Takeaway consumers from WMT, TGT, HD retail revenue

More grocery shopping, less ambitious do-it-yourself projects and last-minute shopping madness.

This week, some of the country’s biggest retailers reported earnings and how their customers shopped. As Home Depot, Target and Walmart reported quarterly sales and shared full-year forecasts, the companies provided the latest guidance on the health of American consumers and predicted what could happen to the economy.

Some smaller retailers also offered warning signs for the current quarter and current year.

Next week will bring even more information on the retail industry and the economy. Best Buy, Lowe’s, Costco, Dollar Tree and Kohl’s are among the earnings on tap. Earnings are also reported by some mall retailers, including Gap, American Eagle and Abercrombie & Fitch.

Here are some of the emerging topics.

So far, at least five retailers – Target, Walmart, Tapestry, Bath & Body Works and Foot Locker – have spoken of deteriorating sales trends across the country.

As the three months went by, shoppers were spending less, especially on discretionary goods, Target CEO Brian Cornell said in a call with investors. Walmart noticed the same pattern.

Both big-box retailers saw their sales drop sharply after February.

Walmart’s chief financial officer John David Rainey attributed the decline in part to the end of SNAP’s pandemic-related benefits and a decline in tax refunds.

Cornell said the events that garnered attention may also have shaken consumer confidence. He pointed to the March banking crisis. The Silicon Valley bank collapsed this month, sparking fears of wider economic trouble.

Bath & Body Works reported a drop in sales in March. However, sales surged in April as the retailer turned to a common guide: promotions. It gained momentum as customers spent at sales events at the end of the quarter, chief financial officer Wendy Arlin said during Thursday’s earnings call.

Foot Locker also said it may have to incentivize shoppers with discounts for the rest of the year. The company lowered its full-year forecast on Friday as it reported profits that fell short of expectations. Chief Executive Mary Dillon said in a statement that “sales have declined significantly since then given the challenging macroeconomic environment.”

In a call with investors on Friday, Dillon said the sneaker retailer’s sales suffered from lower tax returns and high inflation as customers spent more on food and services. While she said sales rebounded in April, they “didn’t improve nearly as much as we expected, and that weakness continued into May.”

Several other retailers who reported profits had specific factors working in their favor.

When Tapestry, the parent company of Coach and Kate Spade, announced its financial results last week, the company said sales fell as the quarter progressed into April as consumers became more cautious.

But it has something other retailers don’t: growing business in China and other international markets to offset some of those weaker sales.

Home Depot has beaten the slowdown in the sales trend, but that may have more to do with what it offers than consumer health.

Spring is the peak season for home renovations. The US retailer’s comparable sales fell 4.6% in the quarter compared to the prior-year period. In February, its comparable sales fell by 2.8%. March was the weakest month of the quarter as comparable sales fell nearly 8% year-on-year in the U.S.

According to chief financial officer Richard McPhail, Home Depot’s trends were still negative in April but saw a slight improvement as comparable sales fell 3.7%. Customers could buy more spring items, such as potted plants.

Inflation is falling this month, according to a report by the Department of Labor. However, it’s a cold comfort for shoppers who still pay a lot more at the grocery store than they did a few years ago.

Persistently high prices, especially for food, are a storm cloud that hangs over many families shopping at Walmart and over the entire retail industry, said Doug McMillon, the giant’s CEO. During a call with investors on Thursday, he called persistent inflation “one of the key factors creating uncertainty for us in the second half of the year.”

“We all need these prices to come down,” he said during the call. “Continued high inflation rates in these categories, for so long, are putting a strain on some of the families we serve.”

For example, he said overall US commodity costs are lower than a year ago but still higher than two years ago. In the dry groceries and consumables categories, Walmart is seeing high single-digit to low double-digit inflation for items such as toilet paper or paper towels. For food, inflation has risen more than 20% in two years, according to Rainey of Walmart.

Walmart is feeling the inflation crisis even though it is better equipped to manage higher costs than other retailers. As the largest retailer and largest grocery store in the country, Walmart can use its scale to produce private label goods or negotiate with sellers over price.

One rare item whose price has dropped drastically? Lumber. Home Depot cited a sharp drop in prices as a contributing factor to the loss of revenue in the first fiscal quarter.

But in many other categories, inflation continues to result in a higher average ticket for customers, Home Depot CEO Ted Decker said during Tuesday’s earnings call.

Target, Home Depot and Walmart have all noticed a noticeable pattern: fewer expensive and fun items in shopping carts.

At Home Depot, customers bought less important items such as home appliances and grills in the first fiscal quarter.

Home projects have also become more modest, Decker said during an investor call. Contractors and other home professionals have noticed a shift from large-scale remodeling to smaller renovations and repairs.

Decker said consumers’ focus on value could contribute to this shift, as spending on travel, restaurants and other services increases. He added that some homeowners had already tackled large projects and bought expensive home items in the early years of the Covid-19 pandemic, leaving them with less to do or buy now.

The trend went beyond home improvements.

Shoppers at Walmart have become more selective when buying electronics, TVs, homewares and clothing, Rainey told CNBC. Items have become harder to sell, and when customers buy them, they often wait for a sale, he said.

At Target, sales fell in some discretionary categories, even into double-digits, as customers bought less apparel and home décor, growth director Christina Hennington said in an investor call. Groceries and necessities accounted for the bulk of the retailer’s quarterly sales.

One exception? Beauty. Hennington said Target’s beauty category was strongest in the fiscal first quarter. Sales increased year-on-year in the mid-teens, showing shoppers are still eager to replenish their makeup bag and get their hands on a new tube of lipstick.

The weather hasn’t been in favor of retailers, at least for now.

As the weather turns warm and sunny, it can inspire shoppers to buy summer dresses, beach towels or gardening supplies.

However, Home Depot said cooler, wetter weather in California and parts of the western United States hit sales, contributing to the biggest drop in revenue in more than 20 years.

Walmart is also looking forward to warmer weather. Sam’s Club has seen slower sales of patio sets, perhaps due to the late spring weather, its general manager Kath McLay said during an investor call. Walmart has seen a sharp decline in air conditioner sales at its large stores, Chief Financial Officer Rainey said.

“We’re ready for spring or summer weather,” he told CNBC.

Target noted that it is looking forward to another upcoming season: back to school.

The discounter expects sales to increase in the second half of the year due to the high shopping season, Hennington said during a call with investors. She said the return to classrooms and dormitories is triggering sales in almost every department of her store, from lunch ingredients in the grocery aisles to new outfits in the children’s clothing section.

Retailers can talk so long about days of stockpiling and early purchases.

Business leaders said there are signs shoppers are reverting to some of their old habits.

At Walmart’s Sam’s McLay, shoppers aren’t just opting for lower prices. They also shop for seasonal items later. She said, for example, that customers bought outdoor furniture as soon as it appeared in stores.

“Now we’re seeing people waiting a little later in the season,” she said.

It was the same with Mother’s Day sales, she said.

McLay said this could mean people have gone back to the shopping habits of 2018 and 2019. This trend may be driven by shoppers’ reluctance to open their wallets, or because they don’t worry as much about out-of-stock items – or a combination.

At Target, shoppers have also embraced procrastination tendencies, especially for discretionary items such as clothing.

“Guests are switching to shopping in these categories because they wait until the last moments before key events to invest in a new decor or wardrobe refresh,” Hennington said during an earnings call.