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The takeaway for consumers from WMT, TGT, and HD retail earnings

A Target store in North Miami Beach, Florida, May 17, 2023.

Joe Riddle | Getty Images

More grocery shopping, fewer ambitious do-it-yourself projects and last-minute splurges at the store.

This week, some of the nation’s largest retailers reported earnings and described how their customers shop. like Home DepotAnd Goal And Walmart Reporting their quarterly sales and full-year forecasts, the companies provided the latest clues about the health of the American consumer and reviewed what might be in the future for the economy.

Some smaller retailers also gave warning signs for the current quarter and this year.

Next week will give more insight into the retail industry and the economy. best buyAnd LouieAnd CostcoAnd dollar tree And kohl Among the profits obtained. Some mall retailers also report earnings, incl gap, American eagle And Abercrombie & Fitch.

Here are some emerging topics.

Weak sales trends

To date, at least five retailers – Target, Walmart, textureAnd Bath and Body Works And foot locker – They talk about sales trends across the country that are getting worse.

As the three-month period continues, shoppers are spending less, especially on discretionary merchandise, Target CEO Brian Cornell said on an investor call. Wal-Mart noticed the same pattern.

Both major retailers recorded sharp declines in sales after February.

John David Rainey, Wal-Mart’s chief financial officer, attributed the decline in part to the end of SNAP benefits related to the pandemic and lower tax refunds.

Cornell said the events that made headlines could also shake consumer confidence. He referred to the March banking crisis. The Silicon Valley bank collapsed that month, sparking fears of broader economic problems.

Bath and Body Works saw sales decline in March. However, sales recovered in April as the retailer turned to a common guide: promotions. It got a boost as customers spent money at sales events at the end of the quarter, Chief Financial Officer Wendy Arlen said on Thursday’s earnings call.

Foot Locker also said it may have to incentivize shoppers with markdowns for the rest of the year. The company cut its full-year forecast on Friday, reporting earnings that beat expectations. “Sales have since declined significantly given the difficult macroeconomic backdrop,” CEO Mary Dillon said in a statement.

On a call with investors on Friday, Dillon said the sneaker seller’s sales have been hurt by lower tax refunds and higher inflation as customers spend more on food and services. While she said sales rebounded in April, “they didn’t improve nearly as much as we expected, and that weakness continued into May.”

A few other retailers reporting their earnings had specific factors working in their favour.

When Tapestry, the parent company of Coach and Kate Spade, reported earnings last week, the company said sales eased as the quarter progressed and into April as consumers became more cautious.

But it has a factor that some other retailers don’t: growing business in China and other international markets to offset some of those poor sales.

Home Depot bucked the sluggish sales trend, but that may have more to do with what it offers than consumer health.

Spring is peak home improvement season. Comparable retail sales in the US decreased 4.6% in the quarter compared to the same period last year. In February, its comparable sales fell 2.8%. March was its weakest month of the quarter, with comparable sales down nearly 8% year-over-year in the US.

Home Depot trends were still negative in April but saw a slight improvement as comparable sales fell 3.7%, according to Chief Financial Officer Richard MacPhail. Customers may have been buying more spring items such as potted plants.

Inflation is still a major factor

Inflation is falling, according to a Labor Department report this month. However, that’s cold comfort for shoppers who still pay a lot more at the grocery store than they did a few years ago.

Stubbornly high prices, especially for food, are a storm cloud hanging over many families who shop at Walmart, and looming large over the retail industry as a whole, CEO of Big Box giant Doug McMillon said. On a call with investors Thursday, he called persistent inflation “one of the major factors creating uncertainty for us in the back half of the year.”

“We all need these prices down,” he said on the call. “Persistently high rates of inflation in these categories, which persist for an extended period of time, are burdensome for some of the families we serve.”

For example, he said that costs of general goods in the United States are lower than they were a year ago, but still higher than they were two years ago. In the categories of dry groceries and consumables, Walmart is seeing high single-digit to low double-digit inflation on items such as toilet paper or paper towels. For food, inflation is up more than 20% on a two-year basis, according to Walmart’s Rainey.

