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Retail Earnings Review: Walmart, Target, Home Depot and More
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It was a big week in the world of retail as US giants such as Home Depot (HD - Free Report) , Walmart (WMT - Free Report) , Target(TGT - Free Report) , and The TJX Companies (TJX - Free Report) reported earnings for the second quarter.
The Economy is Ripping Hot
Even before most of these companies reported earnings, we got tipped off by the retail sales data that it may be a good quarter. Retail sales for July were up 0.7% from the previous month, which was well above estimates of 0.4%. This among a number of other economic data points are say one thing quite emphatically, the US economy is very strong.
Further confirming this notion, is GDP growth estimates. The Federal Reserve Bank of Atlanta provides a nowcast estimating US annual economic growth and revised the number this week to 5.8%.
Consumers Favor Discounts
However, contrary to this data, we saw an interesting trend emerge from the totality of these earnings. Consumers are shifting their buying patterns to make more purchases at discount retailers.
While both Target and Home Depot beat earnings estimates, Target missed on sales, and both retailers are expecting slower growth over the next year. Home Depot reiterated its forward guidance after lowering the outlook last quarter and Target guided lower on both sales and revenue forecasts.
Target CEO Brian Cornell noted on the earnings call that “As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials…So that’s absorbing a much bigger portion of their budget.”
On the flip side, both Walmart and The TJX Companies raised forward guidance and beat sales and earnings estimates.
Not too surprisingly, Walmart and The TJX Companies enjoy Zacks Rank #2 (Buy) ratings, while Target and Home Depot have a Zacks Rank #3 (Hold).
The TJX Companies
The TJX Companies is a leading off-price retailer of apparel and home fashions in the U.S. and worldwide with 4,865 stores. The company’s broad range of assortments at varying prices helps it to reach out to a broad range of consumers. Additionally, TJX attracts consumers through rapid turn of inventories, which makes for an always fresh range of discounted products.
On Wednesday, TJX reported Q2 earnings. EPS came in at $0.85, a 23% YoY increase and well above estimates of $0.77. Sales $12.76 billion also beat estimates of $12.45 billion and showed a 7.7% YoY gain.
TJX has begun to see analysts revise earnings estimates higher, with both FY23 and FY24 earnings being upgraded by 1% over the last month. Both sales and earnings are projected to grow at a very nice pace over the next two years.
Image Source: Zacks Investment Research
Shares of TJX blasted to all-time highs following the stellar earnings report and are now up 13.2% YTD. The TJX Companies stock has compounded at an annual rate of 14% over the last ten years, outperforming the broad market.
TJX is trading at a one year forward earnings multiple of 25x, which is below the industry average of 27x, and above its 10-year median of 21.2x. Additionally, the company offers a dividend yield of 1.5% and has raised the payment by an average of 9.7% annually over the last five years.
Image Source: Zacks Investment Research
Walmart
Surprisingly, Walmart shares are selling off following its exceptional earnings report. Nonetheless, the stock looks very appealing at the current levels, and new business verticals at the retail giant look to be paying off.
WMT has been gaining momentum in two of its high margin revenue streams; advertisements and its membership program Walmart+. Walmart has added in-store ads in the aisles, on the checkout screens, and played over the stores radio, and has recruited its most engaged customers to its membership program. These developments have been critical in raising earnings expectations. The advertisement business grew a reported 36% YoY.
Walmart also saw momentum in its e-commerce business. Online sales jumped 24% YoY.
Analysts have taken notice and began raising earnings estimates over the last two months. Current quarter earnings estimates have been raised by 1.2%, and FY23 estimates by 0.6%.
Image Source: Zacks Investment Research
WMT is trading at a one year forward earnings multiple of 25.5x, which is above the industry average of 23.2x, and above its five-year median of 23.4x. The company also pays a dividend yield of 1.4% and has raised it by an average of 1.9% annually over the last five years.
Image Source: Zacks Investment Research
Target
After trading immediately lower following the earnings report, Target stock has recovered and rallied ~5% off its 2023 lows. And while investors may want to wait for analysts to begin revising their earnings estimates higher, raising its Zacks Rank, TGT is now trading at a fairly compelling valuation.
Target is trading at a one year forward earnings multiple of 16.2x, which is well below the industry average of 27x, and below its five-year median of 18.3x. The company also pays a dividend yield of 3.4% and has raised the payment by an average of 13% annually over the last five years.
