A Lowe-Key Day Of Whale Watching

After Walmart and Home Depot reported yesterday, we heard from Target and Lowe’s today.

First up was Target, whose earnings per share missed expectations ($0.39 vs. $0.72), while revenues were in-line with expectations at $26.04 billion. 👎

Apparently, it didn’t learn from Walmart’s earnings management tactics, which included lowering guidance enough to beat it. That said, the two companies shared many of the same themes.

The company’s efforts to aggressively clear out excess inventory are in progress but have put a real damper on near-term earnings. Some analysts are looking at the company’s Q2 inventory of $15.32 billion (up from $15.08 billion) and saying that their efforts aren’t making a dent.

However, management pushed back, saying that the number is elevated due to cost inflation, receiving inventory earlier to be ready for the holidays and that their overall inventory mix is far more favorable. 👍

Also, like Walmart, the company canceled more than $1.5 billion of orders in the lower-demand discretionary categories. They also faced higher transportation costs and a more discerning consumer due to the economy’s broader inflation and macro trends. 🔺

Overall, investors weren’t too harsh on the stock (-2.69%) as much of the information was already public knowledge. Instead, investors look forward to seeing how well the company can navigate the challenging macro environment and deliver the items consumers want in the year’s second half.

Lowe’s reported better than expected earnings, but revenue missed the mark because of a “shorter spring season.” 🌦️

Adjusted earnings per share were $4.67 vs. $4.58 expected, and revenues were $27.48 billion vs. $28.12 billion. In other metrics, transaction volume was down 6%, offset by an increase in average ticket size of 6.50%. Meanwhile, same-store sales fell 0.3%, with home improvement in the U.S. seeing marginal YoY growth of 0.2%.

The primary difference between Home Depot and Lowe’s is their customer mix. About 75% of Lowe’s customers are “do-it-yourselfers,” while Home Depot has a larger share of professionals shopping at its stores. When we drill down into the results, that remains the key differentiator. All the other themes discussed on their earnings calls were similar in nature. 📝

With that said, Lowe’s continues to make efforts to diversify its customer base. For example, the company said its new loyalty programs allow it to attract more professionals and drive repeat visits. For example, professionals in the program spent 3x more than those not enrolled, and the company expects accelerated growth in this segment in the back half of the year.

For now, though, the success of Lowe’s ultimately rests on the American consumer’s shoulders. Although Home Depot and Lowe’s executives said they’re optimistic about consumer spending and haven’t seen that significant of a slowdown just yet, a lot can change given the uncertain macroeconomic environment.

After an initial pop at the open, Lowe’s shares settled back down to marginally positive at the close.

It’s 13F season, and market participants are rushing to see what the most prominent investors are buying and selling. 🐋

Today we’ll look at Berkshire Hathaway’s 13F to see what Buffett was up to in the second quarter. 

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The Federal Reserve released its July meeting minutes today. And while there’s often a lot of noise in the meetings (and this one was no exception), the key takeaway ultimately hasn’t changed. 🔑

The Federal Reserve will keep hiking rates until the core measures of inflation show meaningful progress towards their 2% long-term rate.

So far, we’ve not seen that. And as a reminder, the committee doesn’t make decisions based on volatile headline numbers, so don’t get your hopes up just because oil has sold off.

We’ve talked about inflation this summer more than any human should, so we’ll leave it at that.

In the meantime, Europe managed to avoid a recession in Q2. The preliminary read on Eurozone GDP rose 0.6% QoQ and 3.90% YoY, though it’s not yet out of the wood. 😮‍💨

The continent is facing a whole host of issues like an energy/food crisis, record temperatures and droughts, the war in Ukraine, and many other things hampering their economy. Some countries are managing better than others, but structurally there are a lot of issues facing this region of the world. Hence, many analysts expect this growth reading to be the last positive one for a while. 🚩

And to wrap up our economic news, headline U.S. retail sales were flat in July. Dropping gasoline prices freed up spending money for other goods, as core retail sales rose 0.8%. 🛍️