WalMart and Home Depot Guidance Raises Concerns About US Consumer Strength
By On Tuesday afternoon, US stocks declined following the release of fourth-quarter earnings and projections from large retailers such as Walmart and Home Depot, which raised doubts about the power of the American consumer.[0] Today, the Dow and S&P 500 had their worst day since December 15, with losses of 696 points (2.1%) and 2% respectively.[0] The Nasdaq Composite ended with a decline of 2.5[0]
After the announcement of its quarterly results, Walmart (NYSE:WMT) experienced a decrease in its stock price. The stock of the retailing behemoth decreased by almost 4% prior to the market's opening following the company's guarded outlook.[1] Q4 results reported by the company exceeded projections, with revenue increasing 7% to a total of $164B.[1] For 2023, WMT has estimated consolidated net sales growth of 2.5%-3.0% in constant currency.[1]
Walmart (WMT) has predicted their earnings per share to be within the range of $5.90 – $6.05, a considerable decrease from the prior analyst consensus projection of $6.51. WMT indicated that consumers are spending the maximum amount of their money on groceries and less on consumer goods with higher margins.[2]
John Rainey, Walmart’s CFO, noted that “balance sheets are running thinner and savings rates are declining relative to previous periods” and that this is why the company is taking a “pretty cautious outlook on the rest of the year.” Approximately 70% of the US gross domestic product, the main indicator of the US economy, is comprised of consumer spending. Thus, a decrease in consumer spending could have a negative effect on growth and could even put the US into a recession.[3]
Shares of Home Depot (NYSE:HD) dropped 4% in premarket trading Tuesday morning.[4] Home Depot's fiscal fourth-quarter results, which covered the period ending Jan. 29, showed a deceleration of growth, prompting investors to react adversely to the retailer's prediction that 2023 could be an even tougher period for business.[4]
Walmart and Home Depot's guidance sober the market on the strength of the consumer.[5] Walmart has seen sales increase due to the growth of its grocery sector, however these sales are not as lucrative as those in general merchandise categories, where consumer spending is either stagnating or reducing.[6] Home Depot also isn’t taking a hit from the weakness in the home sale market that is resulting from higher mortgage rates.[7]
0. “Dow drops by nearly 700 points as retail earnings disappoint” WENY-TV, 21 Feb. 2023, https://www.weny.com/story/48422167/dow-drops-by-nearly-700-points-as-retail-earnings-disappoint
1. “5 stocks to watch on Tuesday: Walmart, Home Depot and more (NYSE:WMT)” Seeking Alpha, 21 Feb. 2023, https://seekingalpha.com/news/3938327-5-stocks-to-watch-on-monday-walmart-home-depot-and-now
2. “Earnings Outlook: Retailers Will Dominate This Week” Macrohive, 27 Feb. 2023, https://macrohive.com/hive-exclusives/earnings-outlook-retailers-will-dominate-this-week/
3. “Big Retail's cautious forecasts are spooking Wall Street” kuna noticias y kuna radio, 22 Feb. 2023, https://kesq.com/news/2023/02/22/big-retails-cautious-forecasts-are-spooking-wall-street/
4. “These 2 Dow Stocks Are Pointing to a Recession in 2023” The Motley Fool, 21 Feb. 2023, https://www.fool.com/investing/2023/02/21/these-2-dow-stocks-pointing-to-recession-in-2023
5. “Home Depot And Walmart's Guidance Sober The Market” ValueWalk, 21 Feb. 2023, https://www.valuewalk.com/home-depot-and-walmarts-guidance-sober-the-market
6. “Can't figure out this economy? Walmart, Home Depot are having trouble, too” CNBC, 26 Feb. 2023, https://www.cnbc.com/2023/02/26/cant-figure-out-economy-walmart-home-depot-are-having-trouble-too.html
7. “Dow drops by nearly 700 points as retail earnings disappoint” ABC17News.com, 21 Feb. 2023, https://abc17news.com/news/2023/02/21/dow-drops-more-than-500-points-as-retail-earnings-disappoint/
