It will be difficult for the largest US retailers to impress investors after the pandemic-driven boom that has boosted their sales and boosted profit margins. Their latest earnings have remained strong, but the future looks more uncertain as consumers appear to be resuming normal shopping habits.
Walmart (NYSE:), the nation's largest brick-and-mortar retailer, reported a strong Tuesday that exceeded analyst expectations. Comparable store sales – that of stores and digital channels that have been in business for at least 12 months – increased 5.2% in the quarter ended July 30, compared to the same period last year. US e-commerce sales were up 6% from a year ago, when COVID restrictions kept many people at home. However, growth slowed from earlier in the year, both online and offline.
Home Depot (NYSE:) posted weaker-than-expected results this week as same-store sales increased 4.5% in the period ended August 1, excluding the average of 5.6 % of analyst estimates
Another top retailer, Target (NYSE:), reported earlier this week that sales growth slowed in . Same-store sales rose 8.9%, less than half the year-on-year profit. Meanwhile, profit margins tightened and e-commerce revenues grew 10%, after nearly tripling a year ago.
These signs of slowing come as US consumers cut spending in July, hurt by rising inflation. The US fell 1.1% in July, the Commerce Department said Tuesday, with spending falling globally across all categories, including clothing, furniture and cars. Government numbers, including restaurants and bars, had surged in June as more Americans were vaccinated and spending shifted toward dining out and traveling. Walmart and HomeDepot are still bargains despite signs that some of the surge in sales is cooling, some analysts remain positive on these stocks and advise investors to buy the dip as pandemic-related spending continues to boost sales.
Bank of America analyst Robert Ohmes raised his price target for Walmart from $185 to $190 this week, setting a new Wall Street record among major analysts, according to FactSet. WMT shares closed at $150.11 yesterday, up nearly 0.7% on the day.
In his note he said:
"We think WMT's grocery share gains could accelerate as the environment normalizes and consumers return from closer to home / smaller boxes favored supermarkets by COVID. … Greater price sensitivity on reopening … may also redirect traffic to value names like WMT.”
Home Depot shares, which fell more than 4% on Tuesday after the big-box retailer failed to meet analysts' consensus forecast, is a buy for Goldman Sachs, whose analysts predict the company will continue to generate growth even compared to the strong results last year.
Goldman raised its price target of $390 a share from $376. The new target is more than 21% above where the stock traded Thursday and is the highest among major Wall Street analysts, according to FactSet.
In a note Goldman said:
"Home Depot management believes that as home values ??rise, consumers are increasingly likely to reinvest in their homes, increasing demand for the home improvement category."
Bottom Line
There are some early signs that the pandemic-related boom in grocery and home furnishings buying is cooling and shoppers may be returning to normal shopping habits after more than a year of stockpiling during the lockdown.
