Yahoo Finance Live anchors discuss the earnings expectations for retailers like Walmart, Target, and Home Depot.
BRAD SMITH: Welcome back, everyone. Big retailers step up to the plate next week. We've got numbers from Walmart, Home Depot, and Target. They're all going to hit the tape. The nation's biggest private employer reports before the bell on Tuesday, weeks after slashing its profit outlook and beginning plans to lay off corporate employees.
Target's results land Wednesday. Investors hoping to avoid a repeat of the Q1 nosedive after surging costs ate into projections. Shares have had a good month as gas prices tick lower now. And there, we're taking a look at Target shares here. But for the warnings that we had already seen for Target and Walmart, you could potentially even see some type of relief that it's not as bad as it could have been.
Of course, when we do see those warnings, the companies typically get out ahead of time and give not even just the base case scenario, but also just like the worst case scenario, putting that out there into the minds of investors so that the Street can digest that and thus give them at least some type of foundation to be able to build off of going forward from here. But the guidance is what's going to be significant, especially with back to school season, and then even any insight that they provide about what that looks like going into the holiday shopping season.
BRIAN SOZZI: Yeah, we put some-- we put together a list here on some things you should be looking at ahead of these retail earnings season. And to your point, Brad, yes, inventory levels very, very important, especially because that's why Target really got this whole train wreck in motion a couple-- I believe it was in June, telling folks that inventory was just simply too high. And we've seen since seen a lot of retailers come out and warn-- Walmart, Best Buy, Gap, you name it.
But I really thought what Simeon Siegel over at BMO told us yesterday was very important. He thinks it's better if executives just come out and gut it or gut guidance, kitchen sink things. Give investors the worst possible scenario, even if that is going to hit your stock again. At least, that sets you up for, one, just resetting expectations, but also to set you up for delivering ahead of estimates in the key holiday shopping season, and also back to school.
But also, I will mention this. Back to school commentary very, very important. Walmart usually drops that commentary when they report their second quarter earnings. I would be very, very interested to see how that season started for them.
BRAD SMITH: You know, it's interesting. We mentioned Home Depot as well. And then even we were talking about Lowe's yesterday, too. And one of the analysts calls that's out there, looking for Lowe's to actually experience a ton of headwind and expect to see a slump in same store sales as well this quarter.
And for Home Depot, what this really signals is that not just in the consumer that they're going after, that end consumer that might be working on the DIY projects at home, even though we know some of those projects may have started to pull back because the prices are too high and consumers have to prioritize spending in where, other places like necessities.
And so does the DIY project at home take on as much importance, even though it's a home care or a home necessity type of purchase? Does it still take on the same importance of just being able to get to and from places or groceries, where you're also seeing price inflation?
And then, additionally, even on the contractor side, where a lot of those partnerships for Home Depot, that's critical for them to be able to end, or at least, finish out some of the projects that those contractors have in construction and actively. But they're paying higher as well because the inventory at the same day is in such high demand among a pool of contractors as well, all coming to the same place.
BRIAN SOZZI: Yeah, necessity is a key focus. I think that quarter, that very disappointing quarter from Hanes Brands yesterday that we talked about, could be a tell on how bad that guidance can be from Target and Walmart later in the week. But a couple of quick calls-- Lowe's yesterday was downgraded. You had Target here, Greg Melich, a retail analyst over at Evercore ISI downgrading-- or not downgrading. Just saying he has a negative tactical rating into this report.
What does that mean in plain English? It means that he's looking for a potential disappointment. You see some of his commentary on the screen. Potential disappointment in Target's earnings and also likely their guidance for the second half. And that could put additional pressure on Target. And if that does happen, look for the rest of the sector potentially to catch more weakness.
BRAD SMITH: Here's the thing, though. Even since we've seen Target in mid-May, like, just fall precipitously from some of those 148 levels that we had seen mid-May, May 16, I believe it was the last time that we were hovering in that range, now down to trading at about $130 here on the day for Walmart. Since then, we've actually seen them in some of the June lows that the company had struck.
I mean, we've seen them try to regain some ground over that extended period of time, past six months. You're seeing Target down as well by about 18%, up 1% here on the day. Perhaps this is where you start to see for the consumer play that we were talking about earlier from B of A and what they're noticing where investors might be coming back in. Target and Walmart, they make a lot of sense perhaps there.
BRIAN SOZZI: Target up 16% in the past month. I have more of a story on this now on the Yahooo Finance home page. What does that coincide with, Brad? Pull back in gas prices. So the market is trying to get out in front of perhaps retailers having the worst results in the second quarter, maybe something in the better in the back half of the year because the gas price is coming down so much. We'll see.