Company / Analytics

Analytics, 19 August 2021

Charting Walmart and Home Depot Q2 Earning

Major US retailers, including Walmart, Target, Home Depot, Lowe’s, Kohl’s, and Macy’s are reporting second-quarter earnings this week. Retail earnings usually provide a better outlook on consumer confidence and spending.

Walmart and Home Depot reported earnings Tuesday, both topping analyst estimates. Walmart saw increased customers fueled by strong grocery sales and back-to-school spending, though its U.S. e-commerce sales slowed sharply. Meanwhile, Home Depot rang up fewer customers during the period, which could be a bad sign for the housing market

Walmart Earnings

Walmart Inc. logged another quarter of rising U.S. sales as a return to in-store shopping offset slower online growth, at a time when retailers are navigating rising costs, supply chain snarls, and an uptick in Covid-19 cases in many parts of the country.

Walmart’s adjusted earnings per share (EPS) surpassed consensus estimates, rising 14.1% year over year (YOY) instead of the slight decline expected by analysts. Revenue came in above analyst forecasts, up 2.4% YOY instead of the 0.5% YOY decline that was expected. Comparable sales growth for the company’s U.S.-based stores and clubs also exceeded analyst estimates.

Comparable sales growth gauges a company’s ability to generate additional revenue from established stores. If the bulk of a company’s sales are being generated by established stores as opposed to new ones, this is a good sign that the company’s products have not yet saturated the local market.

Walmart’s U.S. comparable sales, excluding fuel sales, grew 5.5% YOY, marking a deceleration from the first quarter of FY 2022 as well as the year-ago quarter. The metric encompasses revenue generated by Walmart’s U.S. stores and clubs that have been open during the previous 12 months. It includes sales from the company’s remodels, relocations, expansions, and conversions, as well as e-commerce sales.

Walmart said its U.S.-based, Walmart-branded stores gained market share during the quarter, with comparable-store transactions up 6.1%. Its U.S. Walmart stores also grew e-commerce sales by 6%.

The e-commerce sales growth however represents a significant drop compared to the 97% in the year-ago period. They had risen by 37% in the first quarter and 69% in the fourth quarter. Looking over the past two years, however, the retailer said e-commerce sales have doubled. Walmart said it expects its global e-commerce sales to reach $75 billion for the year.

Walmart reported net income fell to $4.28 billion, or $1.52 per share, from $6.48 billion, or $2.27 per share, a year earlier. Excluding items, the company earned $1.78 per share. Analysts were expecting Walmart would earn $1.57 per share, according to Refinitiv.

Walmart Outlook

Walmart expects its U.S. comparable sales, excluding fuel, to grow between 6% and 7% in the third quarter. It expects EPS of between $1.30 and $1.40. For full-year FY 2022, the company expects EPS of between $6.20 and $6.35.

Same-store sales for Walmart subsidiary Sam’s Club increased by 7.7% excluding fuel — more than the 3.7% growth expected by analysts.

The company said it anticipates that same-store sales at Sam’s Club will increase this year by 7.5% to 8.5%, excluding fuel and tobacco.

How did shares move?

Walmart shares have trailed other pandemic beneficiaries in the retail industry. As of Monday’s close, Walmart shares were up about 5% this year compared with Target and Kroger, which have seen shares increase 49% and 37%, respectively, in 2021.

Over the past year, Walmart’s shares have provided a total return of 12.9%, well below the S&P 500’s total return of 32.5%.

Home Depot Earnings: Not so good outlook for the Home Market?

Although Home Depot’s second-quarter earnings and revenue topped forecasts on Tuesday morning, shares tumbled nearly 5% after the company said fewer customers visited its stores during the fiscal second quarter as pandemic-fueled do-it-yourself projects tapered off.

Same-store sales growth, which measures how well locations up at least a year are doing, rose just 3.4% in the US in the latest quarter, compared with a 25% jump in the year-ago period. That’s a big dropoff from the first quarter and below analysts’ estimates.

The company reported 481.7 million customer transactions, down nearly 6% from the same period a year ago.

CEO Craig Menear said that while consumers are returning to pre-pandemic activities outside of their homes, the company still sees people engaged in house improvement projects and increasingly larger projects. Sales from the professional customer, though, outpaced those of the Do it Yourself (DIY) customer for the second quarter in a row.

The company reported earnings per share (EPS) of $4.53 vs. $4.44 analyst expected. Meanwhile, revenue grew to $41.12 billion vs. $40.79 billion analysts expected.

For the three months ended Aug. 1, net income grew to $4.81 billion, or $4.53 per share, from $4.33 billion, or $4.02 per share, a year earlier. Analysts had been looking for $4.44 per share, according to a Refinitiv survey.

Revenue climbed 8.1% to $41.12 billion from $38.05 billion a year earlier. That topped expectations for $40.79 billion.

On the positive side, customers are spending more on higher-priced items. The average customer ticket rose 11% from a year ago, and sales per square foot also rose from last year.

Shares of Home Depot, which have soared more than 25% so far this year, were down more than 3% in premarket trading Tuesday on the news. Investors seem worried this could be a trend, as rival Lowe’s — which will report its second-quarter results Wednesday — fell 2%.

Home Depot shares have outperformed both Lowe’s and the S&P 500 index in the past two months. Home Depot shares are up about 26% year to date as of Monday’s market close.

Industry watchers are increasingly concerned that surging home prices, which are largely due to limited supply and strong demand from city dwellers looking to flee to the suburbs during the pandemic, could finally put an end to the housing boom. Even though mortgage rates remain low, bidding wars have made buying a home unaffordable for many Americans.

But builders aren’t constructing new homes fast enough. The federal government will report housing starts and building permits numbers for July on Wednesday morning. Economists are forecasting a drop in housing starts from June and that building permits will be flat.

That would be bad news for Home Depot, especially as lumber prices have sunk in recent months due to slowing demand. Surging lumber costs had given Home Depot a big sales lift earlier this year.

Home Depot did not provide a full-year outlook, citing uncertainty around the Covid pandemic and the spreading delta variant.

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