Please ensure Javascript is enabled for purposes of website accessibility

3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos - Mar 19, 2017 at 3:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Why Nike, GameStop, and Five Below stocks could make big moves over the next few trading days.

Stocks edged higher last week to help the Dow Jones Industrial Average (^DJI -0.86%) and S&P 500 (^GSPC -1.29%) extend their 2017 gains of roughly 6% so far. 

^SPX Chart

^SPX data by YCharts.

Retailers will likely be some of the coming week's biggest movers as they reveal their holiday-season sales and profit results. The most anticipated quarterly reports ahead will be coming from Nike (NKE -2.46%), Five Below (FIVE -4.27%), and GameStop (GME -3.80%).

Nike on Tuesday

Dow giant Nike announces its earnings results on Tuesday, at a time when investors are starting to feel more confident about its business. After finishing dead-last among the 30 Dow stocks last year, shares have modestly outperformed the broader market so far in 2017.

Nike's sales growth has been slowing, dropping to 9% over the past six months compared to 12% in fiscal 2016, and 14% in the prior year. Its gross profit margin is also down significantly. Yet the company made good progress at clearing out excess inventory over the past few quarters, which suggests that an earnings rebound could be on the way.

A range of Nike shoes.

Image source: Nike.

Still, rival Under Armour didn't provide an encouraging view of the industry in late January, when it missed its sales and profit growth estimates while citing weak demand in the U.S. market. With half of its business coming from international geographies (compared to 15% for Under Armour), Nike isn't nearly as exposed to soft U.S. trends. That's why investors are optimistic that the company will show progress toward rebounds in sales growth and profitability this quarter.

Five Below on Wednesday

Specialty retailer Five Below will post its holiday quarter results after the market closes on Wednesday. The stock has been stuck in neutral ever since the company lowered its sales and earnings outlook in early January, citing soft shopper trends.

At the time, CEO Joel Anderson and his executive team projected that comparable-store sales likely increased by just 1% in the quarter, which would produce total 2016 sales of $1 billion, equating to 20% growth over the prior year. "After a solid start to the holiday season," Anderson explained, "we experience softness in mid-December, including Super Saturday, with sales accelerating later in the holiday season." 

Investors will be focused on how far actual results deviated from the company's January forecast. They'll also be keenly interested in profitability, since a gross margin decline would imply that customer traffic trends were surprisingly weak. Longer term, Five Below's 2017 forecast could send the stock sharply higher, or lower, if it predicts much change from the 2% comps increase it has averaged over the last year.

GameStop on Friday

GameStop is in a race against the clock. The company is working hard to ramp up new business lines such as consumer electronics, cellular service, and collectables merchandise, while the core video-game market on which it built its retailing empire falls apart. The strategy had been working well, and in fact, the company set a new record high for profits in fiscal 2015. But things haven't worked out nearly as well this year. Comparable-store sales are on pace to fall by as much as 12% in 2016.

Two kids playing video games.

Image source: Getty Images.

The company warned that falling store traffic and declining prices hurt software sales over the holidays. CEO Paul Raines and his team also noted a surprising drop in demand for gaming consoles. "During the holiday period, sales in the video game segment were impacted by industry weakness, promotional pricing pressure and lower in-store traffic, amid a difficult holiday season for many retailers," Raines said in a press release. 

Significant growth in the tech brands segment will likely soften the blow from gaming declines this week, but GameStop will still need to convince investors that it has a solid plan for returning to growth as its core customers shift their spending to online sales channels.

Demitrios Kalogeropoulos owns shares of Nike and Under Armour (A and C shares). The Motley Fool owns shares of and recommends Nike and Under Armour (A and C shares). The Motley Fool has the following options: short April 2017 $28 puts on GameStop. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$113.16 (-2.46%) $-2.85
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,706.74 (-0.86%) $-292.30
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,228.48 (-1.29%) $-55.26
GameStop Corp. Stock Quote
GameStop Corp.
GME
$36.49 (-3.80%) $-1.44
Five Below, Inc. Stock Quote
Five Below, Inc.
FIVE
$135.98 (-4.27%) $-6.06

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.