect the same level of detail as previous years due to COVID-19 volatility. There’s no shortage of risks to the Q4 outlook, including rising prices and new virus outbreaks. But the best indication investors will have will be Target’s actual sales results this quarter and next quarter.

Meanwhile, the long-term outlook is bright for this attractive stock. Investors interested in growth don’t have to wait for the earnings announcement before buying shares of one of the retail industry’s biggest winners.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

W – Wayfair Earnings: 3 Things to Watch

Wayfair (NYSE:W) investors are in for some intense stock price swings over the next week or so. The online home furnishings retailer reports quarterly results on Thursday, Aug. 5. Share prices have been volatile heading into that announcement on worries about slowing growth in the wake of an easing pandemic.

That’s what Wall Street was fretting over last quarter, but Wayfair erased those concerns by revealing spiking demand and rising profit margins. Let’s look at the prospects for similarly good news in the company’s fiscal Q3 report.

Person sitting on couch with open laptop while holding a credit card.

Image source: Getty Images.

1. Look at more than just sales

Investors are expecting Wayfair’s first sales decline since the start of the pandemic as the company begins to go up against the strongest growth period from the early phases of the global outbreak. Revenue through June should land at about $4 billion, or down 3% compared to last quarter’s 49% boost.

The bigger questions surround the engagement level of the millions of new customers Wayfair added in the past year after COVID-19 sparked soaring demand for home furnishings. If these shoppers act similarly to previous new converts, then the growth outlook is especially bright. Follow repeat order volume and the size of Wayfair’s active user base for answers on this topic.

2. Prices are up, inventory is under pressure

The past few months brought new challenges that might hurt profitability, including rising costs and inventory pressures. Wayfair likely dealt with higher delivery expenses, increased prices from its suppliers, and cost spikes for online advertising.

W Operating Margin (TTM) Chart

W Operating Margin (TTM) data by YCharts.

CEO Niraj Shah and his team have predicted that the business might eventually reach a gross profit margin of around 30% of sales. “Our strong profitability should not only continue, but expand,” he told investors back in May. Investors will be looking for confirmation of that bold prediction in this quarter’s result and in Wayfair’s updated outlook for the rest of the 2021 year.

3. Looking ahead

In mid-May, Wayfair didn’t leave any doubt in its comments regarding management’s enthusiasm about growth prospects in 2021 and beyond. Shoppers are fundamentally more willing to shop online for an expanding range of home furnishings, Niraj predicted.

That outlook helps explain why most investors are looking for sales to rise by double-digit percentages this year even after Wayfair added a whopping $5 billion, or 55%, in 2020.

That optimism means it would be easy for Wall Street to get spooked by even faint signs that the pandemic boost is ending or that Wayfair isn’t profiting as much as it had hoped from its newest cohort of shoppers. Those are just two of the biggest risks to the elevated growth expectations investors are holding heading into Thursday’s report.

On the other hand, even a reduced 2021 outlook wouldn’t threaten Wayfair’s wider ambitions for a much larger sales base. The company has a dominant position in a growing industry niche. If it can keep satisfying customers looking for home furnishings and upgrades, as it did over the past year, then shareholders should see solid returns by holding this growth stock over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.