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It’s been an action-packed earnings season so far, and companies continue to pull the curtain back and unveil their highly sought-after quarterly results. We’ve witnessed the market react adversely to many companies’ earnings releases, reflecting the issues companies have been taking head-on throughout the period.
Soaring energy costs, supply-chain bottlenecks, rising wages, and a hawkish Fed have been the main driving forces behind many of the sell-offs and less-than-ideal market reactions we’ve witnessed.
Target (TGT - Free Report) and Walmart (WMT - Free Report) are two big-box retailers that reported quarterly results this week. To put it simply – the market didn’t react positively to their quarterly reports. Target shares were down nearly 25% in pre-market trading, and Walmart shares lost 12% following its report and are down another 6% so far today. The chart below illustrates the year-to-date share performance of both companies.
Image Source: Zacks Investment Research
Let’s revisit the earnings reports and see what has been happening behind the scenes affecting both companies.
April Retail Sales Report
The retail sales report measures the amount of consumer spending at stores, restaurants, and online.
To a bit of a surprise, the April retail sales report showed us that U.S. retail sales grew 0.9% in April, marking the fourth straight month of higher spending – all while inflation remains sky-high.
This tells us that consumers are shrugging off higher prices despite the high inflation levels eating into their pockets. With consumer demand remaining high, this gives the Fed the go-ahead to keep cranking interest rates higher.
The takeaway here is that retail companies have still experienced robust demand in the face of inflation, which bodes well for the top line of these companies. However, the bottom line is where the pain has been felt – higher product and labor costs have been eating into profits.
Walmart Results
Walmart (WMT - Free Report) is an American multinational retail corporation that operates a chain of supercenters, discount department stores, and grocery stores. The company is headquartered in Arkansas.
In the quarter reported yesterday, Walmart missed the Zacks Consensus EPS Estimate of $1.46 by a disheartening 11% and reported quarterly EPS of $1.30. However, the company did deliver substantial sales numbers; Walmart raked in $141.6 billion throughout the quarter, a 2.4% increase from the year-ago quarter.
This is a reflection of the retail sales report. We now know that consumers are seemingly not afraid of higher prices, driving top-line growth for these retailers. However, WMT stated that higher product and labor costs ate into the company’s profits, and we can see that within its EPS miss.
Doug McMillon, President and CEO of Walmart, said, “Bottom-line results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected.” Net income for the company declined 42% from the previous quarter. The chart below illustrates quarterly net income of the company.
Image Source: Zacks Investment Research
Over its last four quarters, the quarterly results we received yesterday has been the company’s only EPS miss, acquiring an average EPS surprise of a slight 2.4%. Additionally, the top-line has continued to show strength, with WMT chaining together eight consecutive revenue beats.
Target (TGT - Free Report) provides an array of goods ranging from household essentials and electronics to toys and apparel for men, women, and kids.
This morning, Target reported earnings of $2.19 per share, which majorly missed the Zacks Consensus Estimate of $3.00 per share by a sizable 27% and reflected a 41% decline in earnings from the year-ago quarter.
Like Walmart, TGT beat top-line estimates, reporting $25.2 billion in sales and easily beating the Zacks Consensus Estimate of $24.5 billion. Additionally, the $25.2 billion in sales reflects a 4% increase from the year-ago quarter. Again, this is a reflection of the retail sales report; consumers are continuing to spend at higher rates in the face of inflation, boosting the retailer’s top line.
Brian Cornell, CEO of Target, says, “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time.” First-quarter operating income margin rate was 5.3% compared to 9.8% from the year-ago quarter.
The EPS miss could be seen as quite a surprise to many. Prior, the company had chained together 12 consecutive EPS beats dating back to 2018. Revenue remains strong, exceeding estimates in eight of its last ten quarterly reports. The chart below illustrates quarterly revenue.
Image Source: Zacks Investment Research
Bottom Line
The April retail sales report shows us that consumers have been willingly eating higher costs caused by inflation, which is a bit of a surprise. At first glance, one would think that this majorly benefits retailers, primarily their top lines. This is true, as both Target and Walmart easily beat out quarterly revenue estimates.
However, while the top line has expanded, the bottom line has shrunk. As noted by both companies, rising product costs, increasing labor costs, and supply-chain woes have drastically eaten into margins, as displayed by their EPS misses.
Both companies expect these issues to continue being a problem in the short term as the Fed tries desperately to cool down inflation that had spun out of control. Until supply-chain issues work themselves out and product costs decline, it can be expected that the bottom line of both companies will continue to remain affected.
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What's Going On With Walmart and Target Shares?
