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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – May 24, 2020 at 8:18AM

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Investors will be tracking these three companies as they release their latest quarterly results

Stocks jumped last week as investors gained more optimism that the economy will kick into higher gear as the COVID-19 threat fades. Both the Dow Jones Industrial Average (^DJI 2.80%) and the S&P 500 (^GSPC 3.06%) rose over 3%. That boost left the S&P 500 down by less than 9% so far this year while the Dow is lower by 14%.

Several big-name stocks will announce earnings results over the next few trading days, as the broad market further gauges the likelihood and breadth of a potential economic rebound. Those companies include Costco (COST 1.76%), Autodesk (ADSK 3.91%), and Ulta Beauty (ULTA -0.20%), and below we'll take a look at the key trends investors should be watching this week.

A woman applies skin cream to her face.

Image source: Getty Images.

Costco's renewal rate

Costco's stock has outperformed during the recent market slump thanks to its persistently strong operating trends. The retailing giant has reported surging sales growth as consumers turned to its warehouses to stock up on groceries and other essentials. Core comparable-store sales jumped 11% in the U.S. in April, and they were up 88% in the online sales channel.

The chain's earnings report on Thursday will include other important metrics like membership fee income, customer traffic, and subscriber renewal rates in both the U.S and international segments. Investors will also be listening for management's comments about how it plans to transition back to a normal operating posture by reopening ancillary business lines like the optical, hearing aid, and photo departments. Meanwhile, look for Costco to discuss how its members are responding to the retailer's requirement that they wear masks while shopping in its stores.

Autodesk's deferred revenue

Investors pushed Autodesk's shares higher in recent weeks, indicating high expectations for its earnings report on Wednesday. The tech specialist's business should have held up well through the latest challenging economic conditions. It runs a software-as-a-service operating model that's digitally delivered, after all.

Autodesk might still have seen reduced demand for its design products as construction work slowed in March and April. It has had to step back from its traditional in-person sales and marketing efforts too. Any weakness related to those shifts would show up mainly in its billings and deferred-revenue trends.

In addition to those figures, look for CEO Andrew Anagnost and his team to discuss Autodesk's financial position -- the company said at its last quarterly check-in that free cash flow should rise to as much as $1.6 billion this year, compared with $1.4 billion in 2019 and $310 million in 2018.

Ulta Beauty's restart plan

Ulta Beauty entered 2020 with some significant sales challenges that were likely only amplified by the COVID-19 pandemic. The core makeup category has been shrinking for several quarters, and that demand slump pressured both sales and profits in the fiscal fourth quarter.

Thursday's earnings report isn't going to show an improvement on those weak sales trends, especially as most of Ulta's retailing and spa services were unavailable through most of March and April. The increased stay-at-home time likely reduced demand for many cosmetic and hair care products.

But look for CEO Mary Dillon and her team to highlight the chain's e-commerce channel, which was supported by an aggressive rollout of curbside pickup options. Executives should have plenty to say about their plans to safely restart the retailing business and get back on track toward positive annual sales growth, perhaps by 2021.

Demitrios Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool owns shares of and recommends Autodesk and Ulta Beauty. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$486.13 (1.76%) $8.40
Autodesk, Inc. Stock Quote
Autodesk, Inc.
ADSK
$199.99 (3.91%) $7.53
Ulta Beauty, Inc. Stock Quote
Ulta Beauty, Inc.
ULTA
$403.95 (-0.20%) $0.80
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$30,316.32 (2.80%) $825.43
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,790.93 (3.06%) $112.50

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

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