It was a very busy week for retail. The big-box retailers reported their third-quarter earnings, and the October retail sales report was released on Wednesday.
Before we dive into the latest retail earnings, let’s take a quick look at the October retail sales report…
For October, retail sales rose 1.3%, which was slightly better than economists’ consensus expectation of a 1.2%. Sales at gasoline stations surged 4.1% in October and 17.8% in the past 12 months. Excluding gasoline stations, retail sales still rose by an impressive 0.9% in October. Especially encouraging is that sales at bars & restaurants rose 1.6% in October and 14.1% in the past 12 months, which is indicative that some consumers have disposable income. Vehicle sales rose 1.5% in October and are expected to remain strong, since many vehicles still have to be replaced from insurance claims from Hurricane Ian.
Overall, the October retail sales report was very impressive and indicative that consumer spending remains surprisingly strong. Given October’s healthy retail sales report, let’s use today’s Market 360 to find out how the big-box retailers – Walmart (NYSE:WMT), The Home Depot, Inc. (NYSE:HD) and Target Corporation (NYSE:TGT) – fared in the third quarter.
Walmart Inc. (WMT) – Earnings Reported on Tuesday, November 15
For the third quarter, Walmart reported adjusted earnings of $1.50 per share, beating analysts’ estimate of $1.32 per share and up 3.4% year-over-year from $1.45 per share. Revenue came in at $152.8 billion, an 8.7% year-over-year increase from $140.53 billion. This also topped analysts’ expectations for $147.75 billion.
The world’s biggest retailer continues to benefit from its discount pricing, as it said consumers turned to Walmart to save money on items like groceries – which was its strongest category this quarter.
CEO Doug McMillon said, “We had a good quarter with strong top-line growth globally… Walmart U.S. continued to gain market share in grocery, helped by unit growth in our food business. We significantly improved our inventory position in Q3, and we’ll continue to make progress as we end the year.”
WMT shares rallied 7% higher in early afternoon trading following the positive report.
The Home Depot, Inc. (HD) – Earnings Reported on Tuesday, November 15
Home Depot released earnings of $4.24 per share on revenue of $38.87 billion, beating analysts’ estimate of $4.12 per share and revenue of $37.96 billion. Earnings increased 8% year-over-year, up from $3.92 per share on revenue of $36.82 billion for third quarter 2021.
Chief Financial Officer Richard McPhail remarked that the company is still dealing with ongoing supply chain issues and an “inflationary environment not seen in four decades,” as seen in the slowdown of some products, namely lumber.
However, consumers continue to stay home, renovate, and spend on do-it-yourself projects. Despite “navigating a unique environment,” CEO Ted Decker said that the average Home Depot customer is still able to afford home improvement projects.
HD shares climbed 1.6% in the wake of the company’s earnings report.
Target Corporation (TGT) – Earnings Reported on Wednesday, November 16
Target announced third-quarter earnings of $1.54 per share, a nearly 50% plunge from earnings of $3.03 per share in the same quarter last year. Revenue came in at $26.52 billion, a slight increase from $25.65 billion a year ago. Analysts expected earnings of $2.13 per share and revenue of $26.38 billion, so the company missed on earnings but still bested revenue estimates.
Last quarter, the company dealt with offloading unwanted merchandise. And while it did make progress in clearing out the surplus, discarding those good also hurt company profits.
Interestingly, Target said its customers are waiting for promotions on many items and are waiting for purchases until they spot a deal. Target has been trying to clear a glut of many goods by discounting them, so it has apparently trained its customers to wait for special deals. I should add that Target is now expecting slower holiday sales and lowered its fourth quarter guidance.
The company also cited a decline in consumer spending as part of its earnings downturn. There has been a pullback on non-necessities, like housing, apparel, and electronic items, as customers grapple with higher prices. But for necessities, like groceries, shoppers left Target to find value deals at – you guessed it – Walmart.
“As we look ahead,” said Chief Financial Officer Michael Fiddelke, “we expect the challenging environment to linger beyond the holiday season and into 2023.” However, the most amazing statement from Target was that “organized retail crime” accounted for an astounding $400 million loss in profits this year, so shoplifting in states that no longer prosecute thieves are negativing impacting its bottom line.
Shares of TGT tumbled more than 13% on Thursday following the disappointing earnings results and are now down nearly 30% year-to-date.
So, now that we know these companies’ earnings results, let’s see how they stack up in Portfolio Grader.
As you can see in the Report Card above, the Total Grades are mixed. Walmart has a B-rating, making it a “Buy,” while Home Depot and Target both have C-ratings, making them “Holds.”
Even though Walmart won in the battle for the consumer, the reality is that we remain in an inflationary environment, with the Consumer Price Index (CPI) at a 7.7% annual pace and the PPI up 8% in the past 12 months. This means that the cost of goods and services has increased nearly 8% in the last year alone, causing retailers to reevaluate their upcoming holiday earnings.
As I’ve been saying for a while now, the silver lining, critical path in the current environment is the energy sector. Case in point: The energy sector posted 137.3% average earnings growth and 47.1% average sales growth for the third quarter. Without energy, the S&P 500 would have reported a 5.3% drop in earnings growth. I expect much of the same in the next several quarters, too, as the energy sector will be one of the only – if not the only – sector to achieve positive earnings growth.
I should also add that I expect oil prices to rise to $120 per barrel as demand for energy goes up in the spring – when seasonal demand naturally increases.
This is why I’ve been spending the past year loading up on energy stocks in Growth Investor. I want to ensure that we’re invested in the companies that will profit from the high energy demand. These stocks are an oasis for investors seeking steady sales and earnings growth.
If you want to position your portfolio for big profits, become a member of Growth Investor today. And your timing couldn’t be better because I just released my Growth Investor Monthly Issue for December yesterday, which included five new buys – all energy stocks – and my latest Top 5 Stocks list. These companies not only have strong forecasted earnings growth but have also benefited from positive analyst estimates and persistent institutional buying pressure. I also shared my outlook for the market as we enter the seasonally strong time of the year.
Click here now to get started and catch up on my December Monthly Issue!
Sincerely,
Louis Navellier
