More juice for the stock market could be on the way with TJX (TJX Companies) and Burlington (BURL) - Get Burlington Stores Inc. Report earnings upcoming. Pent-up demand for off-priced retail apparel has become evident, according to analysts and economists.
TJX reports its quarterly earnings for the first quarter of calendar year 2020 May 19 and Burlington reports the same June 4. Revenue and earnings estimates have plummeted for both companies as stores have been shut down for almost half of the quarter and both companies have also shut off their e-commerce channels.
But “early signs show pent-up demand driving off-price post- COVID-19,” wrote Wedbush Securities analyst Jen Redding in a note, a read that supports the market’s current view -- across several industries -- that the economic recovery from the recession will be closer to sharp than to gradual.
TJX shares are down more than 20% year-to-date as analysts are looking for full year same-store-sales and revenue declines of 15.3% and 14.8%. Earnings per share estimates are for a 42.7% decline as the operating margin will contract because expenses like selling, general and administrative will remain elevated.
Burlington shares are down 21%, as same-store-sales, revenue and EPS are all expected to fall 16.8%, 13.5% and 58%. Burlington is expected to post net losses for the first two quarters of the year.
But these stocks have rebounded partially since their lows on March 23 -- up around 34% -- as the market expects a snapback in sales and earnings in 2021 and is looking through troubles in the first half of the year. Monetary and fiscal stimulus, coupled with the expectations of continued state re-openings, have fueled those expectations. Both stocks now trade at valuations on normalized earnings in 2021, though they’re expensive compared to 2020 earnings estimates. And unlike debt-laden companies like Macy’s (M) - Get Macy's, Inc. Report, which has only risen 7% since March 23, these stocks are essentially maintaining their pre-virus valuations as both have exceptionally clean balance sheets.
Morgan Stanley economists wrote in note that while “economic data reveal sharp drops in consumer spending in March and April,” the stimulus programs “could catalyze a prolonged consumer spending boost in coming months.” Morgan Stanley sees GDP in the third quarter contracting year-over-year but rising 21% quarter-over-quarter, consistent with the market’s view that the economy will begin to turn positive by the second half of the year.
For TJX and Burlington, Redding is taking her sales cues from Google search data, as many retail analysts do. TJX and Burlington saw about 40% and 60% year-over-year declines, respectively, in Google searches in early April. By the end of the month, those were trending at 20% and 30%.
And while consumer confidence does remain relatively depressed, Redding sees the off-priced model succeeding over full-priced, as consumers are more protective of their wallets.
This could signify upside to these stocks after earnings.
Several consumer discretionary companies in the food space pointed to improving sales trends to end March and to begin April and their stocks performed well after earnings. Those included, Chipotle (CMG) - Get Chipotle Mexican Grill Inc. Report, Wendy’s (WEN) - Get Wendy's Company (The) Report, Starbucks (SBUX) - Get Starbucks Corporation Report and Shake Shack (SHAK) - Get Shake Shack Inc. Class A Report.
The risk that most market participants and observers point re-openings could be premature, leading to another spike in virus infections and more shutdowns. And consumers may be hesitant to return to normal activity, in light of health threats. Meanwhile, TJX and Burlington trade at rich valuations on normalized earnings.