Earnings season is ending, but there remains a final wave of reports from retail behemoths to be parsed.
We’ll see financial results from Target Wednesday (Aug. 16) and Walmart Thursday (Aug. 17)), offering the latest incremental readings into their evolutions that seem to have groceries as a key topic of discussion.
In simplified terms, investors will be tracking whether Target is successful in becoming a grocery store (or at least a first stop for groceries, among other offerings), and how Walmart is faring in its efforts to transform into a place where consumers do more than buy groceries.
May marked the last time they reported results. Walmart’s report showed that grocery comp sales were up in the low-double-digit percentage points. But the company also noted that there was “softness” in general merchandise, which was down in the mid-single-digit percentage point range. Sam’s Club saw home and apparel sales slip by a low-single-digit percentage point tally.
Walmart President and CEO Doug McMillon said on the May conference call with analysts that accompanied the results that “general merchandise costs are now lower than a year ago, which is great, but they’re still higher than two years ago on like items. In the dry grocery and consumables categories like paper goods, we continue to see high-single-digit to low-double-digit cost inflation. We all need those prices to come down. The persistently high rates of inflation in these categories lasting for such a long period of time are weighing on some of the families we serve.”
The company’s latest Form 10-Q with the Securities and Exchange Commission (SEC) revealed that grocery accounted for about 60% of U.S. net sales, while general merchandise was 25% of that geographic top line.
In the meantime, Amazon and others are re-tooling their efforts to gain mind and wallet share. Amazon’s July Prime Day sales included grocery-specific deals through Amazon Fresh designed to win over shoppers, such as 20% off in-store purchases.
Walmart said its eCommerce sales were up 26%, driven by omnichannel, including pickup and delivery, so there may be some additional torque in grocery spending, especially as so much of the population lives paycheck to paycheck.
Target reported in May that its digital sales slipped 3.4%. And in drilling down into its filings with the SEC, Target’s results seem like a mirror image of Walmart’s, at least in terms of revenue contribution. The 10-Q revealed that through the period that ended April 29th, Target’s food and beverage sales were 24% of the total and grew 9%.
Apparel and accessories, and beauty and household essentials, by way of contrast, made up 45% of the top line and grew about 4%. Apparel was down 4.7% year over year.
Christina Hennington, executive vice president and chief growth officer, said during the May earnings call that sales declines reflected the fact that “guests continue to pull back on discretionary purchases.”
In his remarks on the call, Chief Financial Officer Michael Fiddelke said that “while spending pressures in discretionary categories are currently outweighing the continued strong growth we’ve seen in our frequency categories, we’re confident that the economy and the consumer will stabilize over time, and we’ll once again benefit from growth in the more discretionary portion of our assortment.”
The economic environment is uncertain, but for Target and Walmart, the evolution continues. What remains to be seen is whether it will be at the pace investors expect.
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