It’s been an action-packed earnings season so far, and companies continue to pull the curtain back and unveil their highly sought-after quarterly results. We’ve witnessed the market react adversely to many companies’ earnings releases, reflecting the issues companies have been taking head-on throughout the period.
Soaring energy costs, supply-chain bottlenecks, rising wages, and a hawkish Fed have been the main driving forces behind many of the sell-offs and less-than-ideal market reactions we’ve witnessed.
Target (TGT - Free Report) and Walmart (WMT - Free Report) are two big-box retailers that reported quarterly results this week. To put it simply – the market didn’t react positively to their quarterly reports. Target shares were down nearly 25% in pre-market trading, and Walmart shares lost 12% following its report and are down another 6% so far today. The chart below illustrates the year-to-date share performance of both companies.
Image Source: Zacks Investment Research
Let’s revisit the earnings reports and see what has been happening behind the scenes affecting both companies.
April Retail Sales Report
The retail sales report measures the amount of consumer spending at stores, restaurants, and online.
To a bit of a surprise, the April retail sales report showed us that U.S. retail sales grew 0.9% in April, marking the fourth straight month of higher spending – all while inflation remains sky-high.
This tells us that consumers are shrugging off higher prices despite the high inflation levels eating into their pockets. With consumer demand remaining high, this gives the Fed the go-ahead to keep cranking interest rates higher.
The takeaway here is that retail companies have still experienced robust demand in the face of inflation, which bodes well for the top line of these companies. However, the bottom line is where the pain has been felt – higher product and labor costs have been eating into profits.
Walmart Results
Walmart (WMT - Free Report) is an American multinational retail corporation that operates a chain of supercenters, discount department stores, and grocery stores. The company is headquartered in Arkansas.
In the quarter reported yesterday, Walmart missed the Zacks Consensus EPS Estimate of $1.46 by a disheartening 11% and reported quarterly EPS of $1.30. However, the company did deliver substantial sales numbers; Walmart raked in $141.6 billion throughout the quarter, a 2.4% increase from the year-ago quarter.
This is a reflection of the retail sales report. We now know that consumers are seemingly not afraid of higher prices, driving top-line growth for these retailers. However, WMT stated that higher product and labor costs ate into the company’s profits, and we can see that within its EPS miss.
Doug McMillon, President and CEO of Walmart, said, “Bottom-line results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected.” Net income for the company declined 42% from the previous quarter. The chart below illustrates quarterly net income of the company.
Image Source: Zacks Investment Research
Over its last four quarters, the quarterly results we received yesterday has been the company’s only EPS miss, acquiring an average EPS surprise of a slight 2.4%. Additionally, the top-line has continued to show strength, with WMT chaining together eight consecutive revenue beats.
Walmart Inc. Price, Consensus and EPS Surprise
Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote
Target Results
Target (TGT - Free Report) provides an array of goods ranging from household essentials and electronics to toys and apparel for men, women, and kids.
This morning, Target reported earnings of $2.19 per share, which majorly missed the Zacks Consensus Estimate of $3.00 per share by a sizable 27% and reflected a 41% decline in earnings from the year-ago quarter.
Like Walmart, TGT beat top-line estimates, reporting $25.2 billion in sales and easily beating the Zacks Consensus Estimate of $24.5 billion. Additionally, the $25.2 billion in sales reflects a 4% increase from the year-ago quarter. Again, this is a reflection of the retail sales report; consumers are continuing to spend at higher rates in the face of inflation, boosting the retailer’s top line.
Brian Cornell, CEO of Target, says, “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time.” First-quarter operating income margin rate was 5.3% compared to 9.8% from the year-ago quarter.
The EPS miss could be seen as quite a surprise to many. Prior, the company had chained together 12 consecutive EPS beats dating back to 2018. Revenue remains strong, exceeding estimates in eight of its last ten quarterly reports. The chart below illustrates quarterly revenue.
Image Source: Zacks Investment Research
Bottom Line
The April retail sales report shows us that consumers have been willingly eating higher costs caused by inflation, which is a bit of a surprise. At first glance, one would think that this majorly benefits retailers, primarily their top lines. This is true, as both Target and Walmart easily beat out quarterly revenue estimates.
However, while the top line has expanded, the bottom line has shrunk. As noted by both companies, rising product costs, increasing labor costs, and supply-chain woes have drastically eaten into margins, as displayed by their EPS misses.
Both companies expect these issues to continue being a problem in the short term as the Fed tries desperately to cool down inflation that had spun out of control. Until supply-chain issues work themselves out and product costs decline, it can be expected that the bottom line of both companies will continue to remain affected.