A Target department store in North Miami Beach, Florida, May 17, 2023.
Joe Raedle | Getty Images
More grocery shopping, fewer ambitious DIY projects and last-minute swaps at the store.
This week, some of the largest retailers in the country reported earnings and described how their customers shop. As Home Depot, Goal and Walmart reported its quarterly sales and shared full-year outlooks, companies gave the latest clues about the health of the American consumer and previewed what could lie ahead for the economy.
Some smaller retailers also offered warning signs for the current quarter and this year.
Next week will provide even more insight into retail and the economy. Best buy, Lowe’s, Costco, Dollar tree and Kohl’s is among the revenues. Some mall retailers also report revenue, including slip, american eagle and Abercrombie & Fitch.
Here are some of the emerging themes.
Sales development has weakened
So far, at least five retailers—Target, Walmart, Tapestry, Bath & Body Works and Foot shackle — has spoken of worsening sales trends across the country.
As the three-month period wore on, shoppers spent less, particularly on discretionary items, Target CEO Brian Cornell said on a call with investors. Walmart noticed the same pattern.
Both big-box retailers reported a sharp drop in sales after February.
Walmart Chief Financial Officer John David Rainey attributed the decline, in part, to the end of pandemic-related SNAP benefits and a reduction in tax refunds.
Cornell said headline-making events could have also shaken consumer confidence. He pointed to the banking crisis in March. Silicon Valley Bank collapsed that monthsparks fear of wider economic woes.
Bath & Body Works saw sales decline in March. Still, sales rebounded in April as the retailer turned to a common playbook: promotions. That got a boost as customers spent money on sales events toward the end of the quarter, Chief Financial Officer Wendy Arlin said on an earnings call Thursday.
Foot Locker also said it may need to motivate shoppers with markdowns for the rest of the year. The company lowered its full-year forecast on Friday, as it reported results that missed expectations. CEO Mary Dillon said in a statement, “sales have since softened meaningfully given the tough macroeconomic backdrop.”
On a call with investors Friday, Dillon said the sneaker retailer’s sales were hurt by lower tax refunds and high inflation as customers spent more on food and services. While she said sales rebounded in April, “they didn’t improve to the extent we expected, and that weakness has continued into May.”
Some other retailers that reported earnings had specific factors working in their favor.
When Tapestry, the parent company of Coach and Kate Spade, reported earnings last week, the company said sales declined as the quarter progressed into April as consumers became more cautious.
But it has one factor that makes it work that some other retailers don’t: A growing business in China and other international markets to offset some of the lower sales.
Home Depot bucked the declining sales trend, but that may have more to do with what it offers than consumer health.
Spring is peak season for home improvement. The retailer’s comparable US sales were down 4.6% in the quarter compared to last year. In February, comparable sales decreased by 2.8%. March was the weakest month of the quarter, as comparable sales fell nearly 8% year-over-year in the US
Home Depot’s trends were still negative in April but saw a slight improvement as comparable sales fell 3.7%, according to Chief Financial Officer Richard McPhail. Customers may have purchased more spring items such as potted plants.
Inflation remains a key factor
Inflation relieves, according to a Labor Department report this month. Still, that’s cold comfort for shoppers who still pay a lot more at the grocery store than a few years ago.
Persistently high prices, especially for food, are a storm cloud hanging over many families who shop at Walmart, and looming over the retail industry as a whole, said the big-box giant’s CEO Doug McMillon. On a call with investors On Thursday, he called persistent inflation “one of the key factors creating uncertainty for us in the back half of the year.”
“We need all these prices to come down,” he said on the call. “The persistently high rate of inflation in these categories, lasting for such a long time, is weighing heavily on some of the families we serve.”
For example, he said general trade costs in the U.S. are lower than a year ago, but still higher than two years ago. In the dry foods and consumables categories, Walmart is seeing high single digit to low double digit cost inflation on items like toilet paper or paper towels. For groceries, inflation has climbed more than 20% on a two-year basis, according to Walmart’s Rainey.
