What Retail Earnings Say About the Consumer

The latest batch of retail earnings point to a resilient consumer in these high-inflation times, analysts say.

grocery bag full of fruits and vegetables in front of blue background
(Image credit: Getty Images)

This week’s earnings calendar is stacked with retailers – giving us a bird’s eye view of how inflation is affecting consumer spending. According to Michael Reinking, senior market strategist at the New York Stock Exchange, “results from both Walmart (WMT) and Home Depot (HD) suggest the consumer continues to be resilient,” and “relief at the pump has helped on this front.”

Both retailers reported higher-than-expected earnings and revenue in their second quarter and reiterated their full-year guidance. “Hopefully this shows that the inventory problems have been priced in, as Walmart threw the kitchen sink at guidance last quarter,” says David Wagner, portfolio manager at financial advisory firm Aptus Capital Advisors.

As for Home Depot, Wagner is encouraged that customer transactions remain higher compared to Q2 2019 and bigger average receipts (+9.1% year-over-year) “indicates we’re past peak pricing.”

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Looking at current consumer spending trends, Walmart says back-to-school season is off to a strong start, and John Furner, CEO of Walmart U.S., points to three contributing factors. “One is there are more customers shopping in the brand than we’ve seen previously, including better traffic numbers. Fuel prices did come down throughout the month of July. And I think the third [thing] that’s important is school attendance levels, we think, will be higher,” Furner said in the company’s second-quarter earnings call.

“During these inflationary times, conscientious consumers have looked to Walmart for its lower prices on essential goods, especially when the company has made past efforts to increase the quality of food,” says Wes Gottesman, market advisor at Web3 trading platform TradeZing. “In regard to inventory and the outlook for the anticipated holiday season, we feel that Walmart is poised for success.”

Gottesman feels the same about fellow big-box retailer Target (TGT), even though the company this morning said its second-quarter profit was down almost 90% from the year-ago period. The plunge occurred as TGT slashed prices on excess inventory.

“The decision to dispose of unwanted inventory, although initially shocking to its profits, may prove necessary in the future as we approach the major holidays,” Gottesman says. “Target is a hub for decorations and other holiday essentials for Halloween, Thanksgiving, Hanukkah, Christmas and New Year’s Eve. In order to meet the inventory demand for the upcoming seasons, they had to relinquish the unwanted. This move was for the future success and profitability of Target.”

Karee Venema
Contributing Editor, Kiplinger.com

With over a decade of experience writing about the stock market, Karee Venema is an investing editor and options expert at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at Schaeffer's Investment Research. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.