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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos - Aug 21, 2016 at 2:00PM

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Investors should keep an eye on J.M. Smucker, GameStop, and Guess shares over the coming days.

Stocks barely budged over the past five trading days, which left the Dow Jones Industrial Average ( ^DJI -0.36% ) and the S&P 500 ( ^GSPC -0.99% ) at near record highs -- up roughly 7% so far in 2016.

^SPX Chart

Data by YCharts.

The week ahead brings a few major earnings releases that could produce significant moves for the reporting companies, including J.M. Smucker ( SJM 1.20% ), Guess ( GES -0.97% ), and GameStop ( GME -4.83% ).

Tuesday, Aug. 23 -- Smucker's booming coffee segment

J.M. Smucker reports earnings before the market opens on Tuesday. The packaged food-and-snack company is riding high heading into this release: Shares are up 40% over the last 12 months as profitability has soared thanks to cost cuts and a booming coffee business. At its last quarter outing, in fact, gross profit margin jumped seven percentage points to reach 30% of sales.

Investors will be watching for continued gains in Smucker's Dunkin' Donuts and Folgers coffee brands and for evidence of progress integrating the Big Heart pet-food acquisition. CEO Richard Smucker and his executive team last forecast flat sales for fiscal 2017 and profits of $7.68 per share at the midpoint of guidance. Beyond that, innovation across its coffee, pet, and consumer-foods brands will be critical to long-term growth, given that a significant portion of sales in 2015 came from products launched just within the last three years.

Wednesday, Aug. 24 -- Guess' return to profitability

Guess shares, on the other hand, are limping into this week's earnings release -- down to six-year lows after a string of weak sales growth pushed profits way down. In fact, the apparel specialist reported a net loss last quarter during what CEO Victor Herrero described as a tough retail environment in the U.S. and China. "The start to the year has been a bit more challenging than we anticipated," he said in a press release.

GES Operating Margin (TTM) Chart

Data by YCharts.

Guess plans to swing back to an operating profit this quarter, with margins ticking up to about 2% on its way to roughly 4% for fiscal 2017. Investors have seen signs of life in the apparel market recently, as Macy's and Nordstrom both managed improvements during the second quarter. That implies Guess might reveal a reversal for its slumping customer traffic trends on Wednesday -- yet shares aren't likely to see a real recovery until profitability moves back toward double digits.

Thursday, Aug. 25 -- GameStop's race to grow new business lines

Expectations are low heading into specialty retailer GameStop's quarterly release on Thursday. The company is projecting a 5% drop in comparable-store sales as its traditional video game business continues to shrink. Last quarter, that segment endured a 29% dive in new video game hardware sales and an 8% decline in new software sales.

Other business lines are faring much better. GameStop's technology brands division, anchored by mobile and consumer electronics sales, spiked 60%. The retailer's new collectibles offerings kicked in major growth as well, rising over 250%.

Image source: GameStop.

Together, these expanding categories are more than offsetting the profit loss from a video game business that's on the way out as players transition to digital purchases. Net income is at a record high, which suggests this stock and its nearly 5% dividend yield could be an attractive bet for long-term investors. The key question is whether GameStop can nurture its new businesses to health at a fast-enough pace to offset the shrinking market for physical video game offerings.

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.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,515.44 (-0.36%) $-221.82
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,531.85 (-0.99%) $-45.25
Guess?, Inc. Stock Quote
Guess?, Inc.
$23.41 (-0.97%) $0.23
The J. M. Smucker Company Stock Quote
The J. M. Smucker Company
$129.38 (1.20%) $1.53
GameStop Corp. Stock Quote
GameStop Corp.
$172.79 (-4.83%) $-8.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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