Stocks ticked lower last week, with both the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) shedding less than 0.5%. The indexes remain close to all-time highs, up substantially so far in 2017.
Retailers will be in focus over the coming trading days, with Home Depot (NYSE:HD), Target (NYSE:TGT) and Foot Locker (NYSE:FL) each set to report third-quarter results while giving investors updates on their holiday season outlooks. Here's what to look for in the announcements.
Home Depot's customer traffic
Home Depot's recent operating results make it clear that this is a good time to be in the home-improvement business. While other retailers are struggling to achieve any growth at all, the company in August announced a 6% sales spike and 14% higher earnings, all thanks to accelerating customer traffic gains.
That result trounced rival Lowe's -- again -- and the smaller chain is apparently tired of lagging behind Home Depot in this critical growth metric. As a result, management rolled out plans to increase marketing and boost store hours in hopes of snatching back some of the lost market share. Lowe's executives said they were prepared to sacrifice profitability to reach this goal.
With competition stepping up, investors will be watching for any change in Home Depot's aggressive full-year outlook that's targeting comps of 5.5% and a 13% jump in earnings per share.
Target's holiday forecast
Target announces its third-quarter earnings results before the market opens on Wednesday. The retailer has been posting flat sales lately, with comps rising 1.3% last quarter while falling at the same rate in the fiscal first quarter. Still, executives are encouraged by improving customer traffic trends and spiking e-commerce sales. "We are pleased that second-quarter traffic increased more than 2 percent, reflecting growth in both our store and digital channels," CEO Brian Cornell told investors in August.
This week's announcement will be important mainly for what it says about Target's posture heading into the critical holiday shopping season. The company has shifted to a more promotional stance to defend against online rivals and value-focused peers, including Wal-Mart. Investors will learn on Wednesday whether that model is generating stronger momentum in the second half of fiscal 2017.
Target's most recent forecast has comps holding flat for the year, with adjusted earnings coming in between $4.34 per share and $4.54 per share. Yet even a small shift in sales trends in the fourth quarter could impact those top- and bottom-line results dramatically.
Foot Locker's store base
Investors are bracing for bad news from sports shoe-and-apparel specialist Foot Locker on Friday. After all, the company last posted a surprising 6% comps decline that management blamed on slumping demand and a lack of innovative new products on the market. "We believe these industry dynamics will persist through 2017," executives warned as they reduced their growth outlook to target declines of between 3% and 4% for the rest of the year.
Foot Locker gets most of its supply from Nike, and that's why it's good news that the industry titan recently expressed confidence that the U.S. market will return to growth, thanks, in part, to a flood of new product launches. Nike no doubt wants to get many of these products to retailers like Foot Locker ahead of the holiday season, and that initiative should help support customer traffic growth.
However, broader industry dynamics suggest there are too many stores, and too much inventory, on the market today. As a result, Foot Locker will be under pressure to trim its retailing footprint that, as of August, stood at 3,359 locations across the U.S.
Demitrios Kalogeropoulos owns shares of Home Depot and Nike. The Motley Fool owns shares of and recommends Nike. The Motley Fool has the following options: short January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot and Lowe's. The Motley Fool has a disclosure policy.