Two key retailers reported quarterly numbers on Tuesday morning: Home Depot (HD) and Walmart (WMT). Both are supposed beneficiaries of a world grappling with the coronavirus pandemic—but they had different tales to tell with results that include April, when American stay-at-home mandates were in full force.
The numbers, overall, look pretty good. The stocks, however, are going in opposite directions Tuesday morning. The moves show that things are changing for retail stocks and hint at what investors need to look for in coming quarters.
For starters, Walmart easily topped Wall Street estimates. The company earned $1.18 a share in its fiscal first quarter ending April. Wall Street was looking for $1.12 a share . Costs for things such as cleaning were higher, but sales grew 8.6% to $134.6 billion. Wall Street was looking for $132.7 billion.
Comparable sales in the U.S. rose 10%, led by food and consumables, along with health and wellness products. E-commerce sales soared 74% year over year. None of that is surprising given the pandemic.
Investors appear happy, despite elevated expectations. Shares are up 2% in early Tuesday trading. Walmart stock is having a solid year, up about 7.4% year to date as of Monday’s closing price, better than comparable drops of the S&P 500 (.SPX) and Dow Jones Industrial Average (.DJI).
Home Depot, on the other hand, tripped up a little. The problem for Home Depot wasn’t sales, which grew 7.1% to $28.3 billion , topping analyst estimates of $27.5 billion. Earnings were the problem. Home Depot earned $2.08 a share. Wall Street was looking for $2.27 a share.
Higher costs, including extra pay for workers, cost the company a whopping 60 cents a share.
Home Depot shares are down 3% in early trading, eating into the stock’s 12.4% year-to-date gains based on Monday’s closing price.
The lesson: People are still shopping, especially at “essential” retailers like this pair. It is good for top-line sales, but all that money isn’t translating into bottom-line earnings. Costs are rising too, and that could be another long-lasting impact of the pandemic.
Looking ahead, stock performance of the retail sector will be more about how to offset Covid costs versus who is and isn’t benefiting from a Covid-19 sales bump.
Kohl’s (KSS), another retailer, also reported earnings Tuesday. The company lost $3.10 a share, worse than Wall Street predicted. What’s more, sales fell more than 40% year over year to about $2.2 billion.
Kohl’s stock is down another 5% in early trading. Shares are down more than 63% year to date. Kohl’s, of course, sells more discretionary goods compared with Walmart and Home Depot.
Discretionary retail is another story. That sector has been decimated by Covid-19.
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