Walmart’s Stock Shines Bright Amidst Disappointing Retail Trends

Walmart’s (WMT) shares have distinguished themselves this year, significantly outpacing not only broader market indexes but also competitors like Target (TGT), Amazon (AMZN), and other members of the Magnificent 7 group.

Examining Walmart’s Strong Performance

With Walmart set to announce its quarterly results on Tuesday, November 19^th, investors are eager to see if the stock can sustain its positive momentum. Following a successful quarter showcased on August 15^th, where it exceeded expectations, Walmart has continued on an upward trajectory.

The year-to-date performance of Walmart shares is strikingly positive, having surged by +60.6% compared to the S&P 500 index’s modest increase of +25.1%, Amazon’s +33.8%, and Target’s +7.8%.

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Upcoming Retail Reporting

This week will also see quarterly results from Target on Wednesday, November 20^th, and Lowe’s (LOW) on November 19^th. Lowe’s faces challenges similar to Home Depot, which has released positive quarterly results but operates in an industry hampered by ongoing high mortgage rates that have persisted despite the Fed’s easing efforts.

Demand for major home remodeling projects and other large purchases remains low, as existing home sales hit a 20-year low. Although home prices have risen, many homeowners are reluctant to give up their low-rate mortgages for new ones at higher rates.

Like Home Depot, which saw a sales boost from recent hurricanes in the Southeast, Lowe’s may experience similar gains. However, management cited weak demand for discretionary home goods due to current economic conditions.

A shift in consumer spending behaviors has emerged in the post-COVID landscape, with individuals favoring services like travel, dining, and entertainment over major purchases. This shift has especially hurt retailers like Target, which rely heavily on discretionary merchandise.

Walmart’s Strategic Position

In contrast, Walmart’s strong presence in groceries and essential items provides more stability during economic fluctuations. The retailer’s focus on value and its effective digital strategies have helped it gain market share among higher-income shoppers.

Despite reaching higher-income consumers, Walmart continues to cater to lower-income customers who face financial pressures due to inflation. The company has mitigated the impact of weaker spending from lower-income households by effectively attracting those with more disposable income.

What to Expect from Walmart’s Earnings

Walmart is anticipated to report earnings of $0.53 per share (EPS) on revenue of $167.6 billion, reflecting year-over-year increases of +3.9% and +4.2%, respectively. Recent trends indicate weak performance in Walmart’s non-grocery sectors. However, management previously noted early signs of stabilization in some discretionary categories during their last earnings call. If positive trends emerge in discretionary products, it could signal good news for Target as well.

Retail Sector Earnings Overview

With 24 out of 34 retailers in the S&P 500 index having reported their Q3 results, it is crucial to understand the broader context. The Zacks Retail sector encompasses various companies, including traditional retailers and online vendors such as Amazon.

Among the 24 reporting retailers, earnings have risen by +14.9% year-over-year, alongside a +6.3% increase in revenues. Additionally, 54.2% surpassed EPS estimates while 50% exceeded revenue forecasts.

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The retail sector has shown a notable struggle with meeting estimates in Q3, particularly among online retailers and restaurants, tracking below a 20-quarter low in EPS beats.

Amazon, which reported a significant +71.6% increase in Q3 earnings on +11% higher revenues, contributes to the contrasting higher growth seen in others. Over time, the line separating digital and brick-and-mortar operators has blurred, with Walmart increasingly entering the online space and vice versa for Amazon.

Progress on Earnings Growth

As of Friday, November 15^th, a total of 461 S&P 500 members have reported Q3 results, constituting 92.2% of the index. Another 14 companies, including Nvidia and Deere & Company, are scheduled to release their results this week.

The earnings for these 461 companies collectively increased by +6.8% compared to last year, with revenues rising by +5.3%. Notably, 73.8% of these companies exceeded EPS expectations, while 61.4% surpassed revenue estimates.

Approximately 50.8% of the companies reported better than expected results in both EPS and revenue.