Image Source: Zacks Investment Research
Admittedly, earnings estimates have been revised lower almost unanimously by analysts. Current quarter earnings estimates have been downgraded by -7.4% and FY23 earnings estimates by -4.5%.
However, another point on the bullish side is that EPS are projected to grow nicely in the coming quarters. Current quarter earnings are expected to climb 23% YoY to $1.89 and FY23 EPS are forecast to grow 31% YoY to $7.88. This follows management’s effort to build back profitability at the retailer.
Image Source: Zacks Investment Research
Target shares are now -50% off their all-time high. The stock has compounded at an annual rate of 8.1% over the last 20 years, underperforming the broad market.
Image Source: TradingView
Home Depot
Home Depot has compounded at an incredible 15% annually over the last 20 years, far outperforming the broad market. HD also offers a dividend yield of 2.5% and has raised it by an average of 14.5% annually over the last five years.
Image Source: Zacks Investment Research
However, as fantastic as the stock has been over the years, the near future may be a bit rocky. While HD reported EPS of $4.65 beating estimates of $4.45 it showed a YoY decline from $5.05. Sales also beat estimates and showed a slight decline YoY.
The earnings revision trend has been mixed, giving HD a Zacks Rank #3 (Hold), but forecasts are weak over the next year. Sales and earnings are expected to fall through the year end. Although there is a light at the end of the tunnel, sales and earnings growth are expected to resume in FY24.
While HD management still believes their core customers are in a healthy place economically, the reality is that Covid pulled forward a lot of DIY home improvement sales. With people stuck at home during the pandemic, many homeowners opted to do work on their homes, and are not yet at the point where they need to do more.
Image Source: Zacks Investment Research
Home Depot is trading at a one year forward earnings multiple of 22.3x, which is above the market average of 20.6x, and just above its 10-year median of 21.2x.
Image Source: Zacks Investment Research
Bottom Line
The US economy is in an interesting position, and this week’s retail earnings provided some useful information. Obviously, the economy is growing at a nice pace, however the average American is still dealing with a tight budget, forced to cut certain expenses to cover the necessities.
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Retail Earnings Review: Walmart, Target, Home Depot and More
It was a big week in the world of retail as US giants such as Home Depot (HD - Free Report) , Walmart (WMT - Free Report) , Target (TGT - Free Report) , and The TJX Companies (TJX - Free Report) reported earnings for the second quarter.
The Economy is Ripping Hot
Even before most of these companies reported earnings, we got tipped off by the retail sales data that it may be a good quarter. Retail sales for July were up 0.7% from the previous month, which was well above estimates of 0.4%. This among a number of other economic data points are say one thing quite emphatically, the US economy is very strong.
Further confirming this notion, is GDP growth estimates. The Federal Reserve Bank of Atlanta provides a nowcast estimating US annual economic growth and revised the number this week to 5.8%.
Consumers Favor Discounts
However, contrary to this data, we saw an interesting trend emerge from the totality of these earnings. Consumers are shifting their buying patterns to make more purchases at discount retailers.
While both Target and Home Depot beat earnings estimates, Target missed on sales, and both retailers are expecting slower growth over the next year. Home Depot reiterated its forward guidance after lowering the outlook last quarter and Target guided lower on both sales and revenue forecasts.
Target CEO Brian Cornell noted on the earnings call that “As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials…So that’s absorbing a much bigger portion of their budget.”
On the flip side, both Walmart and The TJX Companies raised forward guidance and beat sales and earnings estimates.
Not too surprisingly, Walmart and The TJX Companies enjoy Zacks Rank #2 (Buy) ratings, while Target and Home Depot have a Zacks Rank #3 (Hold).
The TJX Companies
The TJX Companies is a leading off-price retailer of apparel and home fashions in the U.S. and worldwide with 4,865 stores. The company’s broad range of assortments at varying prices helps it to reach out to a broad range of consumers. Additionally, TJX attracts consumers through rapid turn of inventories, which makes for an always fresh range of discounted products.
On Wednesday, TJX reported Q2 earnings. EPS came in at $0.85, a 23% YoY increase and well above estimates of $0.77. Sales $12.76 billion also beat estimates of $12.45 billion and showed a 7.7% YoY gain.
