What Walmart, Target, Home Depot and Louie say about our economy

How well have American consumers held up against sky-high inflation? It depends on who you ask.

Four major retailers – Walmart, Target, Home Depot and Lowe – reported quarterly financial results this week, and each offered a different perspective on where and how people are spending their money.

Walmart says some of its more price-sensitive customers are starting to deal with private-label brands, while Home Depot emphasizes resilience within its customer base, a large percentage of which are professional home builders and contractors.

Reports come after Amazon issued a warning for the retail industry in late April, when it booked the slowest revenue growth for any quarter since the dot-com explosion in 2001 and gave a bleak forecast.

Still, expectations were high on Wall Street this week for both Walmart and Target. Analysts and investors did not expect the two big-box retailers to take such a big hit on their profits in recent times as supply chain costs rely on sales and unwanted inventory, such as TVs and kitchen appliances. Walmart closed 11.4% lower on Tuesday, marking the worst day since October 1987 On Wednesday, Walmart lost another 6% in afternoon trading, while the target was at its worst day in 35 years.

Home Depot and Low, though, have seen more power among buyers in recent weeks.

“Our customers are resilient. We are not seeing the level of sensitivity to inflation that we initially expected,” Home Depot CEO Ted Decker said Tuesday in a company earnings call. (Shares of both home improvement chains fell more than 5% in trading on Wednesday afternoon amid broader market sell-off.)

Mixed comments from these retailers are largely due to the fact that Americans are experiencing economic instability differently depending on their income levels. A few months after the Covid-related lockdown, companies and consumers are in an unknown transition period that has led to an increase in purchases of canned goods, toilet paper and Peloton bikes. Multiple rounds of stimulus dollars have pushed up the cost of new sneakers and electronics.

But as that money dries up, retailers must navigate their new routine. These include 40-year high inflation, Russia’s war in Ukraine and the still crippled global supply chain.

Doug Macmillan, Walmart’s chief executive officer, said in a statement on Tuesday that “although we have experienced years of high inflation in our international market, it is unusual for US inflation to be so high and for food and general commodities to be so fast.” Conference call.

This week’s results could predict problems for a number of retailers, including Macy’s, Kohls, Nordstrom and Gap, who have yet to report results for the first quarter of 2022. These companies may rely on customers who come to their stores for new clothes or shoes may be particularly pressured, as Walmart indicated that shoppers are starting to bring back discretionary items to budget more money towards the grocery store.

At the same time, retailers are citing growing demand for items such as luggage, clothing and makeup as more Americans plan vacations and attend weddings. But the concern is that consumers will be forced to trade-off somewhere to handle these things. Or they will look for discounted products in stores like TJ Maxx.

Here’s what Walmart, Target, Home Depot, and Louie are telling us about the plight of American consumers.

Walmart

Walmart is looking at a mixed picture, shaped by consumers’ household incomes and how they feel about the future. In recent quarters, however, the country’s largest retailer has said buyers are showing that they are budget conscious.

Customers leave the store and leave the retailer’s website with less purchased items. As gas and grocery prices rise, many of them have skipped over new clothing and other general merchandise. Some have traded in cheaper brands or smaller items, including half-gallon milk and lunch meat shop brands, instead of expensive brand-names, Chief Financial Officer Brett Biggs told CNBC.

On the other hand, he said, some customers have grown up for new patio furniture or are eagerly chasing the flashy new gaming console, he said.

“If you look at the population of the United States and put our customer maps on top of it, we’re really close to the same thing,” Biggs said. “And so you’ve got some people who are going to feel more stressed than others and I think that’s what we’re seeing.”

Target

Target says it is looking at an resilient consumer who has new priorities because the epidemic is thinking more later.

“They’re moving from buying TVs to buying luggage,” CEO Brian Cornell said in an interview with CNBC’s “Squawk Box.” He later added, “They’re still shopping, but they’re starting to spend dollars differently.”

The first quarter of the fiscal year saw this change with purchases, he said. Customers bought decorations and gifts to celebrate Easter and Mother’s Day. They throw and join the kids’ big birthday party – which leads to increased toy sales. They also bought fewer items like bicycles and small kitchen appliances because they booked flights and planned trips.

The colonel pointed to higher spending levels that went against the target in the first quarter of the year before, as Americans received money from stimulus checks and had less room to spend.

Despite that challenging comparison, comparative sales still increased, he noted. Also, Target’s store and website traffic grew by about 4% year-over-year. The number of sales increases, however, will include the effects of inflation that are driving up everything from freight costs to gross prices.

The last quarter also saw high-level markdowns, a key item in the retail industry that almost disappeared during the epidemic because buyers had a greater appetite for buying and retailers had fewer products to shelf.

Home Depot

The home improvement retailer told investors on Tuesday that it still sees no difference in consumer behavior.

Home Depot average tickets rose 11.4% quarterly, driven mainly by inflation. However, executives further said that consumers are trading, not trading down. For example, according to Jeff Kinyard, vice president of home depot merchandising, consumers are switching from gas-powered lawn mower to more expensive battery-powered alternatives.

This behavior is probably due to the fact that the lion’s share of home depot customers are homeowners who have seen their home equity value rise in the last two years. CFO Richard McPhail said in a call that more than 90% of its customers own their home, while all sales to contractors are primarily homeowners.

McPhail further said that about 93% of customers, including mortgages, have fixed rates. As interest rates and housing prices rise, consumers who are considering relocating choose to renovate their existing home instead.

Loyer

Loe’s similar sentiments were echoed during his conference call on Wednesday. CEO Marvin Ellison said rising home prices, aging home stocks and ongoing housing shortages are key economic drivers for Lowe’s business.

“This is one of the reasons I think home improvement is a unique retail sector and this macro environment can have a lot of questions about consumer health,” he told analysts.

Customers working on the DIY project accounted for about three-quarters of Loe’s sales, a higher proportion than competing home depots. So far, the company has not seen any material transactions from those consumers.

However, consumers are beginning to feel the pinch due to rising electricity prices. Ellison told CNBC that Lowe’s customers are trading in battery-powered landscaping equipment and lawnmowers and more fuel-efficient laundry machines.

“Do I think it has anything to do with fuel prices? The answer is absolutely,” he said.

Greed’s quarterly sales fell short of Wall Street’s expectations, but executives have chucked up the retailer’s disappointing performance for the weather.

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