The COVID-19 pandemic has polarized U.S. stock markets. On a broader level, tech stocks have risen to record highs, while energy, banking, industrial, and travel-related stocks have sagged. Whereas the pandemic has been a death blow for some retailers, many U.S. retail companies have been profiting during the pandemic.
Target's Q2 earnings
Target released its second-quarter (ended August 1) earnings yesterday, and shattered estimates. The company posted revenue of $23 billion versus analysts' expectation of $20.9 billion, and its adjusted EPS of $3.38 were far ahead of analysts' estimate of $1.62. Its same-store sales, a key metric in the retail industry, rose 24.3 percent in the second quarter, a record for the company.
U.S. retail companies report stellar earnings in the COVID-19 pandemic
Target stock rose 12.6 percent yesterday and wiped out its 2020 losses. And it's not the only retail company reporting stellar results. This week, several U.S. retail companies have reported their earnings and far exceeded Wall Street expectations. Home Depot stock hit an all-time high this week after the company reported record quarterly revenue of $38.05 billion in the quarter. Its EPS of $4.02 were also much better than analysts’ estimate of $3.71. Home Depot stock is up over 30 percent this year.
Meanwhile, U.S. retail giant Walmart reported a 5.6 percent YoY (year-over-year) increase in its second-quarter revenue. Its adjusted EPS of $1.56 came ahead of analysts' estimated $1.25, marking the biggest earnings surprise for Walmart in 31 years. Bill Simon, former president and CEO of Walmart, called Walmart’s 9 percent rise in operating income “phenomenal.” Walmart stock is up 13.3 percent this year.
Stimulus checks and expanded unemployment benefits have put money into the hands of consumers and propelled their retail spending. However, there has been a stalemate between Republicans and Democrats over the next round of stimulus, and the next checks might not be as big.
Which companies have thrived in the pandemic?
In the tech space, Zoom and Shopify, benefiting from consumers' changed preferences, have thrived in the pandemic. The stocks are up 153 and 302 percent, respectively, this year. Amazon has also benefited, as more consumers have moved to online shopping. Amazon reported record earnings in the second quarter, and its stock is up almost 80 percent this year. It's been the third-biggest gainer in the S&P 500.
Companies with exposure to the digital economy have thrived in the pandemic. Digitization has sped up, and companies in the digital space have thrived. As Microsoft CEO Satya Nadella summed up perfectly in April, “We’ve seen two years’ worth of digital transformation in two months.”
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Retail companies reported strong online sales in the second quarter. Walmart’s online sales increased by 97 percent YoY, and sales at Shipt, Target’s online delivery service, rose 350 percent. However, not all retail companies have thrived. JCPenney and privately-held Sur La Table have filed for bankruptcy. Kohl's, which reported a net loss in the second quarter, is down 61 percent and is among the bottom 10 in the S&P 500.