Walmart Inc and Target Corp kick off retail earnings this week, and what the two biggest U.S. retailers say about consumers will likely set the theme for the rest of the sector and offer clues about the health of the U.S. economy.
“Target made it pretty plain that the next couple of quarters were going to be difficult as they got rid of inventory at lower prices,” said Bill Smead, chief investment officer of Smead Capital Management, which owns Target shares worth about $200 million. The sector is also preparing for the back-to-school and holiday seasons, periods where they earn a big chunk of their annual profits.
The Bentonville, Arkansas company’s profit margins are likely to remain under pressure for the rest of the year because it caters to budget-conscious shoppers who are more acutely impacted by inflation, analysts said. “Overall, Target’s inventory is looking to be in a good spot, except for a handful of categories where stocks are still inflated,” said Jane Hali & Associates analyst Jessica Ramirez, while J.P.Morgan said it expected the retailer to exit the second quarter with clean inventories, having taken its “medicine” with price cuts.