TJX has begun to see analysts revise earnings estimates higher, with both FY23 and FY24 earnings being upgraded by 1% over the last month. Both sales and earnings are projected to grow at a very nice pace over the next two years.
Image Source: Zacks Investment Research
Shares of TJX blasted to all-time highs following the stellar earnings report and are now up 13.2% YTD. The TJX Companies stock has compounded at an annual rate of 14% over the last ten years, outperforming the broad market.
TJX is trading at a one year forward earnings multiple of 25x, which is below the industry average of 27x, and above its 10-year median of 21.2x. Additionally, the company offers a dividend yield of 1.5% and has raised the payment by an average of 9.7% annually over the last five years.
Image Source: Zacks Investment Research
Walmart
Surprisingly, Walmart shares are selling off following its exceptional earnings report. Nonetheless, the stock looks very appealing at the current levels, and new business verticals at the retail giant look to be paying off.
WMT has been gaining momentum in two of its high margin revenue streams; advertisements and its membership program Walmart+. Walmart has added in-store ads in the aisles, on the checkout screens, and played over the stores radio, and has recruited its most engaged customers to its membership program. These developments have been critical in raising earnings expectations. The advertisement business grew a reported 36% YoY.
Walmart also saw momentum in its e-commerce business. Online sales jumped 24% YoY.
Analysts have taken notice and began raising earnings estimates over the last two months. Current quarter earnings estimates have been raised by 1.2%, and FY23 estimates by 0.6%.
Image Source: Zacks Investment Research
WMT is trading at a one year forward earnings multiple of 25.5x, which is above the industry average of 23.2x, and above its five-year median of 23.4x. The company also pays a dividend yield of 1.4% and has raised it by an average of 1.9% annually over the last five years.
Image Source: Zacks Investment Research
Target
After trading immediately lower following the earnings report, Target stock has recovered and rallied ~5% off its 2023 lows. And while investors may want to wait for analysts to begin revising their earnings estimates higher, raising its Zacks Rank, TGT is now trading at a fairly compelling valuation.
Target is trading at a one year forward earnings multiple of 16.2x, which is well below the industry average of 27x, and below its five-year median of 18.3x. The company also pays a dividend yield of 3.4% and has raised the payment by an average of 13% annually over the last five years.
Image Source: Zacks Investment Research
Admittedly, earnings estimates have been revised lower almost unanimously by analysts. Current quarter earnings estimates have been downgraded by -7.4% and FY23 earnings estimates by -4.5%.
However, another point on the bullish side is that EPS are projected to grow nicely in the coming quarters. Current quarter earnings are expected to climb 23% YoY to $1.89 and FY23 EPS are forecast to grow 31% YoY to $7.88. This follows management’s effort to build back profitability at the retailer.
Image Source: Zacks Investment Research
Target shares are now -50% off their all-time high. The stock has compounded at an annual rate of 8.1% over the last 20 years, underperforming the broad market.
Image Source: TradingView
Home Depot
Home Depot has compounded at an incredible 15% annually over the last 20 years, far outperforming the broad market. HD also offers a dividend yield of 2.5% and has raised it by an average of 14.5% annually over the last five years.
Image Source: Zacks Investment Research
However, as fantastic as the stock has been over the years, the near future may be a bit rocky. While HD reported EPS of $4.65 beating estimates of $4.45 it showed a YoY decline from $5.05. Sales also beat estimates and showed a slight decline YoY.
The earnings revision trend has been mixed, giving HD a Zacks Rank #3 (Hold), but forecasts are weak over the next year. Sales and earnings are expected to fall through the year end. Although there is a light at the end of the tunnel, sales and earnings growth are expected to resume in FY24.
While HD management still believes their core customers are in a healthy place economically, the reality is that Covid pulled forward a lot of DIY home improvement sales. With people stuck at home during the pandemic, many homeowners opted to do work on their homes, and are not yet at the point where they need to do more.
Image Source: Zacks Investment Research
Home Depot is trading at a one year forward earnings multiple of 22.3x, which is above the market average of 20.6x, and just above its 10-year median of 21.2x.
Image Source: Zacks Investment Research
Bottom Line
The US economy is in an interesting position, and this week’s retail earnings provided some useful information. Obviously, the economy is growing at a nice pace, however the average American is still dealing with a tight budget, forced to cut certain expenses to cover the necessities.