Consumer insights from WMT, TGT and HD retail results
A Target department store in North Miami Beach, Florida, May 17, 2023.
Joe Raedle | Getty Images
More grocery shopping, fewer ambitious do-it-yourself projects and last-minute in-store sales.
This week, some of the country’s largest retailers reported their findings, detailing how their customers are shopping. As home depot, Goal And Walmart The companies reported their quarterly sales and shared their full-year forecasts. They presented the latest clues to the health of American consumers and a preview of what could lie ahead for the economy.
Some smaller retailers also offered current quarter and year-to-date warning signs.
Next week there will be even more insights into the retail industry and economy. best buy, lowes, Costco, money tree And cabbage belong to the disposable income. Some mall retailers are also reporting profits, including Gap, american eagle And Abercrombie & Fitch.
Here are some of the emerging themes.
Sales development has weakened
So far, at least five retailers — Target, Walmart, tapestry, Bath and body works And Foot Locker – have spoken about deteriorating sales trends across the country.
Over the three-month period, shoppers spent less, particularly on essentials, Target CEO Brian Cornell said in a conversation with investors. Walmart noticed the same pattern.
Both major retailers reported sharp sales declines after February.
Walmart CFO John David Rainey partially attributed the drop to the end of pandemic-related SNAP benefits and a drop in tax refunds.
Cornell said headline-grabbing events could have shaken consumer confidence as well. He referred to the banking crisis in March. That month, the Silicon Valley bank collapsed, sparking fears of greater economic troubles.
Sales at Bath & Body Works fell in March. But sales rebounded in April as the retailer resorted to a common principle: promotions. It got a boost as customers spent at sales events late in the quarter, CFO Wendy Arlin said on a earnings call Thursday.
Foot Locker also said it may need to incentivize shoppers with discounts for the rest of the year. The company lowered its full-year guidance on Friday as it reported earnings that fell short of expectations. CEO Mary Dillon said in a statement, “Given the challenging macroeconomic environment, sales have since declined significantly.”
In a call to investors on Friday, Dillon said the sneaker seller’s sales were hurt by lower tax refunds and high inflation as customers spent more on groceries and services. While she said sales rebounded in April, “they didn’t improve nearly at the rate we expected and that weakness continued into May.”
Certain other factors contributed positively to some of the other retailers that reported earnings.
When Tapestry, the parent company of Coach and Kate Spade, reported its results last week, the company said sales fell during the quarter and into April as consumers became more cautious.
But there’s one factor in its favor that some other retailers don’t have: A growing business in China and other international markets to offset some of those weaker sales.
Home Depot has bucked the declining sales trend, but that may have more to do with its offering than consumer health.
Spring is peak season for home improvement. The retailer’s comparable sales in the quarter fell 4.6% compared to the same period last year. In February, comparable sales fell 2.8%. March was the weakest month of the quarter, as US comparable sales fell nearly 8% year over year
According to CFO Richard McPhail, April trends at Home Depot were still negative, but showed a slight improvement as comparable sales fell 3.7%. Customers may have bought more spring items like potted plants.
Inflation is still a key factor
Persistently high prices, especially for groceries, are a storm cloud hanging over many families who shop at Walmart and looming over the entire retail industry, said Doug McMillon, CEO of the big-box giant. In a call to investors on Thursday, he called persistent inflation “one of the key factors keeping us uncertain in the second half of the year.”
“We all need these prices to come down,” he said on the call. “The high rates of inflation in these categories that have persisted for such a long period of time are taking a toll on some of the families we serve.”
For example, he said that US general merchandise costs are lower than a year ago, but still higher than two years ago. In its dry grocery and consumables categories, Walmart is seeing high single-digit to low double-digit cost inflation on items like toilet paper and paper towels. According to Walmart’s Rainey, food inflation is up more than 20% over a two-year period.
A shopper browses the egg section of a Walmart store in Santa Clarita, California.
