Big box retailers have struggled in recent months as the post pandemic boom is over and now, they must contend with supply chain issues, rising inflation and diminishing consumer appetite. These issues have known for some time and as a result, expectations have been managed. The financial markets have a track record of overshooting during the good times and undershooting when sentiment turns sour. The share price of Home Depot was in a downtrend for much of 2022, but it has been rebounding since late June. Walmart’s share price suffered a painful fall in May, but in recent weeks it has been trending higher. Yesterday, the companies posted solid second quarter earnings and that sent the stocks higher.
Looking at Walmart first, earning per share were $1.77, easily beating the $1.62 estimate. Revenue was $152.86 and that was slightly above the $150.81 billion that equity analysts were expecting. Same-store sales grew by 6.5%, beating the 5.9% estimate. On an annual basis, e-commerce sales increased by 12%. Inflation cuts both ways, and it is worth noting that some of the gains in revenue were because of higher selling prices. Walmart is at the lower end of the retail spectrum and during times of economic uncertainty, shops like Walmart often perform compared to mid-range retailers as consumers became savvier. The group announced that roughly 75% of the new market share it picked up in the food sector was from shoppers with household incomes of $100,000 or more, so it seems that more middle-income consumers are turning to Walmart. The company reiterated its second-half outlook as it anticipates sales excluding fuel to grow by 3%.
Walmart’s share price rallied to a three-month high and while the stock remains above the $135.00 area, it is possible the uptrend could continue, resistance might be encountered at $150.00. A drop below the $135.00 region could pave the way for $130.00 to be tested.
Home Depot also posted impressive quarterly numbers, as EPS was $5.05, topping the $4.94 consensus estimate. Revenue was $43.79, fractionally exceeding estimates. Same store sales increased by 5.8%, while analysts were anticipating 4.9%. The number of transactions fell to 467.4 million, from 481.7 million in the same period last year, but the average ticket size grew by 9%. It is believed that industry professionals carry out fewer transactions but spend more on average, and that seems to be the explanation behind the numbers. It is encouraging to see that building contractors are still busy as there are signs the housing market is cooling – yesterday the US housing starts for July fell to 1.45 million, its lowest level in over one year. Going into this reporting season, some traders were worried that firms would be downgrading their outlooks but Home Depot, like Walmart, maintained its guidance. Home Depot still predict that comparable sales will increase by approximately 3% on the year.
Home Depot’s share price hit its highest mark since March, and while the share price holds above the $320.00 region, it is possible the bullish move will continue. A rally from here could see it target $343.00. Should the stock break below the $320.00 area, it could pave the way for $310.00 to be tested.
