Retail earnings: What to watch next week

Big box retailers such as Home Depot (HD), Target (TGT), TJX Companies (TJX), and Walmart (WMT) are set to report earnings next week. Yahoo Finance Live takes a look at the state of retail, looking back on analyst comments on retail demand heading into the latter half of 2023 and 2024, the Tapestry (TPR) and Capri (CPRI) acquisition deal, and average credit card spending by consumers and households.

Video Transcript

JULIE HYMAN: The spotlight shifts to retail next week with several earnings on tap along with retail sales. We've got big box retailers like Home Depot, Target, and Walmart first up to the plate. And so we wanted to look back at some of the tea leaves that we've gotten thus far and then look ahead to what we could hear next week.

Among the various tea leaves that we got in the past week was a big deal within the retail industry--

BRAD SMITH: Huge

JULIE HYMAN: --in the form of Tapestry buying Capri for $8 and 1/2 billion. We talked to some folks about that. We've been sort of looking at what's been going on in specialty retail. And one of the things, one of our sort of takeaways or themes that we've been seeing here is-- and this has been a longer term thing, sluggish retail sales in the face of some of that spending going to services.

And that seems to be continuing to some extent, although we've seen little glimmers of spending certainly on stuff.

BRAD SMITH: Yeah. And it was exciting putting together our what to watch for this earnings season for retail, specifically here because one of the other areas too that has continued to be brought up-- and, hey, there you see our little cartoon faces is the inventory. And we discussed this with Adrienne Yih. She brought this up in our conversation earlier this week, talking about how companies are needing to clean through that inventory.

I believe we have a short clip of some of her commentary and what she's expecting this retail earnings season as well.

ADRIENNE YIH: We're in the early, early phase of our wholesalers will go into retailers. If they can hold on to the guy and basically do the back half and get to those earnings and off margins with freight and promo recovery and below the top line, and then have top line on tight inventory, that's what you call the bout for 2024.

BRAD SMITH: And so the reason why inventory is so important is because of the promotional cycle we've seen companies have to deploy by not having that inventory marker correct. And so many of them right-sizing that kind of demand projection for what their inventory would look like. That's been key to making sure that they're more-- there are more full price sales.

Think about what you hear from companies like Under Armor, which already reported and companies like Nike and many of the direct to consumer companies. The amount of the inventory that they're able to sell at full price, they're communicating that to investors, Adrienne Yih pointing out that earlier this week. And that tight inventory scenario that helps them out even further to ensure that they can hit some of those full price markers that they're looking for.

JULIE HYMAN: Yeah. Inventory is also something that Simeon Siegel spoke about, one of BMO when we talked to him about the Tapestry Capri deal. And he also talked about where we are after a couple of roller coaster years for the retailers. He said in this moment, it's all about execution on the part of the individual retailers.

SIMEON SIEGEL: We're actually back to an environment where retailers can run their businesses. Beginning of COVID, there was no supply chain, therefore there was no availability. So it didn't matter how good you were at predicting demand, you were at the whim of whatever product made it through the containers. That's no way to run a business. There's no winners and losers there.

And then in the last year, it was the opposite, where everyone had so much success inventory, that it also didn't matter how good you were at predicting demand. You were just overflowed with this product that you had to move. We're back to normal, and again, that's a hard thing to say because what is normal, but we're back to an environment where I think the companies that are really good at understanding their consumer and predicting inventory accordingly will win.

JULIE HYMAN: So that's kind of interesting, right, is that these retailers are no longer going to be subject to the winds of supply chain dynamics and consumer dynamics as to the same degree that they were over the past couple of years. It's going to matter more about how the management teams are doing when it comes to these companies.

Now that said, the first thing that we talked about, sluggish retail sales perhaps in the face of services spending was highlighted by a couple of charts that we got from the Bank of America Institute in their monthly look at consumer spending when it comes to retail.

And one of the things they looked at was the boost that we saw around the July 4th holiday here. But they compared 2022 to 2023. And we are seeing 2023 run at a little bit of a higher rate here. So that's something that should be encouraging perhaps when we await those overall July retail numbers.

And they also have been tracking retail excluding restaurants and services-- including restaurants, excuse me. And basically, we are seeing those two sort of come back into line which suggests perhaps a little bit of a resurgence in good spending in line with services spending, which is intriguing. You know, who knows if that's what we're going to see writ large coming from these retailers and coming from the retail sales numbers.

BRAD SMITH: It's particularly interesting on the credit side of the spending equation too because if there's one thing that we've talked about time and time again, consumers may not be breaking right now, but they certainly are pivoting how they are spending and where they're deploying cash that might be on the household balance sheet, or perhaps tapping to pay or swiping to pay that much more quickly because they know it's something that maybe they can pay off just later on down the line for a purchase that they want or maybe need right now.

And that kind of contributes back into the data that came out of the New York Fed and how some of the household debt and credit report that they put forward.

Right now, we're seeing credit card balances saw growth rising by $45 billion to a series high of over trillion dollars right now. And so that coming out from the New York Fed, you pair that with what some of the larger companies that are going to be reporting are already saying about how they're engaging with consumers. It's how the consumer is spending, but also where that spending and the guidance might dampen further.

And so I'll just wrap on this, the impact of student loan payments resumption, that continues to come up in analyst conversation right now, could be something that impacts the guidance going forward.

JULIE HYMAN: Yes, the student loan repayment buzzword and the excess savings buzzword are really going to be important for the outlooks for retail and services spending for that matter, just how are people spending money as they maybe have less of it. We'll see.