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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Jun 7, 2020 at 8:56AM

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Stitch Fix is one of several stocks set to make big moves over the next few trading days.

Stocks rallied last week on hopes that the U.S. economy might emerge from the COVID-19 pandemic slump just as quickly as it had entered it. Both the Dow Jones Industrial Average (^DJI -1.71%) and the S&P 500 (^GSPC -1.51%) gained over 4% to put indexes within striking distance of positive territory so far in 2020. In fact, the S&P is down just 1% after having posted a 30% decline by late March.

A few big-name stocks will announce earnings results over the next few trading days, including Stitch Fix (SFIX 1.80%), lululemon athletica (LULU -6.88%), and Five Below (FIVE -0.53%). Let's take a look at the key trends that might send these stocks moving this week.

Stitch Fix's average order size

Stitch Fix shares were lower by about 60% at one point this year but have rallied in recent weeks to approach positive territory. That surge raises the bar for the online apparel specialist's third-quarter report on Monday afternoon.

A woman removes clothes from a delivery box.

Image source: Getty Images.

Three months ago, Stitch Fix reported strong user gains and encouraging market share growth in new areas like menswear and kid's apparel. However, executives said they saw some signs of weakening demand that convinced them to lower their outlook for the second half of fiscal 2020. That forecast came before the worst of the COVID-19 pandemic, too, which temporarily closed a few of Stitch Fix's distribution centers.

Investors will find out this week whether that move disrupted the business, but the bigger metrics to watch will be around shopper engagement. Follow average spending, especially by new customers, for clues about whether Stitch Fix is headed for a quick growth rebound in late 2020.

Lululemon's digital business

Most of Lululemon's locations were closed for much of the fiscal first quarter, but investors have still bid shares higher in anticipation of good news from the yoga apparel specialist. The chain's last report was sparkling, after all, with sales jumping 20% and gross profit margin improving by nearly a full percentage point to 58% of sales.

Those metrics only ran though late February, though, so this week's announcement will include the full impact of COVID-19 closures in key markets like the U.S., Canada, and Europe. The good news is that Lululemon's booming online business likely blunted the damage from collapsing store traffic. But the chain is still sure to report pressure on its business and may stay cautious about its outlook in the face of uncertain economic trends and the continued pandemic threat.

Five Below's Friday

Five Below's first-quarter report on Tuesday comes as the youth-focused retailer is nearly finished reopening all of its stores. But investors are still bracing for tough sales and earnings metrics due to store closures and related inventory writedown charges. 

Beyond detailing those temporary hits, look for CEO Joel Anderson and his team to back up their optimistic expansion plan with some concrete data about how consumers are responding to reopened mall space. Five Below has been getting most of its growth from an expanding store base rather than increased traffic or spending at existing locations.

That strategy should deliver solid returns as Five Below fills out the geographic holes in its selling footprint over the next few quarters. But the retailer still needs to show steady comp gains to have any chance at returning to the over 20% revenue spike shareholders saw as recently as fiscal 2018.

Demitrios Kalogeropoulos owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Lululemon Athletica and Stitch Fix. The Motley Fool recommends Five Below and recommends the following options: long January 2022 $115 calls on Five Below and short January 2022 $120 calls on Five Below. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
$279.56 (-6.88%) $-20.66
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85
Five Below, Inc. Stock Quote
Five Below, Inc.
$137.67 (-0.53%) $0.73
StitchFix Stock Quote
$3.95 (1.80%) $0.07

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

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