Top US stocks to watch before the bell: Target, Southwest Airlines and Lowe’s

Target’s sales and outlook surprise markets, Southwest Airlines cuts its cash burn, Lowe’s sales explode but lag Home Depot, JD.com beats expectations, Take-Two Interactive says profits will fall as lockdown eases, TJX welcomes back customers, and Under Armour is charged with misleading investors.

USA (1)

Target

Target beat expectations in the first quarter as demand for the likes of clothing, food, drinks and everyday essentials grew, helped by consumers flush with cash thanks to stimulus cheques, and surprised the market by forecasting growth will continue later this year.

Overall sales jumped 23.3% in the first quarter to May 1 to $23.88 billion, considerably better than the 9.9% increase expected by analysts. Digital sales grew 50% and demand for same-day services such as picking up online orders in store almost doubled. Adjusted EPS jumped to $3.69 per share from just $0.59 the year before.

Target said it expects to deliver mid-to-single digit growth in comparable sales in the second quarter compared to the 22.9% growth delivered in the first. It said its margin will be higher than the 7.2% delivered the year before, but below the 10% peak achieved last year. It also surprised by stating it expected single-digit growth in sales in the second half as analysts had pencilled in a decline.

Southwest Airlines

Southwest Airlines said it is continuing to see an improvement in travel activity as restrictions are eased and has continued to reduce its cash burn as it waits for the recovery to ramp up.

The airline said it expects to burn through $1 million to $3 million per day in the second quarter, down from its previous target range of $2 million to $4 million and considerably better than the $6 million burnt through daily in the first.

Southwest said revenue in April was better than in March as leisure travel picks up, and said bookings suggest this improving trend will continue in May and June. Plus, whilst business travel has seen a slight rebound it remains severely limited. Revenue in April was down 42% compared to pre-pandemic levels but the airline expects that to improve significantly over the next two months.

Lowe’s

Lowe’s reported a jump in sales and profits in the first quarter and smashed expectations, but disappointed some investors by underperforming its rival Home Depot.

The home improvement retailer said net sales rose 24% in the quarter to the end of April to $24.42 billion, while net earnings climbed to $3.21 per share from $1.76. That was ahead of the $23.86 billion in revenue and earnings of $2.62 expected by Wall Street. Still, while Lowe’s 25.9% growth in same-store sales was impressive it was below the 31% growth reported by Home Depot earlier this week.

Lowe’s said it currently expects to report annual revenue of around $86 billion in the full year, down around 4% from the year before. It said it expects to continue gaining market share and post an operating margin of around 12%, and will continue to buy back shares under its $9 billion programme.

JD.com

China’s largest ecommerce company JD.com beat expectations in the first quarter as it continues to reap the benefits of businesses shifting online during the pandemic.

Net revenue rose to CNY203.2 billion in the first three months of 2021 compared to CNY146.2 billion the year before, and well ahead of the CNY191.8 billion forecast by analysts. Net income jumped to CNY3.6 billion from CNY1.1 billion.

JD.com said it is by far the largest listed retailer in China and the fastest-growing. In terms of sales, it is now bigger than Walgreens, Target and Lowe’s, but still trails other US giants like Amazon and Walmart.

Take-Two Interactive

Take-Two Interactive, known for video games like Grand Theft Auto and Outer Worlds, beat expectations in the final quarter of its financial year but disappointed the market by forecasting slower growth as people venture outside as lockdown eases this year.

Revenue rose 10% in the fourth quarter to $839.4 million, with in-game spending on virtual currencies and products jumping 38%. Over 90% of purchases are now made online. Net income jumped 78% to $218.8 million. For the full year, net revenue was up 9% at $3.37 billion and net income was up 46% to $588.9 million.

However, it said it expected sales of $3.2 billion to $3.3 billion in the new financial year, below the $3.5 billion expected by analysts. Annual net income this year will fall to a range of $228 million and $257 million.

TJX

TJX Cos, the owner of TJ Maxx and Ross Stores, reported significantly stronger sales growth than expected during the first quarter, boosted by customers returning to its stores in search of a bargain.

Net sales more than doubled to $10.09 billion from just $4.41 billion the year before, coming in well ahead of the $8.62 billion forecast by Wall Street. Comparable sales at TJX stores open for longer than a year came in at 16% and that level of growth should be sustained in the second quarter.

TJX’s brands only have nascent operations, so have been more reliant than other retailers on customers shopping in-store. Shut stores cost it $1.1 billion to $1.2 billion in sales during the first quarter.

Alphabet and Facebook

Canada’s trade minister Mary Ng has told her counterpart in the US that the country plans to go ahead with a new digital services tax that would significantly impact the likes of American firms Alphabet and Facebook.

US trade representative Katherine Tai had expressed concerns about Canada’s plan on Monday. Canada first announced plans for the new tax last November and intends to introduce it formally in 2022, but is hoping that a coordinated solution can be found with other major countries, including the US.

A number of countries have pushed ahead with a digital services tax, which predominantly targets US companies due to their dominance in the space.

Under Armour

Under Armour has been charged with misleading investors by pulling forward sales to meet market expectations, with the clothing retailer agreeing to settle the matter for $9 million.

The SEC found that the company had pulled forward a total of $408 million worth of orders over 18 months starting in late 2015 that were due to be shipped in future quarters, misleading investors about the state of the company.

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