Tuesday's Market Minute: This Quarter's Retail Winners: WMT, COST, KR, BBY, KSS

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With corporate earnings waning and the third month of 2022 now halfway complete, many of us are reeling from the whiplash that has transpired since the start of the year. It’s no secret that geopolitical uncertainties, sky-high inflation, and a lack of federal stimulus flowing is weighing on the average U.S. consumer. To put it lightly, the market is heavily disjointed, making for added difficulty when navigating earnings reports.

When reflecting on retail’s performance, it’s difficult to say the sector is doing well. Sure, there are companies wading the waters better than others, but it doesn’t seem as if a single company has completely smooth sailing.

The sector performance paints a better picture of this. Of the S&P 500 sectors through Monday’s close, consumer discretionary had seen the steepest YTD losses, shedding nearly 20%, followed by 19.4% and 19% drops in the communication services and information technology sectors, respectively.No surprise, energy is the only sector positive so far this year, and by a sizable 35% margin to the next best-performing sector, utilities.

Per Refinitiv, of the companies in the retail/restaurant index, more than 75% reported earnings above expectations this quarter, while 3% matched and 22% missed forecasts. Of those companies, almost all have mentioned supply chain issues, while 76% made note of inflation. But not all retailers are created equal.

Apparel companies with more mall exposure like Foot Locker, American Eagle Outfitters, and Nike have fallen about 30% YTD, while others like Dollar Tree, Nordstrom, and Kohl’s are outperforming the broader market. But a theme that seems to have emerged from the latest earnings season is that the grocery business is gaining traction with investors.

One of the strongest names to report this quarter was the powerhouse that is Walmart. As one of the largest companies in the U.S., shares have only fallen about 0.4% YTD. The big box retailer posted a beat on top and bottom line, boosted its dividend, and reported same-store sales growth of 5.6% on March 2. Walmart’s CEO noted they are focused on maintaining the notoriously low prices, despite inflationary pressures. Costco then reported on March 3, and despite closing the day lower, results were solid.

Earnings and revenue beat expectations and rose 16% Y/Y. Comp stores also topped estimates, and management hinted at raising membership fees for the first time in 5 years. But of all the grocery/consumer goods stores who have reported over the last several weeks, the standout was Kroger. Kroger shares have gained 22.5% so far in 2022, and 18% since the start of March.

Not only did the grocer crush earnings and revenue expectations, guidance exceeded, with operating income also being a standout. Honorable mentions go to Best Buy and Kohl’s, both of which increased their dividend payouts and announced updated buyback plans.

Notable retailers still yet to report: Williams-Sonoma, Nike, Poshmark, Chewy, and Lululemon are expected to release updated financials in the next two weeks.

Image sourced from Pixabay

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.