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Earnings Preview: Home Depot, Walmart, Kohl's, Lowe's, Target, TJX Companies

Sucharita Kodali, Forrester Research Retail analyst, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss this week's retail earnings report set to come out. This includes Home Depot, Walmart, Kohl's, Lowe's, Target, TJX Companies, L Brands, Alibaba, Ross Stores and Foot Locker. She also weighs in on how this company sizes up to Amazon.

Video Transcript

ALEXIS CHRISTOFOROUS: Want to stick with retail now and check in with Sucharita Kodali. She's a retail analyst at Forrester Research. Sucharita, good to see you again. We've just ticked off some of the big names we're expecting earnings from this week. Who are you anticipating? What are you hoping to hear this week from these big retailers?

SUCHARITA KODALI: Right, like that like Brian, I think that Home Depot and Lowe's are absolutely going to have just amazing quarters. They've been on just a really positive trend. They are one of the four sectors in all of retail that's actually growing during the pandemic, and they're absolutely grabbing disproportionate share. The other two big companies that we'll be keeping a close eye on are Walmart and Target, which are reporting, as well. The mass merchants of course have been doing phenomenally well, because consumers are also continuing to buy a lot of the essential goods that are needed.

So those are the sectors that should do well. The rest of retail, usually as we're heading in to this time of year, it should be a good quarter in a normal year because it's back to school season, but unfortunately, because so many schools are closed, a lot of your traditional purchases at this time of year are just not happening. So I think that outside of these big sectors, it will be probably pretty dismal. You look at a company like a TJX and they've really, really been off, and haven't had quite the gains that they've seen leading into the pandemic.

BRIAN SOZZI: Sucharita, I just had a story-- I just got a story that hit our site-- looking at some pretty massive inventory reductions out of Tapestry, Under Armoud. Also hearing a lot of folks tell me big inventory reductions on tap for the holiday shopping season. What would that mean to the financial statements of retailers cutting back on inventory, but what does it mean for shoppers?

SUCHARITA KODALI: Well, there's just going to be less choice. So what consumers will do is that they'll go online to purchase, because that's where the selection and the assortment will be. I went shopping this weekend as well, and even just looking in stores now, the stores were just much, much emptier than they normally are. There's just less assortment. They almost look like New York boutiques versus, you know, your traditional retailer that is usually packed to the gills with inventory from corner to corner.

So I think some of the big box stores continue to be pretty loaded with inventory, but a lot of the specialty mall merchants are just much, much thinner. They're doing what they can to preserve cash, which is essential right now, but what that means is that they're going to convert fewer shoppers, they're going to drive less to the store. Consumers, of course, are also very nervous. We have survey data saying that 30% of people are nervous about going to stores now and they'll continue to be nervous going into Q4. So where the inventory is being leaned into is in the e-commerce channel.

ALEXIS CHRISTOFOROUS: You know, I was at a few stores this weekend, Home Depot one of them, but I was also in a Walmart near me up here in Pennsylvania. And already, Halloween items everywhere. You know, are we going to have a Halloween for retailers? It's huge for certain segments of the retail industry. They're trying hard, they're stocking shelves with the Halloween items, but are we-- are we going to be buying it? Who's going to be trick or treating?

SUCHARITA KODALI: Right, right. I mean, you know, Party City, I think, does more in, you know, kind of Halloween than any other time of the year. So there are absolutely companies that are betting on it. But the challenge is that it is absolutely right, Alexis-- there may be communities that just shut it down, because who wants to put your children at risk in this way? And who as a consumer wants to necessarily open your door to-- you know, to strangers kind of in this way.

That said, there will likely-- as we have seen through the course of this pandemic, There are traditionalists who absolutely are going to continue to go on kind of as they always have. So there will be some-- some Halloween absolutely for some consumers, but we can absolutely bet that it will be to tempered down, for sure.

BRIAN SOZZI: Sucharita, are you-- are you concerned that perhaps investors in Target have gotten a bit ahead of themselves? We are still in a bruising recession in this country, no fiscal stimulus plan in tow. Do you think people trade down to a Walmart and dollar stores this fall shopping season?

SUCHARITA KODALI: Well, I think that Target is-- it certainly has a higher income demographic than the dollar store consumers or Walmart consumers. But a lot of Target's success has been because they have really, really done a great job with their omnichannel investments. They have leaned heavily into their curbside pickup offering. They have really some attractive elements about it. There's essentially no minimum purchase and they have made it very tied to the usage of their app, which really creates the kind of stickiness that drove Amazon's revenue earlier.

So they are in a dogfight with Walmart and Amazon and they are doing what needs to be done to take advantage of this moment in time that they have to grab as much share as they can. So that's really what this is about-- it's about market share. They're doing-- they're doing a pretty strong job. And hopefully, what the idea is is that by 2021, they'll be able to focus more on margins, because now it's just been focused on volume and share.