How resilient is the American consumer to high inflation? It depends on who you ask.
The four major retailers— walmart, Target, The Home Depot and Lowe’s — reported quarterly financial results this week, each offering a different perspective on where and how people spend their money.
Walmart said some of its more price-sensitive customers were turning to private-label brands, while Home Depot emphasized the resilience of its customer base, a sizable chunk of which are professional homebuilders and contractors.
The report came later Amazon late April Warning signs flashing in retail That’s when it recorded its slowest revenue growth in any quarter since the dotcom bubble burst in 2001 and provided a bleak forecast.
Still, Wall Street’s expectations for both Walmart and Target were higher this week. Analysts and investors did not expect such a huge hit to the profits of the two big retailers in the most recent period, as supply chain costs weighed on sales and unnecessary inventories such as TVs and kitchen appliances have piled up. Walmart closed down 11.4% on Tuesday, its worst day since October 1987.Walmart fell another 6% in afternoon trade on Wednesday, while Target was also on track to drop to Worst day in 35 years.
In recent weeks, though, Home Depot and Lowe’s have been stronger among shoppers.
“Our customers are resilient. We’re not seeing the sensitivity to inflation levels that we originally expected,” Home Depot Chief Executive Ted Decker said on the company’s earnings call on Tuesday. (Shares in both home improvement chains were down more than 5% in Wednesday afternoon trading broader market sell-off.)
Reviews from these retailers were mixed, in large part because Americans are experiencing different economic fluctuations depending on their income levels.Months of coronavirus-related lockdowns have prompted people to buy canned food, toilet paper and Peloton Bike soars. Multiple rounds of stimulus money have spurred spending on new sneakers and electronics.
But as that money dries up, retailers must navigate their new normal.This includes inflation at a 40-year highRussia’s war in Ukraine and still-crippled global supply chains.
“While we’ve experienced high levels of inflation in international markets over the years, it’s unusual for U.S. inflation to be so high and changing so quickly, whether it’s food or groceries,” Walmart CEO Doug McMillon said in the earnings report on Tuesday. .” Conference call.
This week’s results could herald trouble for many retailers, including Macy’s, Kohl’s, Nordstrom and gap, the company has yet to announce results for the first quarter of 2022. These companies, which rely on consumers coming into stores to buy new clothes or shoes, could be under particularly heavy pressure as Walmart hints shoppers are starting to spend more on groceries with less discretionary items.
Meanwhile, retailers say demand for items like luggage, dresses and makeup is rising as more Americans plan vacations and weddings. But the worry is that in order to afford these things, consumers will be forced to make trade-offs somewhere.Or they’ll look for discounted items in stores, such as TJ Max.
Here’s what Walmart, Target, Home Depot, and Lowe’s tell us about the state of the U.S. consumer.
walmart
Things are mixed for Walmart, depending on consumers’ household incomes and how they see the future. But in the most recent quarter, the largest U.S. retailer said shoppers showed they were budget-conscious.
Customers walked out of the store and left the retailer’s website with fewer items. More people are skipping new clothes and other daily necessities when they see gas and grocery prices rising. CFO Brett Biggs told CNBC that some people are switching to cheaper brands or smaller items, including half-gallons of milk and store-brand lunch meat, rather than pricier brands.
On the other hand, some customers are flocking to new patio furniture or eagerly chasing flashy new consoles, he said.
“If you look at the U.S. demographics and put our customer map on it, we’re pretty close to the same thing,” Biggs said. “So some people will feel more pressure than others, and I think that’s what we’re seeing.”
Target
Target said it saw a resilient consumer with new priorities as the pandemic became an afterthought.
“They’re switching from buying TV to buying luggage,” CEO Brian Cornell said in an interview on CNBC’s “Squawk Box.” He later added, “They’re still shopping, but they’re starting to spend it differently.”
The change was reflected in purchases in the fiscal first quarter, he said. Customers buy decorations and gifts for Easter and Mother’s Day celebrations. They threw and attended much larger children’s birthday parties – leading to a surge in toy sales.They also bought fewer items like bicycles and small kitchen utensils because they Booked flights and planned travel.
Cornell noted that Target’s spending levels were high in the first quarter of last year, as Americans received money from stimulus checks but had fewer places to spend.
He noted that despite the challenging comparisons, comparable sales are still growing. Additionally, Target store traffic and website traffic increased by nearly 4% year over year. However, the sales growth figure will include the impact of inflation, which makes everything from freight costs to groceries more expensive.
Target also made even bigger markdowns last quarter, a staple of retail that has more or less disappeared during the pandemic as shoppers are eager to buy and retailers have fewer items on the shelves.
The Home Depot
The home improvement retailer told investors on Tuesday that it had not seen any differences in consumer behavior.
Home Depot’s average fare climbed 11.4% in the quarter, largely driven by inflation. But executives also said consumers are trading up, not down. For example, consumers are switching from gasoline-powered lawn mowers to more expensive battery-powered options, according to Jeff Kinnaird, vice president of merchandising at Home Depot.
This behavior may be due to the vast majority of Home Depot customers being homeowners who have seen their Home Equity Soars in the past two years. Chief Financial Officer Richard McPhail said on the conference call that more than 90 percent of DIY customers own their homes, and essentially all sales to contractors are on behalf of the homeowner.
McPhail also said that about 93 percent of mortgage customers have a fixed rate. As interest rates and house prices riseconsumers considering moving are opting instead to stay in their current homes and remodel them.
Lowe’s
Lowe’s made a similar point on Wednesday’s conference call.Chief executive Marvin Ellison said home price appreciation, an aging housing stock and persistent housing shortage is the main economic driver of Lowe’s business.
“That’s one of the reasons why I think home improvement is a unique retail industry and there can be a lot of concerns about consumer health in this macro environment,” he told analysts.
Consumers engaged in DIY projects account for about three-quarters of Lowe’s sales, a higher percentage than rival Home Depot. So far, the company hasn’t seen any substantial deals from these consumers.
However, consumers are starting to feel the pinch from rising energy prices. Ellison told CNBC that Lowe’s customers are buying battery-powered landscaping tools, lawn mowers and more fuel-efficient washing machines.
“I think it has something to do with fuel prices? The answer is yes,” he said.
Lowe’s It did miss Wall Street’s expectations for its quarterly salesbut executives blamed the retailer’s disappointing results on the weather.
