How are US consumers spending? Just ask the big-box retailers. Last week saw a flurry of second quarter (Q2) earnings announcements from all-American mall staples, Home Depot, Target, and Walmart. And their results may offer a glimpse into how US consumers are feeling after inflation cooled to 3.2% in July, down from a 2022 peak of 9%. As people swap out fancy feasting for cheap meal deals, is shopping feeling the same squeeze?

Blowing hot and cold. 🥵🥶 Home Depot (HD) is feeling the heat in a cooling housing market. The home improvement mecca was first to report Q2 earnings last Tuesday, beating Wall Street expectations but, is still on the receiving end of cautious consumers:

• Earnings per share (EPS): up nearly 4.5% above analysts’ expectation at US$4.65 per share, but down nearly 10% from the same period last year
• Net income: US$4.66 billion, a drop of nearly 2% from the previous year
• Revenue: slightly exceeded Wall Street expectations, up 1.6% to US$42.92 billion versus the expected US$42.23 billion

Hammered by the post-pandemic housing pull back? 🔨 A July report by Bank of America Global Research showed Home Depot claimed 17% of the US$1 trillion home improvement market. During the pandemic, homeowners helped Home Depot haul in ‘unprecedented’ sales of US$132 billion, leading to the company’s personal best closing share price of US$400.16 in December 2021 - their stock down 19% since.  

Americans are feeling ‘lousy about housing’ 🏘️

At least CNN’s Anne Bahney thinks so, believing home owners are ‘hunkering down’ and pushing pause on home renos. Home Depot CEO Ted Decker remains buoyant, however. He told investors, while their customers were being prudent about buying ‘big-ticket, discretionary’ items, ‘the consumer is generally healthy’. Analysts at Bank of America (BAC) are also optimistic, saying Millennials moving out of city centres into suburban and rural properties is a trend that ‘should support growth in spending on home-related goods’.

Budget-friendly shopping missed the bullseye for Target customers. 🎯 Across the car-studded carpark from Home Depot, Target’s  (TGT) results were both hit ’n’ miss as cash-conscious shoppers reduced discretionary spending at the big-box store. Target CEO Brian Cornell said high inflation on food and household essentials is ‘absorbing a much bigger portion’ of their customers’ budget, and he’s wary of more interest rate hikes. Target’s Q2 sales fell short of Wall Street estimates:

• EPS: at US$1.80 was nearly 30% higher than expectations at just US$1.39 - and four times higher than a year ago - but Target cut their EPS forecast for full year from US$7.75 and US$8.75 to between US$7 and US$8
• Revenue: Target revenue fell 1.5% short of expectations, missing quarterly sales by more than US$400 million, reporting revenue of US$24.77 billion 

Corporate Pride flip flop? 🏳️‍🌈🏳️‍⚧️ 

Just as Anheuser-Busch (BUD - ADR) stock has ricocheted 15% down since early April after Kid Rock blew up over Bud Light, Target’s sales slumped ‘precipitously’ in June, not helped by a violent backlash against Target’s Pride Collection, launched in May. Target chief growth officer Christina Hennington responded saying they’d be ‘more cautious’ with monthly celebrations ongoing. Falling sales hasn’t helped Target’s stock either, dropping 18.6% since May with ‘a sharp dip’ after Pride Month.

Walmart’s grocery sales a ticket to ride. 🛒 Unlike Target, which generates 20% of sales from groceries, Walmart’s (WMT) groceries account for 59% of business out the door - favoured by higher income shoppers seeking deals - and it's help the big-box giant to ride out consumer hesitancy. It seems the retailer’s ‘Every Day Low Prices’ philosophy has resonated with consumers, helping them exceed Wall Street Q2 expectations for sales and earnings:

• EPS: Up 7.6% at US$1.84 above the expected US$1.71
• Revenue: Sales grew, nearly 1% ahead of analysts’ expectations to US$161.63 billion versus US$160.27 billion expected, and up 5.7% from a year ago
• Profit: following last year’s inventory glut, Walmart’s profits grew 53% year-on-year to US$7.9 billion
• Online sales: lifted 2.3% in the quarter and surged 24% compared to the same quarter a year ago

Since reporting on Thursday, despite Tuesday pre-market trading shooting stock up 6%, Walmart stock has settled 2% down

Walmart CFO John David Rainey told shareholders they’d seen ‘modest improvement’ in big-ticket and discretionary items sales. And as the US’ largest grocer, Walmart bags the double win too gaining market share in the sector. As budget-tentative shoppers swap meals out for dinner at home, at Walmart they’re reaching for hot ticket items, hand blenders and stand mixers, as well as bagging food staples. 🧅