A shopper looks at the egg section at a Walmart store in Santa Clarita, California.
Mario Anzuoni | Reuters
Walmart is feeling the pinch of inflation even though it is better positioned to handle higher costs than other retailers. As the nation’s largest retailer and largest grocer, Walmart can use its scale to manufacture private label products or bargain with suppliers over price.
A rare item that dropped dramatically in price? Wood. Home Depot cited the steep decline in prices as a contributing factor to the revenue miss in the fiscal first quarter.
In many other categories, however, inflation is still driving a higher average ticket for customers, Home Depot CEO Ted Decker said on an earnings call Tuesday.
Consumers spend on needs, not wants
Target, Home Depot and Walmart all saw a noticeable pattern: fewer expensive and fun items in their carts.
At Home Depot, customers bought fewer big-ticket items such as appliances and grills in the fiscal first quarter.
Home projects also became more modest, Decker said on an investor call. Contractors and other home professionals noticed a shift from large-scale remodeling to smaller renovations and repairs.
Decker said consumers’ increased focus on value may be contributing to that shift, along with an increase in spending on travel, dining and other services. He added that some homeowners had already tackled big projects and bought some expensive home items in the early years of the Covid-19 pandemic, leaving less for them to do or buy now.
The trend extended beyond home improvement.
Customers at Walmart have become more selective when shopping for electronics, TVs, home goods and clothing, Rainey told CNBC. The goods have become tougher to sell, and when customers buy them, they often wait for a sale, he said.
At Target, sales in some discretionary categories declined by as much as low double digits as customers bought less apparel and home furnishings, Chief Growth Officer Christina Hennington said on an investor call. Grocery and essentials drove a larger portion of the retailer’s quarterly sales.
An exception? Beauty. Hennington said Target’s beauty category was the strongest in the fiscal first quarter. Sales were up in the mid-teens year over year, showing that customers are still willing to top up the cosmetic case and get a new tube of lipstick.
Weather dampened demand (literally)
The weather hasn’t worked in the dealers’ favor, at least not yet.
As the weather gets warmer and sunnier, it can inspire shoppers to buy summer dresses, beach towels or garden supplies.
Still, Home Depot said cooler and wetter weather in California and parts of the western U.S. hit its sales, contributed to its biggest revenue miss in more than 20 years.
Walmart is also eager for warmer weather. Sam’s Club has noticed slower sales of patio sets, perhaps due to the later spring weather, its CEO Kath McLay said on an investor call. Walmart has seen a sharp decline in air conditioning sales at its big-box stores, its chief financial officer Rainey said.
“We’re ready to get some spring or summer weather,” he said on a call with CNBC.
Target noted that it is looking forward to another upcoming season: back to school.
The discounter expects sales to pick up in the back half of the year due to the big shopping season, Hennington said on an investor call. She said the return to classrooms and dormitories is driving sales in nearly every department of the store, from lunch ingredients in the grocery aisles to new clothes in the children’s clothing department.
Shoppers have become more last minute
Retailers may say so long to the days of stockpiling and early shopping.
Business executives said there are signs shoppers are returning to some of their old ways.
At Walmart-owned Sam’s Club, McLay said shoppers aren’t just choosing lower price. They also shop later for seasonal items. For example, she said, customers used to buy outdoor furniture as soon as it was set up in the stores.
“Now we’re seeing people wait a little later into the season,” she said.
It saw a similar pattern with Mother’s Day sales, she said.
McLay said that could indicate people have returned to shopping habits in 2018 and 2019. The trend could be driven by shoppers’ reluctance to open their wallets or because they’re less concerned about out-of-stock items — or a combination.
At Target, shoppers have also embraced more procrastination tendencies, especially for discretionary items like clothing.
“Guests are shifting to more just-in-time shopping in these categories, as they wait until the last moments before important events to invest in new decor or a wardrobe refresh,” Hennington said on an earnings call.
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