A Target department store in North Miami Beach, Fla., on May 17, 2023.
Joe Raeder | Getty Images
More grocery shopping. Fewer ambitious do-it-yourself projects. Last minute splurge at the store.
This week, some of the country’s largest retailers reported earnings and described how their customers shopped.as The Home Depot, Target and walmart Reporting quarterly sales and sharing full-year outlooks, the companies offered the latest clues about the health of the U.S. consumer — and predicted what the economy might look like.
Some smaller retailers also provided warning signs for the current quarter and this year.
Next week will provide a deeper look at retail and the economy. Best Buy, Lowe’s, costco, dollar tree and Cole’s Belongs to ready-to-use income.Some mall retailers are also reporting, including gap, american eagle and Abercrombie & Fitch.
Here are some emerging themes:
The sales trend weakened.
So far, at least five retailers — Target, Walmart, tapestry, Bath and Body Works and locker – Talking about sales trends across the country getting worse.
Target Chief Executive Brian Cornell said on a conference call with investors that as the three months went on, shoppers were spending less — especially on discretionary items. Walmart noticed the same pattern.
Both large retailers reported sharp declines in sales after February.
Walmart Chief Financial Officer John David Rainey attributed the decline in part to the end of the pandemic-related SNAP benefit and reduced tax rebates.
High-profile events may also have shaken consumer confidence, Cornell said. He pointed to the banking crisis in March. Silicon Valley Bank collapsed that month, raising concerns about broader economic woes.
Bath & Body Works sales fell in March. However, they resumed in April as retailers turned to a common strategy: promotions. Chief Financial Officer Wendy Arlin said on Thursday’s earnings call that it got a boost as customers spent money in a sales event at the end of the quarter.
Foot Locker also said it may have to incentivize shoppers with markdowns for the rest of the year. The company cut its full-year forecast on Friday after reporting weaker-than-expected earnings. “Sales have slowed significantly given the difficult macroeconomic backdrop,” Chief Executive Mary Dillon said in a statement.
On a conference call with investors on Friday, Dillon said the sneaker seller’s sales were hurt by lower tax rebates and high inflation as customers spent more on food and services. While she said sales rebounded in April, “they haven’t improved nearly as much as we expected, and that weakness has continued into May.”
Some of the other retailers reporting earnings had some specific factors working in their favour.
When Tapestry, the parent company of Coach and Kate Spade, reported earnings last week, it said sales had declined as the quarter progressed and into April as consumers became more cautious.
But it has an element that some other retailers don’t: growing business in China and other international markets that can offset some of the weak sales.
Home Depot reversed slowing sales — but that may have more to do with what it offers than consumer health.
Spring is the peak season for home improvement. The retailer’s U.S. comparable sales fell 4.6% in the quarter compared with a year earlier. In February, its comparable sales fell 2.8%. March was the weakest month of the quarter, with U.S. comparable sales down nearly 8% year-over-year
Trends for Home Depot remained negative in April, but improved slightly as comparable sales slipped 3.7%, according to Chief Financial Officer Richard McPhail. Customers may have been buying more spring items, such as potted plants.
Inflation is still a big factor.
Doug McMillon, chief executive of the large retail giant, said stubbornly high prices, especially for food, are a dark cloud hanging over many families shopping at Walmart and hanging over the retail industry as a whole. On a conference call with investors on Thursday, he called persistent inflation “one of the key factors that creates uncertainty for our second half.”
“We all need these price drops,” he said by phone. “Persistently high rates of inflation in these categories, for so long, have put a strain on some of the families we serve.”
For example, he said general commodity costs in the U.S. are lower than a year ago but still higher than two years ago. In the dry grocery and consumables categories, Walmart saw high single-digit to low double-digit cost inflation for items like toilet paper or paper towels. Food inflation has climbed more than 20% in two years, according to Walmart’s Rainey.
A shopper browses the egg aisle at a Walmart store in Santa Clarita, California.
Mario Anzoni | Reuters
Walmart is feeling the squeeze from inflation, even though it’s better equipped than other retailers to manage higher costs. As the largest retailer and largest grocer in the U.S., Walmart can use its scale to produce private-label goods or negotiate Prices with suppliers.
A rare item whose price has dropped dramatically? wood. Home Depot cited sharp price drops as a factor in its fiscal first-quarter revenue decline.
In many other categories, though, inflation is still driving up average ticket prices for customers, Home Depot Chief Executive Ted Decker said on an earnings call Tuesday.
Consumers spend money for needs, not wants.
Target, Home Depot, and Walmart all saw a clear pattern: fewer and fewer expensive and fun items in their shopping carts.
At Home Depot, customers purchased Big-ticket items such as appliances and grills fell in the fiscal first quarter.
Household projects have also become more modest, Decker said on an investor call. Contractors and other home professionals are noticing changes from large-scale remodeling to minor renovations and repairs.
Consumers’ growing focus on value is likely to drive the shift, along with increased spending on travel, dining out and other services, Decker said. He added that some homeowners who had embarked on big projects and bought some big-ticket household items early in the pandemic now have less left for them to do or buy.
This trend goes beyond home improvement.
Rainey told CNBC that Walmart customers have become more discerning when it comes to buying electronics, TVs, home goods and clothing. These items have become harder to sell, and when customers buy them, they often wait for discounts, he said.
At Target, chief growth officer Christina Hennington said on an investor call that sales in some discretionary categories fell in the low double digits as customers bought less clothing and home decor. Groceries and essentials make up a larger portion of the retailer’s quarterly sales.
an exception? beauty. Target’s beauty category was the strongest in the fiscal first quarter, Hennington said. Sales were up in the high-teens year-over-year — a sign that shoppers are still willing to restock their makeup kits and buy a new tube of lipstick.
Weather dampens demand (literally).
The weather isn’t working in retailers’ favor, at least not yet.
As the weather turns warm and sunny, it can inspire shoppers to stock up on summer clothing, beach towels or gardening supplies.
However, Home Depot said cool and wet weather in California and parts of the western U.S. hurt its sales, Resulting in its biggest loss of revenue in more than 20 years.
Walmart is also eager for warmer weather. Sam’s Club has noticed a slowdown in patio set sales, possibly because of late spring weather, Sam’s Club CEO Kath McLay said on an investor call. Walmart Chief Financial Officer Rainey said sales of air conditioners in its big box stores have fallen sharply.
“We’re ready for spring or summer weather,” he said on a call with CNBC.
Target noted that it’s looking forward to its next upcoming season: back-to-school.
The discounter expects to see sales growth in the second half of the year due to the peak shopping season, Hennington said on an investor call. The return to classrooms and college dorms has sparked sales in nearly every department of the store, from lunch ingredients in the grocery aisle to new clothing in the children’s department, she said.
Shoppers are becoming more last-minute.
Retailers may have talked too long about the days of stockpiling and shopping early.
Company leaders say there are signs shoppers are returning to some of their old ways.
At Walmart-owned Sam’s Club, McLay said shoppers aren’t just opting for lower prices. They also buy seasonal items later. For example, she said, customers used to buy patio furniture as soon as the store set it up.
“Now we’re seeing people wait a little later in the season,” she said.
The sales pattern for Mother’s Day is similar, she said.
McLay said this may indicate that people have returned to the shopping habits of 2018 and 2019. This trend may be due to shoppers being reluctant to open their wallets, or because they are less worried about out-of-stock items — or both.
At Target, shoppers also tend to procrastinate more, especially for discretionary items like clothing.
“Guests are shifting to more timely shopping in these categories as they wait until the last minute before an important event to invest in new decor or a wardrobe update,” Hennington said on the earnings call.