Home Depot, Target, Walmart & Foot Locker

What can we learn from the most recent quarterly earnings report Home Depot, Target, Walmart & Foot Locker?

Let’s take a look at Home Depot:

Home Depot also revised its 2023 guidance based on “continued uncertainty regarding consumer demand.” The home improvement retailer expects revenue and same-store sales to decrease 2% and 5%, respectively, compared to fiscal 2022. Home Depot executives also forecast diluted earnings per share dropping between 7%-13% in 2023.

Source: Investors.com

Foot Locker reported an earnings miss today coming in at $0.70/share instead of expected $0.81:

“Our sales have since softened meaningfully given the tough macroeconomic backdrop, causing us to reduce our guidance for the year as we take more aggressive markdowns to both drive demand and manage inventory,” CEO Mary Dillon said in a statement.

Source: CNBC.com

Target was a mixed bag of news (source:Finance.Yahoo.com):

• Good: Inventory fell 16% from the prior year, led by a 25% reduction in stock of discretionary categories like apparel and home goods.
• Good: Beat Wall Street earnings estimates for the second straight quarter after three straight misses.
• Not So Good: Second-quarter earnings per share are seen in a range of $1.30 to $1.70 vs. $1.96 estimate.
• Mixed: Full-year earnings per share seen in a range of $7.75 to $8.75 (reiterated) vs. $8.36 estimate.

And finally, Walmart was the bright spot in all of this week’s earnings report.

The world’s largest retailer reported first-quarter same-store sales growth that beat expectations as consumers traded down from traditional supermarkets and slowed purchases of discretionary merchandise from rivals like Target (TGT).

Source: Finance.Yahoo.com

To summarize our view based on these reports we think the consumer is proverbially falling ill. The consumer is clear that Do-It-Yourself home projects and renovations is off and Home Depot is forecasting much gloomier future. Discretionary apparel like shoes from Foot Locker are also off. The Target consumer is also switching to cheaper rival Walmart. As for Walmart, it’s everyone’s favorite cheapest place to shop and the next stop from here are the Dollar type stores.

This works well for our thesis that home building stocks such as those in XHB will continue to decline and correct over the next 12 months and we are positioned with PUT option positions to take advantage and earn some profits. To find out what happens, stay tuned, stay profitable and stay solvent…