Consumer Takeaways from WMT, TGT, and HD Retail Revenue

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

Joe Raedle | Getty Images

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

This week, some of the nation’s largest retailers reported their earnings and described how their customers shop. As Home deposit, Target And walmart released their quarterly sales and shared their full-year outlook, companies provided the latest clues on the health of the US consumer and previewed what may be ahead for the economy.

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

Next week will bring even more information on the retail industry and the economy. best buy, Lowe’s, Costco, dollar tree And Kohls are part of the winnings. Some mall retailers also report revenue, including Gap, american eagle And Abercrombie & Fitch.

Here are some of the emerging themes.

Sales trends have weakened

So far, at least five retailers – Target, Walmart, Tapestry, Bath and body care And Foot locker — spoke of worsening sales trends across the country.

As the three-month period progressed, shoppers spent less, especially on discretionary merchandise, Target CEO Brian Cornell said on a call with investors. Walmart noticed the same pattern.

Both big-box retailers reported a sharp drop in sales after February.

Walmart Chief Financial Officer John David Rainey attributed the decline, in part, to the end of pandemic-related SNAP benefits and a decrease in tax refunds.

Cornell said headline-grabbing events could also have shaken consumer confidence. He referred to the March banking crisis. Silicon Valley Bank collapsed that month, raising fears of broader economic difficulties.

Bath & Body Works saw sales plummet in March. Still, sales picked up in April as the retailer turned to a common playbook: promotions. It was boosted as customers spent money at sales events towards the end of the quarter, chief financial officer Wendy Arlin said during an earnings call Thursday.

Foot Locker also said it may have to incentivize shoppers with markdowns for the rest of the year. The company lowered its full-year forecast on Friday as it reported earnings that fell short of expectations. CEO Mary Dillon said in a statement that “sales have since declined significantly given the challenging macroeconomic backdrop.”

On a call with investors on Friday, Dillon said the sneaker seller’s sales have been hurt by lower tax refunds and high inflation as customers spend more on food and services. Although she said sales rebounded in April, “they did not improve as much as expected, and this weakness continued into May.”

A few other retailers that reported revenue had specific factors working in their favor.

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

But there’s one factor that some other retailers don’t have: growing business in China and other international markets to offset some of those weaker sales.

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

Spring is high season for home improvement. The retailer’s comparable sales in the United States fell 4.6% in the quarter compared to the same period a year earlier. In February, its comparable sales were down 2.8%. March was its weakest month of the quarter, as comparable sales fell nearly 8% year-over-year in the United States.

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 McPhail. Customers may have purchased more spring items such as potted plants.

Inflation remains a key factor

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

Mario Anzuoni | Reuters

Walmart feels the inflation crunch even though it’s better positioned to handle higher costs than other retailers. As the nation’s largest retailer and grocer, Walmart can use its scale to make private label merchandise or bargain with sellers on price.

A rare item whose price has dropped dramatically? Lumber. The Home Depot cited the sharp drop in prices as a contributing factor to its fiscal first quarter revenue loss.

In many other categories, however, inflation still results in a higher average ticket for customers, Home Depot CEO Ted Decker said on an earnings call Tuesday.

Consumers spend for their needs, not their wants

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

At Home Depot, customers bought fewer big ticket items such as appliances and grills in the first fiscal quarter.

Real estate projects have also become more modest, Decker said on an investor call. Contractors and other home professionals have noticed a shift from large-scale renovations to small renovations and repairs.

Decker said consumers’ increased focus on value could contribute to this shift, along with increased spending on travel, dining and other services. He added that some homeowners already tackled big projects and bought big-ticket household items in the early years of the Covid-19 pandemic, leaving them with less to do or buy now.

Oppenheimer's Brian Nagel on Home Depot Q1 Earnings: It's a Weak Report

The trend has extended beyond home improvement.

Walmart customers have become more selective when buying electronics, televisions, home goods and clothing, Rainey told CNBC. Items have become harder to sell and when customers buy them, they are often waiting for a sale, he said.

At Target, sales fell in some discretionary categories to low double-digits as customers bought less apparel and home decor, chief growth officer Christina Hennington said on a call to investors. Groceries and daily necessities generated a larger portion of the retailer’s quarterly sales.

An exception ? Beauty. Hennington said Target’s beauty category was strongest in the fiscal first quarter. Sales have increased in the mid-teens year-on-year, showing that shoppers are still willing to restock the cosmetic case and get a new tube of lipstick.

Demand mitigated by weather (literally)

Buyers have become more last minute

Retailers may be saying so long to the days of stocking and early shopping.

Business leaders said there were signs shoppers were reverting to some of their old habits.

At Sam’s Club, owned by Walmart, McLay said shoppers aren’t just opting for lower prices. They also buy seasonal items later. For example, she says, customers used to buy patio furniture as soon as it hit stores.

“Now we see people waiting a little later in the season,” she said.

He saw a similar pattern with Mother’s Day sales, she said.

McLay said this could indicate that people have returned to the shopping habits of 2018 and 2019. The trend could be fueled by shoppers’ reluctance to open their wallets or because they don’t care as much about items in out of stock – or a combination.

At Target, shoppers have also embraced more procrastination trends, especially for discretionary items such as clothing.

“Customers are buying more just-in-time in these categories as they wait until the last moments before key events to invest in new décor or wardrobe refreshes,” Hennington said on an earnings call.


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