Yesterday Walmart and Home Depot reported better-than-expected earnings, leaving investors hoping Target and Lowe’s would see similar results.
Let’s find out if they did. 🕵️
Target’s rough run continued today after the company beat on the top line but missed badly on the bottom line. Its Q3 earnings per share of $1.54 were far below the $2.13 expected, while revenues beat slightly at $26.52 billion (vs. $26.38 expected).
The company had expected to take a profit hit as it cleared out excess inventory, but not this big. Its Q3 profit fell by 50%, driven by promotional pricing and an overall slowdown in sales. 🔻
A significant sales slowdown in October is putting the company on defense. Chief Growth Officer Christina Hennington said, “it was a precipitous decline and, frankly, we’ve seen those trends in the early parts of November as well.”
The inflationary environment and recession fears are causing consumers to pull back. The 2022 trend of spending more on necessities and less on discretionary items continues. Like Walmart, the lower-margin Food and Beverage category was one of Target’s strongest. 🥫
As a result, it now expects a low single-digit decline in comparable sales and an operating margin rate of around 3% for the holiday quarter.
Overall, the company clearly has further work to do in navigating the current environment. Executives acknowledged that, planning up to $3 billion in total cost cuts over the next three years as it aims to improve its operational efficiency after sloppy pandemic growth.
$TGT shares fell 13% on the news as investors worried about the consumers’ health and Target’s ability to position itself properly in the current environment. 📉
Meanwhile, Lowe’s followed Home Depot’s report by beating top and bottom line expectations.
The company’s adjusted earnings per share of $3.27 exceeded the $3.10 expected. Meanwhile, revenues of $23.48 billion topped estimates of $23.13 billion. 📈
Driving the results was strength in its professional and do-it-yourself home improvement segments. While many expected the housing market slowdown to affect its business, the company said rising rates hadn’t impacted its customer base, who tend to have fixed-rate mortgages and equity in their homes. Those two factors help buoy investment and renovation spending. 💪
Investors are also concerned about the overall level of economic uncertainty. CEO Marvin Ellison acknowledged those challenges but reiterated, “We’re not seeing the negative impacts of inflation.”
And as a result, the company raised its full-year earnings outlook while lowering the top end of its revenue outlook slightly. $LOW shares rose 3% on the news. 👍
So far, retail’s biggest players continue to paint a mixed picture of the consumer’s health and the overall economy. We’ll hear from more companies later this week. But overall, this remains a key area of concern for investors through the end of the year. 📆