Those of you who are keen financially minded individuals will note exactly what is happening in these recent reports, HOME DEPT HERE – TARGET HERE. Those of you who are retail investors in the stock market might also see the bigger picture.
Home Depot and Target essentially share the same customer base or market audience. They service a larger segment of the American middle class. Both companies are reporting negative financial outcomes as a result of low comparable sales, or same store sales comparisons, to last year. This should not be a surprise, yet Wall Street is seemingly caught off guard.
Right now, we are on the tail end of the massive inflation cycle that took place in 2021 through 2022. Current inflation, as measured by the rate of price increase over the same period last year, is lower.
Now we are starting to see companies reporting sales comparable without the benefit of massive inflation to assist.
Example – when inflation is running at 10%, a company can report 8% sales growth, and everyone smiles. However, the sales growth was created by the inflation. The actual unit sales of goods have declined; the store is reporting higher sales because the prices are higher. When the sales cycle through to lower inflationary comparisons, the drop in unit sales shows up as drops in topline sales. This is the cause of both Target and Home Depot now reporting lower than expected comparable sales versus last year.
In real terms, this is why using sales data as a measure of economic growth is less valuable during periods of high inflation. Significant inflation hides the diminished sales of units, which should be the true measure of sales growth. I have been tracking unit sales as a measure of economic activity, and the truth is that unit sales have been declining since the fourth quarter of 2021.
Inflation was hiding the recession, and as the rate of price increase diminishes, the sales contraction will show the recession. This is what Target and Home Depot are reporting, and we can all expect to see the same over the next 90 days. Retail stocks will drop as the earnings and sales reports are revised down due to lower inflation.
Wall Street Journal – Target sales suffered in the most recent quarter as shoppers stopped splurging as frequently on trendy clothes, home goods and other items that make up the bulk of the retailer’s annual revenue.
Comparable sales, those from stores and digital channels operating for at least 12 months, came in flat for the quarter ended April 29 compared with the same period last year. That is slightly lower than the previous quarter’s 0.7% rise and lower than analysts’ expectations for a 0.2% sales rise in the most recent quarter, according to estimates from FactSet.
Sales of food and beverage, beauty and home essentials such as detergent rose, while demand for apparel, home goods and items such as toys and electronics fell sharply in the most recent quarter as shoppers further pulled back on discretionary spending, said Target executives on a call with analysts Wednesday. The latter discretionary categories make up around 54% of Target’s annual sales, according to financial filings. (read more)
Reuters – Home Depot Inc (HD.N) on Tuesday cut its annual sales forecast and projected a steeper-than-expected decline in profit, stoking fears about inflation-wary consumers trimming discretionary spending as a big earnings week for U.S. retailers rolls out.
Shares of the largest U.S. home improvement chain, which also blamed a wet start to Spring and falling lumber prices for a first-quarter sales miss, tumbled about 4%, while those of smaller rival Lowe’s Cos Inc (LOW.N) dropped nearly 3%.
[…] Demand was weak for discretionary items like patio furniture and grills, as well as appliances, flooring, kitchen and bath, said William Bastek, executive vice president of merchandising at Home Depot.
[…] Home Depot now expects fiscal 2023 comparable sales to fall between 2% and 5%, compared to its prior outlook for nearly flat sales. (read more)
Next up…. Walmart
The local Target has stopped using cashiers and expect customers to check themselves out. I spent a half hour selecting more than a dozen items and there was a line at the self checkout and 4 Target employees chit chatting while they examined peoples check outs. I decided my time was worth more so I left the buggy behind. I found you can order online and they will pull your order, check out is automated but they still doublecheck the order and bring it out to your car.
A new way to shop without the frivolous impulse purchases. Now I never have to go in a Target again.
I haven’t patronized a Target since they embraced the delusional mental illness of transsexualism.
That said, as much as I despise Amazon, I’ve been using it more to acquire things I used to buy in brick and mortar stores. If I have to become a forced volunteer to serve as their checkout person, I might well bypass the whole experience and just have stuff delivered to my door.
Let’s talk inventory profits.
Suffer
Sundance great on inflation details
Walmart has heavy and long contracts. They are marking up consumer products they bought at contract 5 months ago.
Inventory profits. Like 7 ereven raises at the pump gas that was in the tank 24 days. Arabs park tankers and wait 2 weeks when prices of crude go up and make 3-4% more revenue by waiting.
Black Friday will start November with swollen inventories, non food.
Home sales are down. When people make a lot of money selling their home for more than they paid, they don’t put all that on a down payment on next home. They buy a car and spend.
Eggs 78cents dozen limit 3.
I bet there are eggs in the supply chains at 3 bucks. Wholesale is under a dollar and they are losing money on eggs.
Theft, no one ever mentions that. My mother was at the self checkout at our local Meijer grocery store, she watched a black woman bag her groceries, never scanned one item, and walk right out without paying. No one said a word. Mom said she wanted to, but then remembered she is no longer 39. My local Home Depot, very affluent area, everything is under lock and key. I went in to purchase 250 feet of 12/2 romex for electrical work I was doing at the house. The entire electrical wire section was behind a caged wall. I asked about the theft in the store, and the gal told me it was horrendous. When no one is punished…