Wall Street Breakfast: Retail Conundrum

Wall Street Breakfast: Retail Conundrum

Retail conundrum

Another key to defining the current economic landscape is on display this week, with earnings from retail heavyweights Walmart and Home Depot. But like most economic indicators these days, they came with a mixed bag full of solid trends and worrying stats, as well as vague commentary about consumer resilience. It’s also making it difficult to predict shopping behavior for the remainder of 2023, resulting in some muted and uncertain outlooks.

On the move: Walmart (WMT) fell as much as 4% after setting cautious profit guidance for the year ahead, but shares ended the session in the green, as investors focused on its earnings topper, strong comparable sales and dividend boost in the current macro environment. Home Depot (HD) also slumped initially, but the stock stayed depressed, and eventually closed out Tuesday down 7%. While earnings beat consensus estimates, sales came in short, and disappointing guidance for fiscal 2023 was not enough to counter a bigger dividend raise and bullish analyst commentary.

Uncertainty was also a common theme on the earnings calls – just take a look at the transcripts and follow-up interviews. “We do see a unique environment with many cross currents right now… Customers are still spending money… [but] balance sheets are continuing to get thinner, the savings rate is roughly half of what it was at a pre-pandemic level and we’ve not been in a situation like this where the Fed is raising at the rate that it does,” said executives from Home Depot and Walmart. “So, that makes us cautious on the economic outlook because we simply don’t know what we don’t know.”

Up next: The earnings parade continues today with quarterly results from TJX Cos. (TJX), which SA contributor Justin Purohit currently calls the “best bet in retail.” Keep in mind that while the SPDR S&P Retail ETF (XRT) stumbled 5% on Tuesday, the industry gauge has climbed 13% YTD, which is nearly triple the 4.5% advance of the benchmark S&P 500. (44 comments)

RTO backlash

Sounding off against CEO Andy Jassy’s recent return-to-office mandate, Amazon (NASDAQ:AMZN) employees are getting upset about taking off their pajamas. A Slack channel protesting the measure – which will require corporate staffers to come in at least three days per week – amassed 16,000 members as of Tuesday night, while an internal petition has so far garnered 5,000 signatures. Many are also putting “Remote Advocacy” in their statuses as they express frustration over childcare arrangements and their work-life balance, as well as a prior commitment to flexible work that gave many employees the ability to find more affordable housing. While Amazon’s RTO policy is not finding favor among the workforce, it could be a boost for local business and commercial real estate markets that are “currently in a recession.” (62 comments)

Counting the minutes?

Stock index futures were little changed overnight after the S&P 500 (SP500) tumbled 2% on Tuesday to mark its largest down day since the December FOMC meeting (and erasing all of its gains for February). “All eyes will be on the release of the Fed’s minutes today, as markets look for guidance on policy going forward,” said Deutsche Bank’s Jim Reid. “However it’s likely to feel a bit dated as a lot has happened in the subsequent three weeks.” The slump in equities has followed a selloff on the fixed-income side, with the 10-year Treasury yield (US10Y) returning to the 4.00% level amid hawkish rhetoric from FOMC policymakers. The Fed has emphasized that it would be data dependent, but the question is what data and if it really trusts the numbers. (6 comments)

Meet Oleato

Olive oil and coffee? It’s “alchemy,” noted legendary Starbucks (NASDAQ:SBUX) leader Howard Schultz, before the company unveiled its new game-changing platform. The new drink line, called Oleato, will feature olive oil infused lattes and iced espressos, as well as “golden foam” that sits atop cold brews. It’ll make beverages “richer” and “luxurious,” according to Starbucks, as the product launches in two dozen Italian locations today (with a rollout planned for Southern California later this spring). Oleato will also be a good-bye toast of sorts for Schultz, whose third round as CEO of the coffee giant comes to an end in April. Check out what SA contributor Alex Ponte has to say about Starbucks’ strategic initiatives and valuation. (5 comments)

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February 22, 2023 / investment / Tags: , , , , , ,