This is the week we find out whether the US consumer is bending, breaking or doing what it always does: Surprising.
On Friday, US retail sales fell 0.6% compared to a 0.1% rise expected and core numbers were also soft. That contrasts with months of outperformance and leaves a bit of a question mark on where spending really stands.
This week, we will get some corporate help in understanding how consumers are feeling. The earnings schedule:
- Tuesday, before the open: Home Depot
- Wednesday, before the open: Target, TJX, Lowe’s, Estée Lauder
- Thursday, before the open: Walmart, Advance Auto Parts
- Thursday, after the close: Ross Stores
- Friday, before the open: BJ’s Wholesale
Walmart management has already told us shoppers are showing signs of financial distress, citing changes in gas-buying behavior, and responded with price cuts and the new housing market is bombed out so the bar is low. That might mean room for upside but could also show that inflation is really biting.
HD starts things off and it’s the cleanest read on the big-ticket, rate-sensitive consumer at a time when borrowing rates are rising. Housing turnover remains depressed and the home improvement cycle has been stuck in neutral for the better part of two years.
The problem is the price. Home Depot trades at roughly 23.5–24x forward earnings
Target carries the highest risk — it’s the only one that raised full-year guidance last quarter, after comparable sales grew 5.6% on 4.4% traffic growth and a meaningful EPS beat. That guidance raise is now a liability. Target’s mix skews discretionary — apparel, home goods, the stuff that gets cut first when budgets tighten. Shares have nearly doubled off the lows from late last year.
Walmart is a real-time census of American consumption — grocery, general merchandise, pharmacy, e-commerce, and increasingly a high-margin advertising and membership business that the market values as much as the retail operation. The company is fairly candid about how consumers are doing, though I find it sandbags a bit so I wouldn’t over-index on some moaning around low-end consumers. Shares have been consolidating so far this year after a healthy run-up.
This article was written by Adam Button at investinglive.com.