Amazon shadow looms large ahead of retail earnings

NEW YORK: As old and new Amazon.com competitors gear up to report earnings, investors are eager to know how they plan to withstand the growth of the No 1 online retailer.
So far this quarter, Amazon has been brought up in some 130 earnings calls from S&P 1500 components according to a Reuters analysis. About 50 of those came in the last week alone.
More than 30 companies reporting earnings in the following weeks mentioned Amazon during their most recent earnings call or were directly asked about threats or opportunities regarding Amazon’s growth.
“Any retailer, whether it’s an online retailer or has online presence, or just brick and mortar, that tells you they’re not concerned about Amazon, they’re either in denial or lying,” said Steven Osinski, marketing lecturer at the Fowler College of Business at San Diego State University.
Beyond retailers like Wal-Mart and Target, and following Amazon’s planned acquisition of Whole Foods Market announced mid June, expect Amazon to pop up on earnings calls from food producers, packagers and retailers including SpartanNash and Dean Foods.
Amazon mentions in less-expected earnings calls could also give investors an idea of where analysts expect the behemoth to strike next.
“It’ll be interesting to see (Amazon CEO Jeff) Bezos’ next move in terms of wanting to expand into a certain space,” said Daniel Morgan, Portfolio Manager at Synovus Trust in Atlanta.
He said apparel as well as pharmaceutical distribution were among the areas where Amazon has been said to make its next big move.
“They’ve shown up in places we didn’t think they’d have competitive impact just two years ago.”
In a sign of Amazon’s widening clout, industry bellwethers like McDonald’s, 3M and Johnson & Johnson in their latest earnings calls were asked for the first time about effects of Amazon on their businesses.
NOT-SO-GREAT EXPECTATIONS: Consumer discretionary is the S&P 500 sector expected to post the smallest year-over-year earnings growth this reporting quarter, with a gain of 3.3 per cent. Overall, earnings are seen rising 12 per cent from last year.
Amazon’s own results weigh on the sector, as it earned 40 cents per share instead of the $1.42 analysts had expected. But its 25 per cent revenue increase to $38 billion was seen as a detriment to some competitors and could weigh down expectations for their quarterly reports.
“Expectations have been pushed down because a lot of the retailers, particularly the bricks and mortar ones, have had problems — Amazon and other related — so expectations are pretty low,” said Nuveen Asset Management’s chief equity strategist, Bob Doll.
However, stocks in the sector approach their earnings at relatively rich valuations. Including Amazon, which has an earnings multiple above 100, investors in consumer discretionary stocks are paying more than $19 for every $1 in earnings forecast over the next 12 months. That is near the highest since 2009.
As costly as sector stocks are, Amazon has kept growing faster than most, up more than 31 per cent year to date. Amazon’s market cap, near half a trillion dollars, places it at about 20 per cent of the S&P 500’s consumer discretionary sector.
Its growing clout has called for comparisons with rival Wal-Mart, whose growth in the early 2000s raised concerns it would put smaller retailers out of business.
US STOCKS: The Dow Jones Industrial Average ended at its eighth straight record high on Friday, with gains in JPMorgan Chase and other banks after data showed US employers hired more workers than expected in July.
The strong jobs report is likely to clear the way for the Federal Reserve to announce a plan to start shrinking its $4.2 trillion bond portfolio in September, and could strengthen its case to raise rates for the third time this year in December.
The Labour Department report showed nonfarm payrolls increased by 209,000 jobs last month, above the 183,000 rise expected by economists polled by Reuters.
With banks standing to benefit from higher interest rates, the S&P financial index rose 0.72 per cent. Goldman Sachs rose 2.59 per cent and was the top contributor to the Dow’s gain for the day.
Perceived chances of an interest rate hike by the US central bank by the end of the year increased to 50 per cent from 46 per cent after the release of the data, according to CME Group’s FedWatch tool.
The Dow Jones Industrial Average rose 0.3 per cent to end at 22,092.81, an all-time high.
The S&P 500 gained 0.19 per cent to 2,476.83 and the Nasdaq Composite added 0.18 per cent to 6,351.56.
For the week, the Dow climbed 1.2 per cent, the S&P 500 rose 0.2 per cent and the Nasdaq shed 0.4 per cent.
The S&P 500 materials index rose 0.48 per cent, helped by a 1.07 per cent rise in Dow Chemical. The utilities, healthcare and consumer staples indexes fell. Gilead’s 1.63 per cent fall and Allergan’s 3.08 per cent loss weighed on the healthcare index.
Walt Disney fell 1.31 per cent and was the biggest drag on the Dow.
Viacom slumped 13.83 per cent after the company forecast a low single-digit dip in sales.
— Reuters