Should You Buy the Big Box Retailers After Earnings?

Should You Buy the Big Box Retailers After Earnings?

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This was a big news week for retail, as Walmart Inc. (NYSE:WMT), The Home Depot, Inc. (NYSE:HD) and Target Corporation (NYSE:TGT) announced their latest quarterly results and the retail sales report for July was released.

Before we dive into earnings, let’s start with reviewing the retail sales…

The Commerce Department announced on Wednesday that retail sales were unchanged in July, which is a bit below economists’ consensus estimate of a 0.1% increase. Gas station sales declined 1.8% in July due to lower prices at the pump, while vehicle sales declined 1.6%. Excluding gas stations and vehicle sales, July retail sales rose a healthy 0.7% as nine of the 13 industries surveyed reported an improvement. Online sales rose a robust 2.7% in July, so consumers were “clicking” on their computers and cell phones. Overall, July retail sales were at least keeping pace with inflation and there were some positive details that consumers will keep “clicking” and spending.

So, given the slightly disappointing retail sales report, how did the big box retailers fare in the second quarter? Let’s find out in today’s Market360.

Walmart Inc. (NYSE:WMT) – Earnings Reported on Tuesday, August 16

For the second quarter, Walmart reported adjusted earnings of $1.77 per share, down only a penny from this time last year and beating analysts’ estimate of $1.62 per share by 9.3%. Revenue came in at $152.86 billion, an 8.4% year-over-year increase that also topped analysts’ expectations for $150.81 billion.

Part of the company’s gains this quarter are due to inflation, as the price of food and other items has increased. Families of varying income level found more of a relief – and deals – shopping at the discounter’s stores and websites. In a statement made on Tuesday, CEO Doug McMillion said, “We expect inflation to continue to influence the choices that families make and we’re adjusting to that reality so we can help them more.”

WMT shares rallied more than 5% following the positive report.

The Home Depot, Inc. (NYSE:HD) – Earnings Reported on Tuesday, August 16

Home Depot reported strong second-quarter earnings as interest in home improvement projects continues. The company released earnings of $5.05 per share on revenue of $43.79 billion, beating analysts’ estimate of $4.94 per share and revenue of $43.36 billion. Earnings increased 11.5% year-over-year, up from $4.53 per share on revenue of $4.8 billion for second quarter 2021.

Jeff Kinnaird, the executive vice president of merchandising, said that “both pro and DIY sales growth was positive” in the second quarter, “with pro outpacing DIY.” So, it seems that regardless of the weaker housing market, customers are not sacrificing quality or service as they continue fixing up their homes.

The company stated that this quarter marks its highest quarterly sales ever, with net sales growing 6.5% year-over-year.

HD shares jumped 4.1% on Tuesday.

Target Corporation (NYSE:TGT) – Earnings Reported on Wednesday, August 17

Target reported dismal sales for its second quarter, with profits falling nearly 90% from a year ago. Earnings of $0.39 per share widely missed analysts’ estimate for earnings of $0.72 per share. Revenue came in $26.04 billion. This is a major decrease of from second-quarter earnings for 2021, where earnings came in at $3.65 per share on revenue of $25.16 billion – showing an 89.2% year-over-year decline.

Much of the company’s loss comes from a surplus of unwanted merchandise. In the earlier days of the pandemic, sales for home decor, loungewear, and the like increased as people led their lives from home. Now, however, there is less desire for these items, so the company offloaded the inventory that had built up.

“If we hadn’t dealt with our excess inventory head on,” said Chief Financial Officer Michael Fiddelke, “we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential. While our quarterly profit took a meaningful step down, our future path is brighter.”

Now that we know these companies’ earnings results, let’s see how they stack up in Portfolio Grader and if they’re good buys right now.

Louis Navellier's portfolio graders ratings for HD, TGT and WMT

As you can see in the Report Card above, the Total Grades are mixed. Home Depot and Walmart both have C-ratings, making them “Holds,” while Target as a D-rating, making it a “Sell.” With at-best borderline fundamentals, these retailers earn a Total Portfolio Grade of C.

Although consumers have remained mostly resilient against rising inflation prices, overall retail spending has weakened. And a shift has occurred toward spending less for expendables, like furniture and clothes, and more toward necessities, like groceries.

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Source: InvestorPlace unless otherwise noted

Louis Navellier

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