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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Sep 6, 2020 at 5:00AM

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Lululemon athletica is one of several big stocks set to announce earnings results over the next few days.

Stocks dropped last week, as both the Dow Jones Industrial Average (^DJI -1.71%) and the S&P 500 (^GSPC -1.51%) shed about 2%. The move put the Dow back into negative territory for the year, while the S&P is still up about 6% in 2020.

A few big companies will announce earnings results over the next few trading days, including lululemon athletica (LULU -6.88%), GameStop (GME -1.30%), and Dave & Buster's Entertainment (PLAY -1.40%). Below we'll take a look at the numbers that might send their stocks moving this week.

Lululemon's inventory

Lululemon impressed investors with its last earnings report, which showed only modest sales declines during the early days of the pandemic. The apparel specialist even managed to generate a profit despite widespread store closures. But the mid-June report raised some big questions that should be answered this week, when lululemon announces second-quarter results on Tuesday.

A woman holds a yoga pose.

Image source: Getty Images.

The key question is whether the chain worked through its soaring inventory without having to resort to aggressive price cuts or the type of writedown charges that hurt peers like Nike. Keep an eye on gross profit margin, which fell by three percentage points last quarter but remained above 50% of sales.

Investors will be most interested in any updated outlook that CEO Calvin McDonald and his team can give for the second half of the year. Since the stock is trouncing the market so far in 2020, Wall Street is looking for bullish comments implying a quick return to sales growth ahead.

GameStop's customer traffic

GameStop is facing several major challenges to its business that should all show up in some way in its Wednesday earnings report. Besides the store closures and reduced shopper traffic that the pandemic has caused, the video game retailer's profits are also being pinched by the continued move toward digital game downloads and a pause in hardware spending in anticipation of new console releases in late 2020.

These issues have investors expecting just a modest improvement in its growth trend, as GameStop's sales declines land at 22% compared to 34% last quarter. Its light inventory position heading into the quarter should protect margins, but it's still an open question as to whether the chain can reach its goal of achieving profitability this year following a difficult start to 2020.

Dave & Buster's expansion plans

Investors are bracing for some bad news when Dave & Buster's announces second-quarter results on Wednesday afternoon. Most of the restaurant and entertainment chain's locations were either closed or operating at limited capacity for the period thanks to COVID-19 restrictions. As a result, sales are predicted to fall by over 20% after having plummeted by 56% in the first quarter.

CEO Brian Jenkins and his team will likely have some encouraging demand trends to highlight as Dave & Buster's takes a big step back toward normal operations. But customer traffic is likely to remain weak for several more quarters, which will put the focus on the chain's finances for the time being.

In that arena, look for the company to announce aggressive cost cuts and a reduced outlook for new store launches. These moves might limit Dave & Buster's opportunities in the short term, but they'll give the chain its best chance at thriving through what could be a prolonged recession in the industry.

Demitri Kalogeropoulos owns shares of Nike. The Motley Fool owns shares of and recommends Lululemon Athletica and Nike. The Motley Fool recommends Dave & Busters Entertainment. 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
GameStop Corp. Stock Quote
GameStop Corp.
$25.13 (-1.30%) $0.33
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
$31.03 (-1.40%) $0.44
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

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

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