Back to top

Image: Bigstock

Zacks Earnings Trends Highlights: Walmart ,Target, and Home Depot

Read MoreHide Full Article

For Immediate Release

Chicago, IL – May 19, 2022 – Zacks Director of Research Sheraz Mian says, "Total Q1 earnings for retailers are down -18.8% from the same period last year on +7.7% higher revenues, with 61.5% beating EPS estimates and 73.1% beating revenue estimates."

Making Sense of Disappointing Retail Results

Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

·         Disappointing results from bellwether retailers have raised questions about the health of the consumer in the current inflationary environment. But the issue appears to be one of execution by the failing operators, rather than consumer spending, at least at this stage.

·         For the Zacks Retail sector, we now have results from 93.6% of the sector's market cap in the S&P 500 index. Total Q1 earnings for these retailers are down -18.8% from the same period last year on+7.7% higher revenues, with 61.5% beating EPS estimates and 73.1% beating revenue estimates.

It is tempting to interpret the Walmart (WMT - Free Report) and Target (TGT - Free Report) earnings disappointments as indicative of a moderation in consumer spending. Faced with the rising costs of fuel and other essentials, not to mention growing talk of a slowing economy in the face of rising interest rates, consumers would be justified to rein in their spending to some extent.

We see the Walmart and Target reports as still reflecting a very strong consumer spending environment. Consumer spending will eventually slow down in response to Fed tightening, but we didn't see much evidence of that in the Q1 earnings reports; neither from Walmart, Target or other consumer-centric companies.

Instead, these big-box retail leaders missed as a result of weak execution and failing to have the right merchandise in stores. Consumers didn't buy the patio furniture at Walmart or appliances at Target, but they did plenty of shopping at Home Depot (HD - Free Report) .

The challenge for Walmart, Target and other retailers is not only to have the correct merchandise, but also to deal with higher expenses related to freight, payroll and other items.

You can see this in the -24.4% decline in Walmart's Q1 earnings even as its revenues increased +2.4%. For Target, earnings declined -44.9% while revenues were up +4%. The market expects these companies to pass on these higher expenses to either their customers or squeeze it out of their suppliers.

The market punished them for being surprised at the profitability hit even as they failed to protect their margins.

Looking at the Q1 earnings season beyond these retailers, total S&P 500 earnings are expected to be up +9.5% on +13.5% higher revenues. This is a significant deceleration from what we have been seeing in the preceding quarters.

There is a rising degree of uncertainty about the outlook, being driven by a lack of macroeconomic visibility in a backdrop of Fed monetary policy tightening.

The Ukraine situation is exacerbating pre-existing supply-chain issues, which combined with its impact on oil prices, is weighing on the inflation situation in hard-to-predict ways. The evolving earnings revisions trend will reflect this macro backdrop.

Why Haven't You Looked at Zacks' Top Stocks?

Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.

See Stocks Free >>

Follow us on Twitter:

Join us on Facebook:

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339 provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit information about the performance numbers displayed in this press release.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Target Corporation (TGT) - free report >>

Walmart Inc. (WMT) - free report >>

The Home Depot, Inc. (HD) - free report >>