Walmart Results Paint Rosy Picture Ahead of Retailer Earnings Despite Inflation

 | Feb 22, 2022 09:31AM ET

Key Takeaways:

  • Walmart (NYSE:WMT) foreshadows good news ahead for retail earnings, and the possibility that consumers are still active despite record inflation

  • Retail earnings start in earnest this week with results from home improvement (HD, LOW), department stores (M) and travel & leisure (BKNG, NCLH)

  • Potential surprises this week: eBay (NASDAQ:EBAY) and Molson Coors (NYSE:TAP) Brewing

  • Q4 peak earnings season set to conclude this week, with February 24 expected to be the busiest day

Walmart Sets the Tone for Retailers this Week

As we head into the final peak week of the Q4 season, the retail earnings parade will be in full force. Retail earnings kicked off with Walmart’s results on Thursday, beating top and bottom-line expectations and raising their dividend one penny (a trend we noted we are seeing more of this quarter ). The world’s largest retailer is often seen as a bellwether for the reports that follow, and there were some interesting takeaways from Walmart’s earnings call, particularly around inflation.

While consumers continue to digest the highest inflation in 40 years and the end of government stimulus, Walmart remains confident in their ability to pass on higher costs to customers as they did in the latest quarter, noting that shopping trends have not changed. And despite continued supply-chain issues, WMT was able to increase global inventory 26% while other retailers continue to struggle to keep shelves stocked.

Some of Walmart’s commentary was in contrast to what we’ve seen from other S&P 500 companies this season. According to FactSet, 75% of companies have mentioned the impact of inflation on recent results, mostly as a negative headwind. As more retailers report in the weeks to come, investors will be looking to see if those names are able to pass increased prices onto shoppers as well.

Overall EPS growth for the S&P 500 now stands at 30.9% (only up 0.6 percentage points since last week) with YoY revenues up 15.5%. (Data from FactSet

The Retail Parade Continues with Home Improvement Names and Department Stores

This week we will hear from other must-watch retailers such as Home Depot (NYSE:HD) and Lowe’s. Both names continue to benefit from increased home improvement trends that started during the pandemic, and continue as home prices remain historically elevated. Typically when home prices rise we also see a jump in home improvement spending, as those being priced out of the market decide to stay in their current homes and go the renovation route.

Other names in this space include online home decor and furniture retailers. While they benefited from these trends in 2020 and 2021, many are now struggling. Wayfair (NYSE:W) and Overstock.com (NASDAQ:OSTK) are both out this week, and after posting triple digit profit and/or sales growth during peak pandemic quarters are now expecting YoY decreases in revenues as they remain under pressure to show they can sustain the high growth figures they produced over the last two years. If Shopify’s results from last week are any indication, then expect other e-commerce retailers to be hard pressed to keep up with record results seen from the pandemic bump.

We also begin to hear from the department stores this week, starting with Macy’s tomorrow morning. Third quarter profit growth of 747% shocked even the most bullish analysts, as Macy’s was able to court younger customers by expanding into newer categories and improving their omni channel offering. Last week the stock rallied as Evercore ISI upgraded the retailer to outperform in part due to pent up apparel demand.

Companies in the travel and leisure space continue to report this week as well, as we look to results from Booking (NASDAQ:BKNG).com and Norwegian Cruise Lines. Get ready to see some quadruple digit growth rates on the back of improving travel demand – Booking is expected to report YoY EPS growth of 2440% after reporting in the red last year, and Norwegian is expecting top-line growth of 5869%. Hotels chains such as Hilton and Marriott blew expectations out of the water when they reported well above analyst estimates last week, and Airbnb (also surprising to the upside) noted that US and European booking lead times had returned to pre pandemic levels.

The overall Consumer Discretionary sector of the S&P 500 continues to lead on the bottom-line with YoY growth of 49.6%, but remains the fourth largest laggard on the top-line with only 11.4% growth. (Data from FactSet)