Darden, Kroger, Lululemon, Ulta Salon: How to Trade Their Earnings

NEW YORK (TheStreet) -- Today we're going to look at how to trade seven retail-oriented companies that plan to report earnings this week. They include Barnes & Noble (BKS) , Darden Restaurants (DRI) and Lululemon (LULU) .

Barnes & Noble ($23.71) reports quarterly results before the opening bell on Tuesday, and analysts expect the book retailer to report a loss of 68 cents a share. The story here is that Barnes & Noble is spinning off its Nook hardware business and through a partnership is having Samsung manufacture Nook-branded tablets.

The stock is up 59% year to date and hit a 2014 intraday high at $24.00 on Sept. 4. The stock is above all five moving averages in today's first table (see page 3), with overbought 12x3x3 weekly slow stochastics. Semiannual and annual value levels are $20.54 and $15.26, respectively, with a weekly pivot at $22.83 and monthly risky level at $24.41.

Darden Restaurants ($48.07) plans to report quarterly results before the opening bell on Friday, and analysts expect the owner of restaurant chains that include Olive Garden and LongHorn Steakhouse to report EPS of 32 cents. The company could become a turnaround story now that its Red Lobster problems are over and activist investor Starboard Value is pressing for change at Darden.

Shares of Darden are down 12% year to date but have been rebounding after trading as low as $43.56 on July 17. The weekly chart is positive with its five-week modified moving average at $47.13 and 200-week simple moving average at $49.23. The stock is also below its 200-day SMA at $49.40. Monthly and annual value levels are $44.83 and $44.50, respectively, with an annual pivot at $48.40 and quarterly and semiannual risky levels at $51.25 and $59.08, respectively.

Kroger (KR) ($52.41) reports quarterly results before the opening bell on Thursday, and analysts expect the nation's largest grocery chain to report EPS of 69 cents. The company's growth story has pushed the stock to a series of all-time highs. On Friday Kroger announced it was hiring 20,000 people to fill permanent positions.

Shares of Kroger are up 33% year to date and set an all-time intraday high at $52.43 on Friday. The stock is above all five moving averages in today's first table, with rising 12x3x3 weekly slow stochastics. Quarterly and semiannual value levels are $51.65 and $44.89, respectively, with a weekly pivot at $52.34 and monthly risky level at $52.68.

Lululemon ($39.14) reports quarterly results before the opening bell on Thursday, and analysts expect the retailer of yoga apparel to report EPS of 29 cents. The company is still trying to recover from its embarrassing admission that some yoga pants had see-though characteristics. Shares have been unraveling since setting an all-time intraday high at $82.50 on June 10, 2013.

The stock has been below its 200-day simple moving average at $70.62 since Dec. 10 and below its 200-week SMA at $53.83 since the week of Jan. 17. These moving averages are now at $48.28 and $57.81, respectively. The 2014 intraday low was $36.36 on June 13. The stock is below all five moving averages in today's first table but its 12x3x3 weekly slow stochastic is rising.

A weekly close above its five-week MMA at $39.87 will signal that the company has successfully stitched its yoga pants problems. Weekly and monthly value levels are $38.19 and $30.52, respectively, with a quarterly risky level at $63.42.

Pep Boys  (PBY) ($11.19) reports quarterly results after the closing bell on Monday, and analysts expect the retailer of automotive parts, tires and accessories and maintenance services to report EPS of 16 cents. The company has missed EPS estimates in seven of the last eight quarters, so an earnings turnaround is important.

The stock has been below its 200-day SMA since April 10 and traded as low as $9.72 on May 21. The rebound to $11.60 on Aug. 25 is below the 200-day SMA, now at $11.66. The weekly chart is positive with its five-week MMA at $11.08 and its 200-week SMA at $11.70. A monthly value level is $10.49 with a weekly pivot at $11.13 and quarterly and semiannual risky levels at $13.09 and $13.66, respectively.

Ulta Salon  (ULTA) ($99.45) reports quarterly results after the closing bell on Thursday, and analysts expect the cosmetics retailer to report EPS of 82 cents. The company is up 3% year to date, still recovering from missed earnings for the third quarter of 2013 reported on Dec. 5, 2013.

The stock set an all-time intraday high at $132.72 on Nov. 18 then broke below its 200-day SMA at $102.12 on Dec. 6. The stock traded as low as $80.35 on Jan. 22 and has been stabilizing since then, making this earnings report extremely important for the company.

The weekly chart is positive with its five-week MMA at $95.39 and its 200-week SMA at $82.22. Quarterly and monthly value levels are $97.71 and $85.19, respectively, with a weekly pivot at $98.98 and semiannual risky level at $128.41.

Vera Bradley (VRA) ($21.61) reports quarterly results before the opening bell on Wednesday, and analysts expect the retailer of women's accessories such as handbags to report EPS of 19 cents. The stock traded as high as $30.00 on May 8 then crashed to as low as $18.75 on Aug. 15 after breaking below its 200-day SMA at $24.40 on June 6.

The weekly chart is positive with its five-week MMA at $20.89 and its 200-week SMA at $28.67. Weekly and annual value levels are $19.82 and $19.48, respectively, with monthly and annual risky levels at $24.14 and $24.86, respectively.

Crunching the Numbers With Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

I show the trailing 12-month price-to-earnings ratios and dividend yields.

There are five columns with moving average titles: Five-Week Modified Moving Average; 21-Day Simple Moving Average; 50-Day Simple Moving Average; 200-Day Simple Moving Average; and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with a reading of oversold, rising, overbought, declining or flat.

Interpretations: Stocks below a moving average are listed in red.

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance level and as a "reversion to the mean" over a rolling three- to five-year horizon

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three- to five-day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance level, and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon.

Crunching the Numbers With Richard Suttmeier: Earnings & Where to Buy & Where to Sell

This table presents the EPS estimates including date and before or after the close, and where to buy on weakness and where to sell on strength.

"EPS Date" is the day the company reports its quarterly results.

"EPS Estimate" is the EPS estimate from Wall Street analysts.

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-'til-canceled limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


TheStreet Ratings team rates DARDEN RESTAURANTS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate DARDEN RESTAURANTS INC (DRI) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."

You can view the full analysis from the report here: DRI Ratings Report


TheStreet Ratings team rates LULULEMON ATHLETICA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate LULULEMON ATHLETICA INC (LULU) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself."

You can view the full analysis from the report here: LULU Ratings Report


TheStreet Ratings team rates PEP BOYS-MANNY MOE & JACK as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate PEP BOYS-MANNY MOE & JACK (PBY) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

You can view the full analysis from the report here: PBY Ratings Report

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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