A shopper browses the egg section of a Walmart store in Santa Clarita, California.

Mario Inzoni | Reuters

Wal-Mart is feeling the pinch of inflation even though it is in a better position to manage higher costs than other retailers. As the nation’s largest retailer and largest grocer, Walmart can use its size to manufacture private label merchandise or negotiate With the sellers on the price.

A rare item whose price has dropped significantly? wood. Home Depot cited the sharp decline in prices as a contributing factor to the fiscal first-quarter revenue loss.

Home Depot CEO Ted Dekker said on an earnings call Tuesday that in many other categories, inflation continues to drive average ticket higher customers.

Consumers spend on needs, not on wants

Target, Home Depot, and Walmart have all seen a noticeable pattern: fewer expensive, fun items in their carts.

At Home Depot, customers buy Fewer expensive items like appliances and grills in the first quarter of the fiscal year.

Speaking to an investor, Decker said home projects have also become more modest. Contractors and other home professionals have noticed a change from large-scale remodels to smaller renovations and repairs.

Consumers’ increasing focus on value could contribute to this shift, Decker said, along with increased spending on travel, dining out and other services. He added that some homeowners had already handled major projects and purchased some expensive home items during the early years of the Covid-19 pandemic, leaving them with little to do or buy now.

Brian Nagel Oppenheimer on Home Depot Q1 Earnings: That's a poor report

The trend has extended beyond home improvement.

Rainey told CNBC that customers at Walmart are becoming more selective when shopping for electronics, televisions, home items, and clothing. He said items are becoming more difficult to sell and when customers do buy them, they are often waiting to sell out.

Sales at Target, in some discretionary categories, have fallen as low as double-digits, as customers bought fewer apparel and decor, Christina Hennington, Target’s chief growth officer, said on an investor call. Groceries and essentials drove a larger portion of the retailer’s quarterly sales.

One exception? beauty. Hennington said Target’s beauty category was strongest in the fiscal first quarter. Sales in the mid-teens have grown year over year, showing that shoppers are still willing to replenish their cosmetics case and get a new tube of lipstick.

Demand slumped due to the weather (literally)

The weather hasn’t worked in favor of retailers, at least not yet.

As the weather gets warmer and sunnier, it can inspire shoppers to buy summer dresses, beach towels, or gardening supplies.

However, Home Depot said cooler, wetter weather in California and parts of the western US had hurt its sales, contributing to its biggest revenue loss in more than 20 years.

Wal-Mart is also yearning for warmer weather. Sam’s Club CEO Cath Maclay said on an investor call that Sam’s Club has noticed a slowdown in patio set sales, possibly due to late spring weather. Wal-Mart’s chief financial officer said that Wal-Mart has seen sales of air conditioners in its supermarkets drop sharply.

“We’re ready to get some spring or summer weather,” he said on a call with CNBC.

Target indicated that it’s looking forward to another upcoming season: Back to School.

On call with investors, Hennington said the discounter expects to see an increase in sales in the second half of the year due to the big shopping season. The return to classrooms and college dorms, she said, is driving sales across nearly every section of her store, from lunch ingredients in the grocery aisles to new clothes in the children’s clothing department.

Shoppers are becoming more last minute

Retailers may be long in their early stocking and shopping days.

Company leaders said there are signs shoppers are returning to some of their old ways.

At Walmart-owned Sam’s Club, Maclay said shoppers aren’t just opting for lower price points. They also shop later for seasonal items. For example, customers are used to buying patio furniture as soon as it is placed in stores.

“Now we’re seeing people wait a little bit later in the season,” she said.

She said she saw a similar pattern of Mother’s Day sales.

Maclay said this could indicate people are returning to the shopping habits of 2018 and 2019. This trend could be fueled by shoppers’ reluctance to open their wallets or because they’re not worried about out-of-stock items — or a combination.

At Target, shoppers have also adopted more stalling tendencies, especially for discretionary items like clothing.

“Guests are turning to shopping more just in time in these categories, waiting until the last moments before major events to invest in new decor or wardrobe renovations,” Hennington said on an earnings call.



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