US retail earnings, inflation & consumer spending
Despite rising inflation and a drop in consumer confidence is down, U.S. consumers are spending more money than before the pandemic. US retail sales increased by 1.7% in October from the previous month, higher than the 1.5% increase that economists expected.
Spending was up even accounting for higher prices; adjusted for inflation, sales rose 0.8% month-over-month, double from the jump in September. This is despite consumer sentiment slumping to a 10-year low in November and inflation hitting an annual rate of 6.2% in October, a 30-year high.
Major U.S. retailers are reporting earnings this week, and as predicted, they have benefitted from the high spending, in particular, the preemptive buying, as consumers stock up ahead of the holiday season on worries about supplies and delays.
Walmart’s earnings on Tuesday showed that it got a boost from inflation; its lower-cost goods attracted shoppers as prices went up elsewhere, helping the company beat analysts’ expectations in its latest earnings report.
Walmart earnings top estimates boosted by inflation
Walmart’s fiscal third-quarter earnings on Tuesday topped analysts’ expectations as price-sensitive grocery shoppers flocked to its stores amid rising costs for household staples.
The retailer’s size is helping it manage through snarled supply chains, as it negotiates with manufacturers, bulks up its inventory, and charters its own ships to move goods across the globe.
- Revenue: Total revenue grew by about 4% to $140.53 billion from $134.7 billion a year earlier, exceeding Wall Street’s expectations of $135.60 billion.
- Income: Net income fell to $3.11 billion, or $1.11 per share, from $5.14 billion, or $1.80 per share, a year earlier. Excluding items, the company earned $1.45 per share. Analysts were expecting Walmart would earn $1.40 per share.
How did the stock perform?
Walmart shares closed down 2.55% to $143.17 on Tuesday. As of Monday’s close, Walmart shares are up about 2% this year. The stock closed down less than 1% on Monday at $146.91, bringing Walmart’s market value to $409.66 billion. Its shares have lagged behind the S&P 500, which is up about 30% this year.
The current consensus among 35 polled investment analysts is to buy stock in Walmart Inc. The 31 analysts offering 12-month price forecasts for Walmart Inc have a median target of 170.00, with a high estimate of 201.00 and a low estimate of 135.00. The median estimate represents a +19.16% increase from the last price of 142.66.
Walmart said it expects full-year U.S. same-store sales to be more than 6% higher versus its prior forecast of a 5% to 6% rise, in anticipation of a surge in demand for toys and apparel during the holidays. Adjusted profit is expected to be around $6.40 per share, up from a previous range of $6.20 to $6.35. Walmart’s international business grew about 10% excluding the impact of currency fluctuations and divestitures, benefiting from strong sales in China and at India’s Flipkart that got a big push from its promotional event ahead of the local festival of Diwali.
CEO Doug McMillon said Walmart remains optimistic about the holidays and will have shelves stocked. Inventory for Walmart in the U.S. is up 11.5% ahead of the busy shopping season, he said. The retailer ordered its seasonal merchandise early and has prioritized space for it on ships.
Retail sales up than expected, despite high inflation
U.S. shoppers accelerated their level of spending in October even as the prices of goods jumped at their fastest pace since the 1990s, the Commerce Department reported Tuesday.
Retail sales, a measure of how much consumers spent on goods ranging across categories from autos to sporting goods and food and gas, increased 1.7% for October, compared with 0.8% the previous month. Excluding autos, sales also increased 1.7%, according to the Census Bureau advance estimate. Online shopping posted the biggest relative gain for the month, rising 4% and good for a 10.2% gain from a year ago. Soaring prices at the pump pushed gasoline sales up 3.9% in October. Year over year, sales increases at stations have surged 46.8%.
Meanwhile, the consumer price index, measuring a similar basket of goods, increased 0.9% for October and 6.2% year over year. That year-over-year gain was the strongest since 1991. Even excluding food and energy, the CPI was up 0.6% from the previous month and 4.6% year over year.
However, the retail sales numbers — which are adjusted for seasonal variations but not for inflation — indicate consumers are willing to pay the higher prices, despite a recent indication that sentiment is at its lowest level in 10 years. U.S. households have been flush with cash, thanks to a series of payments Congress approved to combat the Covid pandemic crisis. The spending has totaled more than $5 trillion and included transfer payments in the form of direct checks to millions of Americans, as well as enhanced unemployment benefits, most of which expired in September.
Other retailer earnings to expect
Target and TJX will report on Wednesday while Ross Stores, Macy’s, Kohl’s, and BJ’s report Thursday.
Meanwhile, the eurozone, UK, and Canada will each release their consumer inflation report on Wednesday. Inflation has become a global phenomenon as the lingering pandemic continues to create snags in supply chains and push up prices for goods.
Prices in all three places have been rising briskly. But the increases are unlikely to top the US’s 6.2% annual rate increase seen in October. The UK’s inflation rate surged to 4.2% on the back of rising energy prices.