Making sense of the markets this week: August 21

U.S. retailers: People are spending differently, but they’re still spending

Readers of “Making sense of the markets” might remember that, back in May, earnings reports from Walmart and other major retailers were the catalyst for a widespread market sell-off. Consequently, many market watchers eagerly awaited this weeks’ earnings calls.

While the news wasn’t all bullish, it was more good than bad, considering the fear-inspired markets of the previous quarter. Our main takeaway was that these large retailers—in most cases, Target excepted—are finding ways to push through excess-inventory issues and keep costs down relative to general inflation.

All earnings numbers are in U.S. dollars, unless otherwise stated.

Walmart (WMT/NYSE): Earnings per share came in at $1.77 (versus $1.62 predicted) and revenues totaled $152.86 billion (versus 150.81 predicted). Spending patterns are still changing to reflect a more discerning consumer. The stock was up 5% to close the day on Tuesday.

Target (TGT/NYSE): After Walmart’s surprise to the upside on Tuesday, Target’s numbers were a shock in the other direction on Wednesday. After rising 4.5% on Tuesday, shares were down nearly 3% at the Wednesday close. Citing steep discounts to clear out excess inventory, Target revealed that its quarterly profit was down 90% on a year-over-year basis. Earnings per share were $0.39 (versus $0.72 predicted) and revenue came in exactly as expected by analysts at $26.04 billion.

Home Depot (HD/NYSE): Earnings per share topped expectations at $5.05 (versus $4.94 predicted) and revenues at $43.79 billion (versus $43.36 billion reported). Share prices were up 4% at the close on Tuesday.

Lowe’s (LOW/NYSE): Earnings per share posted an expectation beat at $4.67 (versus $4.58 predicted) and revenues slightly below analysts’ prediction of $28.12 billion. The stock moved up about 3% on Tuesday after Walmart’s and Home Depot’s favourable earnings report. And it held its ground, closing up slightly on Wednesday.

All in all, if these numbers continue to trend in a slightly positive or neutral direction for the rest of the year, I think most investors (and definitely the central bank’s decision makers) will breathe a sigh of relief.