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Retailers Reflect After Weighing Recession Impact; Dampening Outlooks

Retailers Reflect After Weighing Recession Impact

Earnings reports from some of America’s largest retailers are putting a number on the impact of the industry’s big miscalculations.

Back in May, some of those big store chains and retailers reported that they had too much inventory. Simply put: they ordered too much stuff. Financial media warned shoppers that discounts would be plentiful.

One of the companies that conceded it bought too much? Target. The company reported this week, along with Lowe’s, Walmart, and Home Depot. Every brand showed that spending wasn’t going out of style…

Target posted $26 billion in revenue, but only ended up with quarterly income of $183 million, which means that the company’s quarterly profit fell by 90% YoY. That loss came as the company tried to get rid of all of the excess inventory it had, but the loss was still a surprise to analysts, who weren’t expecting such a big hit.

Lowe’s was a little bit luckier. Analysts underestimated their profits, but overestimated their revenue by 2%. They generated $27.5 billion in revenue and walked away with $3 billion in net earnings.

And Home Depot and Walmart were perhaps the luckiest names: both ran past the goalpost, posting small beats on their top and bottom lines. They also doubled down on their outlooks for the remainder of the year while cautioning about the same inflation woes.

Related: Top Retail Stocks by Market Cap.

What’s the post-mortem?

Some surprisingly satiated investors. This week, Target fell just -2% this week on its bad report. Lowe’s rose +2% in spite of its mixed report, Home Depot rose +2.5% this week, and Walmart rose more than +4.5%.

The optimism suggests that investors have taken a new position when it comes to bad news. Instead of being mad because they’re angry, investors seem to be saying,“Try again next time.” As we’ve covered in the past, throughout the Q2 2022 earnings season, reactions to misses and bad news have been lower than in other recent quarters.

Investors did get a heads up that retailers bought too much stuff in May – and got a healthy reminder of it midweek when retail sales data came out. It was flat on the month, showing that retailers might be facing a rough next few quarters given higher prices from inflation and lower spending because of recession risk. 

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