April’s retail sales came in pretty weak on Tuesday.
One of the things that’s bothered me is that in the past 12 months, retail sales have only risen 1.6%. That’s below the pace of inflation, which came in at 4.9% year-over-year in April. This means that inflation is hitting consumers’ pocketbooks.
It’s really hard for me to make this retail sales report look good, but if I had to pull out a silver lining on April’s numbers it would be that online retail sales were up 1.2% in April and 8% in the past 12 months. Plus, spending at bars and restaurants are up 0.6% in April and 9.4% last 12 months.
Where people aren’t spending money is the big-ticket items – furniture and home furnishing saw a 0.7% drop.
Senior economist at EY-Parthenon, Lydia Boussour said, “Retail sales posted a modest rebound in April, but the gain mostly reflected higher prices and a sustained turnaround is unlikely with consumer fundamentals turning less supportive.”
So, while we saw a rise in retail sales for the first time since January, overall it was a bit disappointing.
The bottom line: Retail sales are showing that the U.S. consumer is starting to crack under inflation pressure. Consumers are pivoting away from discretionary spending as the costs of essentials remain elevated.
Also on the retail front this week, several big retailers reported their quarterly earnings results. In today’s Market 360, we’re going to take a look at this week’s retail earnings. Plus, we’ll share which stocks are coming out on top this earnings season…
Let’s dive right in.
The Home Depot, Inc.
First up is The Home Depot, Inc. (HD), which reported earnings on Monday before the market opened. The company reported earnings of $3.82 per share on revenue of $37.26 billion, down from earnings of $4.09 per share and revenue of $38.91 billion in the same quarter of last year. Analysts were calling for earnings of $3.80 per share and revenue of $38.28 billion, so Home Depot topped earnings expectations by 0.5% and missed revenue estimates by 2.7%.
Not only was this Home Depot’s second-consecutive quarter of falling short of analysts’ revenue estimates, but it was also its biggest revenue miss in nearly two decades.
In a press release, Home Depot president and CEO Ted Decker said:
After a three-year period of unprecedented growth for our sector, during which we grew sales by over $47 billion, we expected that fiscal 2023 would be a year of moderation for the home improvement market. Our sales for the quarter were below our expectations primarily driven by lumber deflation and unfavorable weather, particularly in our Western division as extreme weather in California disproportionately impacted our results.
Shares of Home Depot closed down 2% on Monday and about 17% from their 52-week high on the same day.
Target Corporation (TGT) reported first-quarter earnings Wednesday morning. The company reported EPS of $2.05 versus the $1.76 expected. It also reported revenue of $25.32 billion compared to the $25.29 billion expected – and 1% higher year-over-year.
Target also maintained its full-year guidance: It expects operating income growth of more than $1 billion, and for earnings to come in between $7.75 and $8.75 per share.
On the call with investors, Chief Growth Officer Christina Hennington said that shoppers spent less as the quarter went on. Sales were strongest in February and declined in March and April.
A change in consumer behavior was also noted. The company said sales in beauty were strongest, followed by grocery and household essentials. But Target saw a decline in discretionary items including apparel and home goods.
Even with a better-than-expected report, Hennington notes:
The consumer is under pressure. The consistent inflation, the running out of savings as well as just economic uncertainty in general is having an impact on their choices and they’re making trade-offs.
It’s clear the strain on the American consumer is starting to show. Target shares rose nearly 3% Tuesday on the earnings beat.
This morning, Walmart Inc. (WMT) reported earnings for its first quarter of 2023. The company topped expectations, reporting EPS of $1.47, compared to expectations for EPS of $1.32. Walmart also reported revenue of $152.30 billion, versus the $148.76 billion expected.
Like Target, Walmart’s earnings showed a shift toward essential items like groceries. As reported by CNBC, nearly 60% of the company’s annual U.S. sales come from groceries.
Furthermore, CFO John David Rainey said that despite the sales growth, spending trends weakened with the sharpest drop after February. That, at least in part, he attributes to the end of pandemic-related emergency funding from the Supplemental Nutrition Assistance Program as well as a decline in tax refund amounts.
During the call, CEO Doug McMillon said that persistent inflation “is one of the key factors creating uncertainty for us in the back half of the year.”
The fact is that earnings are working. As you can see from the retail names above, both Target and Walmart shares rose after an earnings beat, while Home Depot shares slid when the company missed. They’re also working for my Growth Investor stocks.
During its second quarter in fiscal year 2023, Keysight Technologies achieved record revenue of $1.39 billion, or 3% year-over-year revenue growth. Earnings grew 13.8% year-over-year to $380 million, or $2.12 per share, compared to $334 million, or $1.83 per share, in the second quarter of 2022. The consensus estimate called for earnings of $1.95 per share on $1.38 billion in revenue.
Looking forward to its third quarter in fiscal year 2023, Keysight Technologies expects revenue between $1.37 billion and $1.39 billion and earnings per share between $2.00 and $2.06. That compares to revenue of $1.35 billion and earnings of $1.83 per share in the third quarter of 2022. The outlook is also nicely higher than analysts’ current expectations.
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Editor, Market 360
P.S. There is a great divide opening up in America – and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Keysight Technologies, Inc. (KEYS)