Retail

Walmart, Home Depot And Macy’s Beat Q2 Earnings Expectations

After what feels like years writing about the ongoing retail apocalypse, it is just a touch surprising to see  retail do so well this week — especially physical retail. But, much like the the dog days of summer, physical retail has been undeniably on fire as earnings results have started to roll in.

The people, it seems, are a spendin’ — and they are even going to the stores to do it. The biggest news pickups this week came out of Walmart, Home Depot and Macy’s. All three retailers came in ahead of expectations on earnings, revenue and same-store sales growth; they also saw boosted digital sales figures (an area in which they continue to invest and upgrade) and upwardly revised their predictions for the back half of 2018.

According to the figures released by the Commerce Department earlier in the week, that bump in retail spending was not a quirky outlier.

U.S. retail sales rose higher than expected last month — a sign that the economy remained strong early in the third quarter. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.5 percent in July, and are up 6.4 percent from a year ago. Economists had been expecting an increase of 0.1 percent. Data for June, however, was revised down from the 0.5 percent initially reported to 0.2 percent.

Auto sales looked particularly strong in June and were up 2 percent, service stations were up 0.8 percent — the same growth rate logged by online and mail-order retail sales. Spending at restaurants and bars was up 1.3 percent, as were apparel sales, reversing the 1.2 percent decline it showed in June.

The boost in consumer spending is largely credited to a tightening labor market, which is gradually pushing up wages. Tax cuts and higher savings are also playing a role in the rise in retail sales.

Data showed manufacturing output rose steadily in July, and worker productivity grew at its fastest pace in more than three years in the second quarter. A drop in labor costs, however, did show moderate wage inflation.

“The economy appears to be very well-positioned to continue to grow,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “The persistently optimistic consumer sector is doing its part to keep the growth engine going, and retailers are benefiting.” Those benefits were quite visible in this week’s earnings releases.

“Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances. They’re more confident about their employment opportunities,” Walmart CEO Doug McMillon told analysts after Walmart’s earnings news had hit the wires. Walmart showed the biggest growth and netted the largest increase to its stock price coming out of its earnings report on Thursday (Aug. 16). Q2 revenues jumped 3.8 percent year over year to $128 billion — well ahead of forecasts of $125.9 billion. Adjusted earnings per share were also beat, clocking in at $1.29 per share, 7 cents ahead of analysts’ expectations.

eCommerce and same-store sales, however, were the headline makers this time around — both were pushed by Walmart’s increasingly powerful grocery game. eCommerce sales were up 40 percent this quarter, down from the 50 percent growth they logged at this time last year, but high enough that Walmart is still forecasting 40 percent overall growth for its eCommerce efforts in 2018.  Same-store sales almost doubled predictions of 2.3 percent, instead coming in at 4.5 percent during Q2. That is Walmart’s biggest same-store sales growth in over a decade.

Also notable was the increase in basket size and the sale of fresh goods on digital purchases. Walmart is selling more products per visit, due to the fact that it aims to have something for every shopper across a wide variety of consumer profiles.

“Thanks to the hard work of our associates, we had a great quarter with strong results and momentum across the business,” McMillon said.“We’re pleased with how customers are responding to the way we’re leveraging stores and eCommerce to make shopping faster and more convenient. We’re continuing to aggressively roll out grocery pickup and delivery in the U.S.”

And he’s not kidding around about aggressive — Walmart announced yesterday (Aug. 16) that it expects to be able to offer home grocery delivery to 40 percent of the U.S. by the end of this year and has expanded its curbside pick-up program to over 1,800 stores.

Walmart wasn’t the only retailer announcing big plans along with strong results this week. Home Depot, the nation’s largest home improvement chain, announced earlier this week that it plans to dedicate the back half of 2018 to expanding its professional home builder business, which will be critically aided by bolstering its plans to grow and expand its delivery platform. Home Depot also reiterated its intention to invest  $1.2 billion over the next five years to improve its supply chain, with the goal of faster online order delivery. Those improvements to its digital and multichannel offerings for homeowners and professionals were announced on the back of an earnings report that looked an awful lot like Walmart’s.

By the numbers, Home Depot reported $3.05 earnings per share (EPS) versus the $2.84 analysts were predicting. Revenue was up $30.46 billion, beating out the anticipated $30.03 billion, and, once again, that comparable store sales rate was up a whole lot more than analysts were expecting, with an increase of 8 percent worldwide — 6.6 percent growth was forecast.

Home Depot’s strength in Q2, according to market watchers, was due to two big factors. One was the ever mercurial weather, which saw Q2 finally heating up after a delayed spring, pushing missed sales from Q1 forward into Q2. The other? That consumer confidence that keeps popping up.

“If you are a homeowner and your home is continuing to go up in value, you feel much more comfortable investing in that home,” Oppenheimer Analyst Brian Nagel told CNBC.

It seems consumers are also comfortable making themselves look as good as their homes do, as shown by Macy’s Q2 earnings.

Macy’s had a big beat on EPS, putting up 70 cents against the forecasted 51 cents. Revenue came in at $5.57 billion, again, more than the $5.55 billion forecast — though it was down 1.1 percent from last year’s numbers. Net income for the second quarter was $166 million, or 53 cents a share, compared with $111 million, or 36 cents a share, a year earlier.

Macy’s also beat on same-store sales — and probably packed the biggest surprise for market watchers. It was up 0.5 percent — not a huge increase, particularly when compared to the big numbers at Home Depot and Walmart. But analysts were expecting negative growth of 0.9 percent, so the figure actually being in the black was a bit of a shock for the market. This marked the third consecutive quarter of same-store sales growth for Macy’s.

The company further said all three divisions that it operates — Macy’s, Bloomingdale’s and Bluemercury — all logged strong performances during the quarter.

For the rest of the year, Macy’s is forecasting a range of  $3.95 and $4.15 per share — 20 cents higher than the company previously forecasted. Same-store sales are expected to increase by 2.5 percent, compared to the previous expectations of between 1 and 2 percent growth.

“We … continue to be disciplined with inventory management, which allows us to give our customers more fashion and freshness, while increasing sales and improving gross margins,” CEO Jeff Gennette said. During a call with analysts after the release, Gennette noted that Macy’s, in its continuing efforts to create a more robust in store experience, will continue to experiment with the mini-store concept within in more of its locations. He also said that Macy’s aims to have its new mobile checkout platform up and running at all of its U.S. locations by the end of 2018.

Despite all that, investors were not quite as impressed with Macy’s series of forecast beats and sent it stock down 6 percent in after-hours trading. On the whole, Macy’s stock price is still up 100 percent year over year.

How long will it all last? Economic prognostication is not quite our bag, but we will note that the experts are mostly bullish on the economy. Although, rising debt levels and looming trade wars are certainly considered anxiety inducing in some segments. But for right now, retail is on fire because consumers are feeling confident enough to do some buying.

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