Key takeaways:
- Home Depot and Walmart reported earnings let down investors
- The retail giants shared full-year guidance that disappointed investors since a spending slowing down is projected for the year
- Other retail stores are expected to see rough results as earnings continue to be reported
Well-known retail giants Home Depot and Walmart delivered a grim outlook for the future of retail spending in 2023. Home Depot’s stock fell after the report, while Walmart’s stock essentially flatlined as investors digested what the news meant for the economy.
Walmart and Home Depot sell two different types of goods to consumers, but their reports set a precedent for the upcoming week full of earnings from other retail companies. Here’s what investors might be in for.
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Walmart Earnings
Walmart, the world's largest retailer, beat analyst expectations on earnings and sales estimates in its report released Tuesday morning. However, the company announced a lackluster outlook for the fiscal year 2024.
Walmart's projection predicts adjusted earnings per share of $5.90 to $6.05, which came below estimates. Additionally, net sales are predicted to grow between 2.5% and 3%.
On a call with investors, Chief Financial Officer Rainey said, "While the supply-chain issues have largely abated, prices are still high, and there is considerable pressure on the consumer." He added, "Our guidance reflects a cautious outlook on the macro environment.”
Walmart had good news as they reported an increase in customers who make more than $100,000. The company is ready for a shift in inventory if needed since demand may change.
Most consumers who shop at Walmart Supercenters or Sam's Club do so for groceries, a recession-proof good. This will help the bottom line for the company with added foot traffic.
Home Depot earnings
Home Depot reported its earnings for Q4 2022 and missed Wall Street's revenue expectations for the first time since November 2019. Revenue slightly fell to $35.83 billion vs. $35.97 billion expected by analysts.
At the height of the COVID-19 pandemic, the company saw increased sales as consumers took on more home projects. Now, the company sees consumers spending their discretionary income on experiences outside the house. Moving forward, the company expects sales to be approximately flat for the new fiscal year.
The dip in the housing market also contributed to lower-than-expected results. As the company does not sell "recession-proof goods," it will have difficulty increasing foot traffic among regular consumers. Home Depot management will need to watch closely and interpret sales data.
Future outlook for retail giants
Walmart and Home Depot are well-known in their respective industries, and both provide unique services to consumers. Consequently, the outlook for the two will vary throughout the year.
On the one hand, it is possible that both companies are cautious as other businesses are planning for a down market. However, the grim side is consumer spending is slowing down in the country, which may lead to a deeper recession.
Reuters polled economists for their opinion about the future of sales, and the data showed they forecasted sales decreasing by 0.8%. This poll was done in January as retail sales plummeted 1.1% in December.
Several banks have reported mixed future guidance for consumers, with some seeing no change in spending and others putting away cash for future defaulted loans.
The reality is that the retail industry is currently up against several obstacles, such as supply chain issues, Federal Reserve interest rate hikes, tech job layoffs and low consumer confidence in the economy. Other retailers will likely see the same problems on a bigger scale, especially those involved in apparel goods.
Slowing down of spending
According to the New York Federal Reserve Bank, credit card balances in the U.S. hit a new all-time high of $986 billion. Americans continue to spend, but both Walmart and Home Depot expect spending to stay flat or decline. As prices continue to increase, it is unsurprising that spending would fall among discretionary income.
Walmart is in an excellent position to take advantage of consumers looking for deals to save money as prices climb. At the same time, Home Depot has a strong loyalty following from current customers, whether for home renovations or contractors.
Although Home Depot is confident that it will do well in the upcoming environment, it is less likely as consumers will spend less for goods. Chief Financial officer Richard McPhail stated on the earnings call, “During COVID, we saw a shift into goods. Over the last really almost two years, we’ve seen a gradual shift back away from goods into services, and we think our market has reflected that, and we think that that dynamic could put some pressure on our market.”
What it means for investors
It could be wise for investors to move forward with caution and stay liquid in this volatile market. Long-term investors should be able to weather the storm for the retail giants and may one day see a positive return.
Tasked with a more difficult job, short-term investors will need to rely on data and look for signs that signal more slowdowns in consumer spending. Focusing on retail trends will also be beneficial.
Numerous obstacles face the retail industry, but demand remains relatively high as consumers want to make up for lost time from the pandemic lockdown. Experiences are receiving more dollars than goods, requiring companies to be more creative to improve their bottom lines.
If Home Depot and Walmart’s projections have left you uncertain about the best ways to invest, Q.ai can help you by providing artificial intelligence-powered investment strategies. Plus, with the platform's Portfolio Protection, you can rest easy knowing your investments are safeguarded in this volatile market.
The bottom line
Last quarter, retail shopping showed signs of a slowdown in spending. As more companies release their earnings reports, further insights will be provided into different types of goods that are being impacted.
While this information will help determine the best investment opportunities for 2023, caution should always be used before investing during these uncertain economic times.
Download Q.ai today for access to AI-powered investment strategies.
