During earnings season, we tend to see sectors move together. Walmart, a bellwether for retailers, had a great quarter. But then Target surprised everyone with a 90% quarterly earnings collapse. What happened?
In short: Inflation is underscoring a key difference between the two big box retailers. People shop at Target for things they want; they shop at Walmart for things they need. And right now, just about everyone is cutting back on indulgences and sniffing out bargains on essentials.
Here’s the deal: On Tuesday, Walmart’s stock surged more than 5% after it reported better-than-expected sales. CEO Doug McMillon chalked that up to lower fuel prices (giving customers more money to spend in store) a strong start to the back-to-school season, and — this is key — an influx of wealthier shoppers (those who perhaps might normally go to Tar-zhay but instead sought out price cuts at Walmart).
Target followed with its earnings Wednesday, and it was a much bleaker picture. Profit plunged 90% in the second quarter even after it cut prices. Its shares slipped 3% in early trading.
That shift in spending is bolstered by data released Wednesday that showed overall US retail sales held steady from June to July, thanks partly to falling gas prices leaving people with more money to spend on everyday goods.
The upshot here is that Americans are still shopping — great news for an economy powered by consumer spending — but they’re adjusting to a tighter budget.
As Walmart’s CEO put it: “Instead of deli meats at higher price points, customers are increasing purchases of hot dogs as well as canned tuna or chicken.”
We can see that in other industries as well: Planet Fitness, the national gym chain that boasts a low monthly membership fee, is thriving as more people resume their indoor workouts. But higher-end boutique studios like SoulCycle are getting hammered.
WHY IT MATTERS
Throughout all the economic upheaval of the pandemic era, from lockdowns to a wacky housing boom to shortages and eye-watering inflation, the American shopper has been resilient. And our collective, deep-rooted yearning to buy stuff may well be the force that’s keeping the economy afloat.
Taken together, retail earnings this week, including Home Depot’s record quarterly profit, illustrate how consumer behavior is shifting. But critically, it’s not falling off a cliff the way you’d expect in a typical downturn. That, along with the continued strength in the labor market, is bolstering the argument from many economists that the US is not, in fact, in a recession right now.
“Not a boom. But not a recession, either,” tweeted economist Ian Shepherdson, citing Wednesday’s retail sales data.
NUMBER OF THE DAY: 10%
When food news breaks, Nightcap is here for every last morsel and crumb. But for tonight’s edition, we have to warn you: Do not read while eating. And maybe wait a few minutes if you’re reading on a full stomach, because this could get ugly.
First up: This keto-diet monstrosity from the sociopaths at Papa Johns R&D, the pizza “bowl.”
I’m putting “bowl” deliberately in quotes there because this isn’t really a bowl so much as a cardboard tray loaded with pizza toppings. The twist: no crust. Because…reasons? (I thought we all left the Atkins diet in the ’90s where it belongs? Or perhaps this is a play for the gluten-averse, in which case, might I suggest, like, gluten-free crust?)
Anyway, the “Papa Bowl” comes in three varieties: Garden Veggie, Chicken Alfredo and Italian Meats Trio. Good luck, America.
Next: Say cheese.
The brand decided to capitalize on its renewed popularity and pull some cheesy stunts, like the $15 Velveeta martini. The “Veltini.”