‘Consumer trends clearly deteriorated in the last couple of months. While [Walmart] was probably not fully immune from this, it surely performed better than others,’ UBS analysts say
Over the past week, we saw more evidence of a tired consumer: Evidence that people were spending less at amusement parks and holding off on booking vacation trips further out, along with signs that investors were getting cranky over the U.S. job market and the Federal Reserve’s response, although others downplayed that fit of selling in stocks.
This week, we’ll hear start to hear from some of the nation’s biggest shopping centers themselves — namely, home-improvement chain Home Depot Inc. and big-box and e-commerce discount retailer Walmart Inc., which report on Tuesday and Thursday, respectively.
Walmart’s WMT 0.43% results will follow a nearly 30% gain for its stock so far this year, as the battle with inflation leads both lower-income and higher-income shoppers toward the chain’s lower prices. But given Walmart’s size and technological resources, the results might not exactly speak for the broader retail sector.
“Consumer trends clearly deteriorated in the last couple of months. While [Walmart] was probably not fully immune from this, it surely performed better than others,” UBS analyst Michael Lasser said in a research note last week.
But in the wake of that deterioration, Lasser said that Walmart’s second-quarter results would be more about the chain’s “resilience” — after years of investing and repositioning the business — than outperformance. He also said that the company’s new private-label offerings — like Bettergoods, its new line of affordable but “chef-inspired” food with “elevated taste” — and back-to-school offerings would help results.
Elsewhere, BofA analysts said that while sales of Walmart’s other merchandise continues to lag those in its grocery and wellness sections, the chain’s digital-ad business — in which brands pay the company to advertise their products within Walmart’s online ecosystem — could help prop up profit margins. Other things working in its favor, it said, were store remodels and faster delivery options.
Home Depot HD 0.09%, meanwhile, will report as investors and customers wait on interest rates to fall and for the housing market to get better, potentially spurring more homebuying and home renovation.
Sales of big-ticket items, or things that cost more than $1,000, have slipped at the retailer. And with interest rates high and inflation whittling away at shoppers’ spending power, customers have shied away from more involved projects like kitchen remodels that often depend on financing.
Still, mortgage rates have come down recently. Company executives see bigger opportunities to serve more professional contractors. And, as some analysts have suggested, there are questions about when customers might decide they just have to start buying again even if interest rates don’t budge all that much.
“I think the question is at what point current interest rates become sort of the new normal,” Home Depot Chief Financial Officer Richard McPhail said on the company’s earnings call in May. “This is not something that we’re making a prediction on. It’s just thinking about behavior, at some point spend on housing shifts from discretionary to something that you simply must do.”
This week in earnings
Nine S&P 500 companies report earnings in the week ahead, including three from the Dow, according to a FactSet report on Friday.
Amid concerns about the impact of higher menu prices on demand, Brinker International Inc. EAT 1.23%, the parent of Chili’s and Maggiano’s, reports results during the week. China e-commerce giant Alibaba Group Holding BABA-0.40% will also report, as the economy there stumbles. Buzzfeed Inc. BZFD 2.67% reports, as the media industry remains in perpetual meltdown. Deere & Co. DE-0.89%, Rumble Inc. RUM 0.69%, Applied Materials Inc.AMAT 0.33% and Madison Square Garden Sports Corp. MSGS 1.40%
also report.
The call to put on your calendar
Tapestry: But what about luxury handbags? Tapestry Inc. TPR 0.79% — the company that owns Coach, Kate Spade and Stuart Weitzman — reports results on Thursday. The results could offer more of a look at whether the pullback seen elsewhere is also affecting the deeper-pocketed consumer, or, at least the one with enough money for “accessible luxury” — the space in which Tapestry competes. But company executives in May noted a “challenging consumer backdrop,” and regulators have taken issue with its acquisition of Capri.
The number to watch
Cisco cuts? Reuters, on Friday, reported that IT networking-gear giant Cisco Systems Inc. planned to lay off thousands amid a bigger push toward artificial intelligence and cybersecurity. The report said Cisco
CSCO-0.79% was likely to announce the move as soon as Wednesday, when the company reports quarterly results. While the tech industry’s old guard has had to shift toward subscriptions, the cloud and AI, and Cisco has dealt with supply disruptions, the company’s last round of results pointed to more stable demand. Still, the stock is down 10% so far this year, and Melius Research analysts in June said Cisco “remains a show-me story.”