Wall Street anticipates a mixed bag in retail earnings, reflecting the nuanced spending behavior of U.S. consumers in 2023.
Date: November 15, 2023
In a week dominated by retail earnings releases, the economic narrative of 2023 unfolds, revealing a tale of resilience and selectivity among U.S. consumers. Despite robust spending, not all retail stocks have enjoyed an upward trajectory, signaling divergence within the sector.
eToro US investment analyst Callie Cox highlights the disparity, noting a 13.6% median increase in service-based retail stocks driven by elevated spending on travel, contrasting with a 12.6% median decline in automobile and parts stocks.
Notably, companies in the consumer staples sector, like Walmart, have thrived, outperforming discretionary sector counterparts such as Target. Walmart's stock surged over 16%, leveraging consumer down-trading amid inflation concerns.
As investors eagerly await a spectrum of earnings reports this week, Home Depot set the stage with better-than-expected outcomes, tempered by a cautionary note on future consumer moderation. Target and Walmart are next in line, with market analysts anticipating a "beat and raise" scenario for Walmart but expressing caution about Target's trajectory.
The housing market-linked retailers, Lowe's and Home Depot, face a cautious outlook, with projections of sales softness impacting third-quarter earnings. Meanwhile, the "softlines" sector, featuring names like TJX, Macy's, Lululemon, and Nike, grapples with mixed signals amid recession concerns and sluggish demand.
Evercore ISI identifies opportunities amid the challenges, listing TJX, PVH, Lululemon, Ulta, and Gap as top picks with strong defensive characteristics and a track record of outperformance.
The retail earnings week not only offers a glimpse into the sector's dynamics but also serves as a barometer for the broader U.S. economy. Wall Street speculations about a potential slowdown driven by factors like student loan repayments, declining excess savings, and higher borrowing costs add layers of significance to the consumer's role in shaping market trends.
As the week unfolds, industry analysts and investors alike will be closely watching for insights into the health of the U.S. economy, recognizing the pivotal role of consumer behavior in determining the direction of the broader market.
Note: The insights and predictions in this article are based on the information available and may be subject to change based on actual earnings reports and market dynamics.