Preview: Walmart, Target earnings to offer clues on crucial holiday season

Helen of Troy

13/11/2023 21:09

By Siddharth Cavale
       NEW YORK, Nov 13 (Reuters) - With a mixed picture of
consumer demand emerging over the past quarter, earnings results
from Walmart and Target on Wednesday and Thursday respectively
will shed light on what lies ahead for U.S. retailers ahead of
Black Friday. 
    After a turbulent holiday season last year, when inflation
peaked, shoppers' focus on buying essentials like bread, milk
and toothpaste, left retailers with lots of unsold clothing and
electronics, Wall Street is hoping recent economic data showing
food disinflation and higher wages will spur shoppers to open
their wallets this season.
    But rising credit card debt, depleted pandemic-era savings,
and higher interest rates are giving investors pause, betting
that retail bellwethers like Walmart and Target will have too
much merchandise and be forced to discount during the holiday
season. 
    Walmart's decision so far to not hire seasonal holiday
workers is a telling sign, Walmart investor Sizemore Capital
Management told Reuters.
    "I would interpret that as they're not expecting
(shopper)traffic to be super high now," said Charles Sizemore,
chief investment officer at the firm, which holds about $2
million shares each in Walmart and Target.
    More evidence of Christmas malaise surfaced on Nov. 2 when
Target CEO Brian Cornell said that customers were pulling back,
even on groceries. 
    "If people are even picking and choosing what they spend
their grocery dollars on, then Christmas is going to be muted
this year," Sizemore said.
    The National Retail Federation predicts U.S. holiday sales
in 2023 to rise at the slowest pace in five years. The holiday
shopping season traditionally begins on the day after
Thanksgiving - known as Black Friday. But Walmart and Target
began offering some holiday discounts as early as October. 
    Walmart, with its focus on selling groceries, is expected to
report a 4.4% rise in third-quarter sales, according to LSEG
data. Walmart announced last month that it would offer
pre-packaged Thanksgiving meals and ingredients at prices lower
than last year. It has also embarked on a $9-billion store
remodeling plan. 
    Target, in contrast, is expected to post a 4.8% sales drop.
Nearly half of its sales come from clothing, home goods, toys
and electronics, TD Cowen and D.A. Davidson analysts said.
    Rubbermaid and Sharpie maker Newell Brands  NWL.O  and OXO
and Hydro Flask maker Helen of Troy  HELE.O , which both sell
products at Walmart and Target, said last month inflation is
causing shoppers to focus on food and essentials and that
retailers are tightly managing inventories. 
    Still, Target said it saw shoppers spend more for July 4th
and Memorial Day and expects people to also keep that pattern
for Black Friday and the days ahead of Christmas. Whereas
Walmart's betting on newly remodeled stores, Target is betting
on new merchandise, including collaborations with Ulta Beauty,
Kendra Scott jewelry and Figmint, a new Target-owned line of
kitchenware. 
    "I don't see" food price inflation crowding out sales of
more discretionary goods as "as big of an issue this holiday
season as last holiday season," D.A. Davidson analyst Michael
Baker said.    

 (Reporting by Siddharth Cavale in New York
Editing by Nick Zieminski
Editing by Nick Zieminski)
 ((siddharth.cavale@thomsonreuters.com; Cell: +1 646-288-4330;))