Retailer Reports Show Shopping Is No Longer The Therapy We Go For

On Tuesday, The Home Depot Inc HD set the tone for what can be named as a retail earnings week with its worst revenue miss in about two decades. Opening a crowded week of updates regarding the consumer trends, HD is joined by Target Corporation who managed to top earnings estimates but also observed hesitant consumers. The TJX Companies TJX also topped earnings estimates with Walmart Inc WMT and Alibaba Group Holdings BABA boarding the quarterly report train on Thursday.

HD’s Fiscal First Quarter

With customers shifting from big to smaller, more affordable, home improvements, along with cold weather that hampered demand for summer outdoor equipment, revenue fell 4.2% to $37.26 billion. Spring is usually the season for home equipment, like Christmas season is for retailers. But, the weakened macroeconomic environment played its part. Although sales of DIY customers were better than those of home improvement professionals, they both experienced a YoY decline.

Net income dropped 8.5% YoY as it amounted to $3.87 billion, or $3.82 per share, below the expected $3.80 per share. 

The quarter that ended on April 30th was the second consecutive quarter that Home Depot missed Wall Street’s expectations.

HD’s Lowered Guidance

What’s even more worrying than a failed spring quarter is that Home Depot and its peers are now facing an even more unpredictable outlook with rising interest rates. It’s not only a matter of a housing market slowdown and essentials taking a bigger bite of households’ budgets, but also the fact that after being held hostage by Covid since 2020, HD’s consumers are finally able to enjoy outdoor experiences and travel. 

As a result of this softened demand and consumers delaying big projects, Home Depot lowered its full year forecast from roughly flat sales to a decline between 2% and 5%. Operating margin rate is also expected lower, between 14% and 14.3%.

Target did deliver an earnings beat, but also warned of cost-conscious consumers

Despite beating earnings estimates for the second consecutive quarter after three misses, Target is also dealing with effects of persistent inflation and rising interest rates. Moreover, it is also facing with organized retail crime that is expects to trim its full year profits by $500 million. Although net sales rose 0.6% YoY as they amounted to $25.3 billion, digital comparable sales dropped 3.4% after rising 3.2% during last year’s comparable quarter.

TJX Raised Its Full-Year Profit Guidance Despite Revenue Miss

Despite also expecting a challenging second quarter, TJX reaffirmed its full-year revenue guidance. Moreover, TJX now expects gross margin to improve by 1% to 28.9% as it benefited from reduced cost pressures after months of struggling with higher costs of law materials, labor and freight expenses. Additionally, TJX sees adjusted profit per share for the fiscal year in the range between $3.39 and $3.48, a rise from prior outlook in the range between $3.29 to $3.41.

Net sales for the quarter that ended on April 29th rose 3% YoY which was slightly below analyst estimates, resulting in a net income of $891 million and diluted EPS of $0.76.

Shopping Is No Longer The Therapy Of Choice

Some retailers did worse than others, but the above three reports clearly reflect inflationary pressures and rising interest rates, with everyone expecting tough times to be sticking around for a while.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.