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The Zacks Analyst Blog Highlights: Walmart, Target, Lowe's and Home Depot

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·7 min read
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  • TGT
  • WALMEX.MX
  • HD
  • LOW

For Immediate Release

Chicago, IL – November 22, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Walmart Inc. WMT, Target Corporation TGT, Lowe's Companies, Inc. LOW and The Home Depot, Inc. HD.

Here are highlights from Friday’s Analyst Blog:

What Retail Earnings from Last Week Tell Us

Retail earnings from this week included Walmart, Target, Lowe's and Home Depot. Since they bring a broad range of offerings to customers from across many markets, management commentary from them can tell us a lot about what’s going on right now, particularly with respect to demand, the condition of the supply chain, the inventory situation and labor supply.

Fresh waves of coronavirus in Europe notwithstanding.

A look at the results showed that not much has changed in the supply chain over the past three months. However, larger players, on the strength of their vertical integration, supplier and transporter relationships, and greater resources have a larger inventory and are therefore better positioned for the holiday season. Another common factor was customer preference for omnichannel purchasing (although they are flocking back to stores), which again the larger players are in a better position to deliver.

Overall, management commentary indicates that this is shaping up to be a very strong holiday season, so the companies with more inventory on the shelves, better customer service, better entertainment and the capacity to deliver a better buying experience will be at an advantage. Throw in a few deals and you have a winner.

Which brings us to the stocks. Note that Walmart and Target carry a Zacks Rank #3 (Hold), Home Depot a Zacks Rank #1 (Strong Buy) and Lowe’s a Zacks Rank #2 (Buy).

Walmart

EPS beat by 4.32%

Revenue beat by 3.53%

Being a big player, Walmart is well positioned for the holiday season with adequate inventories (up 11.5%) to deliver the items demanded at attractive price points. Some of the measures taken to ensure this included adding extra lead time to orders, chartering vessels for Walmart goods, rerouting deliveries to less congested ports and expanding overnight hours at key US ports

But of course, it is not immune to the supply chain challenges, including inflationary cost pressures that were however offset by lower markdowns and increased contribution from advertising. Nor is it immune to the labor situation. Management stated that while its stores and fulfilment centers were well-staffed, wage cost increases impacted profitability.

Encouragingly, Walmart continues to take share in grocery, food saw the strongest growth in six quarters. Ecommerce was also strong, driven by Flipkart, China and Mexico, and up 87% from 2019. Walmart has earmarked advertising, e-commerce marketplace and Spark last mile delivery as growth businesses, and these businesses were very strong in the last quarter.  

Walmart U.S. comp sales grew 9.2%, including nearly 6% growth in transactions, with in-store shopping leading the way. They were up 15.6% from 2019.

Target

EPS beat by 5.57%

Revenue beat by 2.99%

Target has increased investment in inventories as well as its customer relationships in preparation for the holidays when it will be in a position to offer deals and promotions. It will also be hiring 30,000 new year-round supply chain team members in lieu of the growth it sees even beyond the holiday season. These actions, along with cost inflation stemming from higher wholesale prices were a pressure on profitability.

But it wasn’t all negative. Management said that all five merchandise categories grew low-double-digits to mid-teen double-digits, as Target grew market share for yet another year. Essentials, beauty (Ulta partnership going strong), and food and beverage categories were the strongest.

And while ecommerce was also strong, driven by its same-day services (up 400% over the last two years), Target’s store sales were the primary driver in the last quarter. Store fulfillment of online orders remains at 95%.

Home Depot

EPS beat by 14.96%

Revenue beat by 5.28%

Industrywide supply chain disruptions, inflation and a tight labor market were also concerns for Home Depot but the tenure and strength of its supplier and transportation partner relationships helped deal with the situation.

Home Depot, the low-cost provider of home improvement solutions said that its customers were taking on bigger home improvement projects with the Pro segment continuing to outpace DIY, signifying continued market strength.

And this strength was broad-based across 12 of its 14 merchandising departments and both in the U.S. (all 19 regions) and the international markets of Canada and Mexico. All Home Depot departments grew healthy double-digits from 2019. Prices were positively impacted by commodity cost inflation (mainly copper and building materials as offset by deflation in lumber).

Ecommerce also grew strongly, with store fulfillment of online orders currently at 55%.

Lowe's Companies

EPS beat by 17.17%

Revenue beat by 4.60%

Lowe’s also did well on inventory. The company’s merchant partners, supply chain teams, carrier relationships and its own scale helped it stock up on high-demand items. The market-based delivery model that transports big and bulky products directly from the supply chain to consumers' homes, bypassing the stores altogether also helped timely deliveries and cost control.

Its Total Home strategy, launched in 2018, helped focused development of merchandising, supply chain, operations and customer engagement capabilities, and in the last quarter, this allowed Lowe’s to increase wallet share in both Pro and DIY categories.

Pro (up 16% from last year and 43% from 2019) outpacing DIY and big-ticket items remaining strong are indications of the momentum in the home improvement market, as people continue to treat their homes as an investment.

Another strategy that seems to be paying off is a focus on the aged (including baby boomers) who want to spend their last days at home. Furniture to support this category is expected to remain a growth driver going forward.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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