Mario Anzuoni | Reuters
Walmart is feeling the pinch of inflation, even though it’s in a better position to handle higher costs than other retailers. As the largest retailer and grocer in the country, Walmart can use its scale to manufacture or negotiate private label with vendors above price.
A rare item that has dropped dramatically in price? Wood. Home Depot cited the sharp drop in prices as a contributing factor to the decline in sales in the fiscal first quarter.
In many other categories, however, inflation is still driving a higher average ticket for customers, Home Depot CEO Ted Decker said in a earnings conference call on Tuesday.
Consumers spend money on their needs, not their wants
Target, Home Depot, and Walmart all noticed a striking pattern: less expensive and more fun items in shopping carts.
Customers bought at Home Depot less expensive items such as electrical appliances and grills in the fiscal first quarter.
Even home projects have become more modest, said Decker at an investor meeting. Contractors and other do-it-yourselfers have noticed a shift from large-scale remodeling to smaller renovations and repairs.
Decker said consumers’ increasing value orientation could be contributing to this shift, along with an increase in spending on travel, dining out and other services. He added that in the early years of the Covid-19 pandemic, some homeowners had already tackled large projects and bought some high-priced household items, leaving them with less to do or buy.
The trend went beyond DIY.
Customers at Walmart have become more selective when shopping for electronics, televisions, household items and clothing, Rainey told CNBC. The items have become more difficult to sell, and when customers buy them, they are often waiting for a sale, he said.
At Target, sales in some discretionary categories fell into the low double-digits as customers bought less clothing and home accessories, Chief Growth Officer Christina Hennington said in an investor call. Grocery and basic necessities made up a larger portion of the retailer’s quarterly sales.
An exception? Beauty. Hennington said Target’s beauty category was the strongest during the fiscal first quarter. Sales rose in the mid-teens year-over-year, showing that shoppers are still willing to refill the cosmetic case and buy a new tube of lipstick.
Weather dampened demand (literally)
The weather hasn’t been kind to retailers, at least not yet.
As the weather gets warmer and sunnier, it can inspire shoppers to shop for sundresses, beach towels, or gardening supplies.
Still, Home Depot said cooler and wetter weather in California and parts of the western US hurt its sales. This contributes to the biggest drop in sales in more than 20 years.
Walmart is also looking forward to warmer weather. Sam’s Club has seen slower patio furniture sales, possibly due to late spring weather, managing director Kath McLay said at an investor call. Walmart has seen a sharp drop in air conditioner sales at its wholesale stores, CFO Rainey said.
“We’re ready for spring or summer weather,” he said in a call with CNBC.
Target indicated that it’s looking forward to another upcoming season: back to school.
The discounter is expecting a boost in sales in the second half of the year due to the big shopping season, said Hennington in a discussion with investors. She said the return to classrooms and dormitories is sparking sales in almost every department of the store, from lunch ingredients on the grocery shelves to new outfits in the children’s clothing department.
There are more and more shoppers shopping at the last minute
Retailers may be proclaiming that the days of stocking up and shopping early are long gone.
Business leaders said there are signs shoppers are returning to some of their old ways.
At Walmart-owned Sam’s Club, McLay says shoppers aren’t just opting for lower prices. They also shop for seasonal items later. For example, she said that customers bought patio furniture as soon as it was placed in the stores.
“Now we’re seeing people wait a little later in the season,” she said.
There’s a similar pattern with Mother’s Day sales, she said.
McLay opined that this could indicate that people have returned to the shopping habits of 2018 and 2019. The trend could be fueled by shoppers’ reluctance to open their wallets, or the fact that they don’t worry as much about out-of-stock items — or a combination of both.
At Target, too, buyers have taken on a more hesitant streak, especially for discretionary items like apparel.
“Guests in these categories are becoming more punctual as they wait until the last moment before important events to invest in new decorations or wardrobe refreshes,” Hennington said in a conference call about the results.
https://www.cnbc.com/2023/05/19/us-economy-consumer-takeaways-from-wmt-tgt-hd-retail-earnings.html Consumer insights from WMT, TGT and HD retail results