Financial Update – August 21, 2024

Today’s financial updates bring a mix of results across major retailers and significant revisions in employment data, along with crucial insights into the Federal Reserve’s outlook on interest rates and the broader economy. Here’s a summary of the key developments:

Target

Target reported stronger-than-expected financial results for the second quarter, with sales reaching $25.08 billion, slightly surpassing expectations of $24.88 billion. The company also revised its fiscal year adjusted earnings per share (EPS) guidance to $9.35, above the anticipated $9.22. For the upcoming third quarter, Target forecasts an adjusted EPS of $2.35, which also exceeds the expected $2.24.

However, the company provided a cautious sales outlook, projecting a 1% increase for Q3, falling short of the 1.91% expected. Despite this, sales for Q2 grew by 2.7% year-over-year, though the cost of sales remained flat, and selling, general, and administrative (SGA) expenses rose by 4%. Analysts are optimistic about Target’s long-term growth, with a projected EPS of $9.24 by January 31, 2025, and an average growth expectation of 6% over the next four years. The company’s dividend yield is estimated between 2.6% and 2.8% at a stock price of $165, with a market capitalization of $77 billion.

Macy’s

Macy’s also reported better-than-expected results in terms of gross margin and adjusted EPS for Q2. However, the company’s outlook was less favorable, with fiscal year adjusted EPS guidance of $2.725, slightly below the expected $2.77. Additionally, Q2 comparable sales fell by 3.3%, missing the expected 0.63% growth, and the company guided down fiscal year comparable sales by -1.25%, contrary to an anticipated 0.68% growth. These figures highlight growing concerns about Macy’s growth prospects in a challenging retail environment.

TJ Maxx

TJ Maxx delivered a solid performance with a slight beat on net sales and raised its margin and EPS guidance. The company revised its full-year EPS upward by 1.3% and guided for a 3% increase in comparable sales, which is better than the expected 2.76%. TJ Maxx’s market capitalization stands at $128 billion, approximately double that of Target, reflecting its strong position in the discount retail sector.

Ford

Ford announced updates on its “Blue Cruise” autonomous driving technology, which now utilizes Mobileye technology. The automaker also revealed that it is canceling plans for its large electric vehicle (EV) SUV, previously delayed to 2027, due to increasing pressure to reduce EV prices amid competitive market conditions.

Federal Reserve and Employment Data

Later today, the Federal Reserve will release the minutes from its July Federal Open Market Committee (FOMC) meeting, which investors will closely scrutinize for clues on future interest rate decisions. Currently, the yield curve remains inverted, with a -16.95 basis point spread between the 2-year and 10-year Treasury notes, signaling potential economic uncertainty. The market has priced in 1.34 rate cuts for September.

In employment news, the Bureau of Labor Statistics (BLS) released benchmark revisions 33 minutes late, showing a downward revision of 818,000 jobs, with significant cuts in key sectors:

• Manufacturing: -115,000 jobs
• Professional/Business: -358,000 jobs
• Leisure/Hospitality: -150,000 jobs
• Retail Trade: -129,000 jobs

These revisions align with expectations from major financial institutions, with JPMorgan predicting a mid-360,000 revision down, Goldman Sachs expecting a 600,000 to 1 million revision down, and Mizuho estimating a 1.1 million downward revision.

These updates reflect ongoing challenges and shifts in the U.S. economy, with cautious outlooks from retailers and significant revisions in job data pointing to potential headwinds in the coming months. Investors will be watching closely as the day unfolds, particularly the Fed minutes and their implications for future monetary policy.