Big retailers report as Q1 earnings wind down. This company has been the biggest drag on the S&P 500's results.

By Bill Peters

Earnings Watch: Walmart and Home Depot report earnings, offering first look at big retailers' 2024

Groceries and houses are still way more expensive than they were before the pandemic. This week, two of the nation's largest retailers - Walmart Inc. and Home Depot Inc. - will probably have more to say about it.

Home Depot (HD) reports Tuesday. Walmart (WMT) reports Thursday. The results will set the stage for the rest of the retailers reporting in the weeks ahead, as shoppers try to adjust to a new normal of much higher prices for basics and Wall Street searches for signs of a bigger rebound for just about everything else.

That's been the refrain for the retail world over the past two years, but Walmart's size alone has helped cushion the impact. Higher prices for groceries, which make up a majority of Walmart's sales, have helped, even as demand for more discretionary items, like clothing and electronics, lags.

Prices for groceries aren't rising as fast as they were in 2022, but they're still up more than 25% when compared to pre-pandemic levels, according to BofA analysts, who said in a research note on Friday that Walmart's consumers would likely still be seeking bargains.

Data from analytics firm Placer.ai found that visits to Walmart rose 3.9% year over year during the first quarter, and over the past 12 months, its stock has risen 18%, and it has raised its dividend. The big-box retail chain is also trying to increase the size of its burgeoning digital-ad business. However, it is closing down its health centers, amid a bigger push toward stronger profits.

Higher-income shoppers have also increasingly turned to Walmart for deals. The company, in turn, has made greater efforts to keep them there.

BMO analyst Kelly Bania, in a research note last week, said last month's launch of Walmart's bettergoods private label food brand - which Walmart advertises as "elevated culinary experiences" - "could be the next catalyst to support outsized grocery market share gains and highlights WMT's focus on the trade-up consumer."

However, for Home Depot, visits slipped 1.1% during the first quarter, Placer.ai found, amid broader caution from consumers on expensive home renovation projects. And Wedbush analysts, in a research note on Friday, said Home Depot's more cautious forecast for this year was realistic, "given choppy sales trends partly driven by a delayed spring, increasing mortgage rates and a further-delayed housing recovery."

Home Depot's fortunes often hinge on the housing market, and the population's willingness to build new homes and sell or renovate existing ones. The company in February said demand for big-ticket purchases - flooring, countertops and cabinets - had been subdued.

Higher home prices and higher mortgage rates, to some degree, have kept the housing market frozen in place. During the home-improvement chain's earnings call in February, executives said home prices had jumped more than 46% since 2019, adding that "people are just being conservative" about starting big home improvement projects in homes they might stay in for longer.

"We're literally at a 40-year low in turnover," Home Depot Chief Executive Ted Decker said on the call.

He added: "And then do we get back to growth? Absolutely. I'd say we have a neutral look on housing for 2024. We don't think there's incremental pressure, nor do we think that we're quite ready for a hockey stick recovery."

Meanwhile, the U.S. first-quarter earnings reporting season is winding down, with the so-called "Magnificent Seven" driving most of the profit gains for the S&P 500 Index. The biggest drag on the index, however, came from drug maker Bristol Myers Squibb Co. (BMY), according to a FactSet report on Friday, after the impact of some acquisitions led to a loss in its most recent quarter.

"If Bristol Myers Squibb were excluded, the blended earnings growth rate for the S&P 500 for Q1 2024 would improve to 8.3% from 5.4%," FactSet Senior Earnings Analyst John Butters said in the report.

This week in earnings

BuzzFeed Inc. (BZFD) reports results this week, as it continues to shrink after layoffs and the sale of Complex in a depressed media-industry backdrop. Results are also due from China e-commerce giant Alibaba Group Holdings (BABA), as it spends more on building out its main businesses and China's economic recovery trudges along. Deere & Co. (DE) and Applied Materials Inc. (AMAT) also report.

The call to put on your calendar

Cisco: Networking-gear giant Cisco Systems Inc. reports quarterly results on Wednesday. The company heads into those results after ups and downs in its share price have shaken out to only a 3.6% gain in its stock price over the past 12 months, amid concerns about slipping orders.

A BofA analyst said Cisco (CSCO) could benefit from AI-related spending, cybersecurity and its acquisition of Splunk. However, as Barron's noted, businesses are still dealing with the spending hangover after the pandemic's boom in digital demand, and Cisco also got hit with a downgrade from JP Morgan, amid expectations for a "sluggish recovery."

The numbers to watch

Boot Barn sales, and the Taylor Swift / Beyonce effect: Taylor Swift's Eras Tour has swamped Ticketmaster and created a noticeable uptick in hotel sales and Lyft rides. Levi Strauss & Co. (LEVI) namechecked Beyonce during its most recent earnings call, after the artist in late March dropped her new, country-tinged album "Cowboy Carter," which featured a track named after the iconic denim brand. There's also a sense, broadly, that both artists have made cowboy boots and other Western wear more popular.

When Boot Barn Inc., a retail chain that sells some of that gear, reports on Tuesday, markets could get a clearer sense of how much.

After "Cowboy Carter's" debut, U.S. sales of western-style boots jumped more than 20% week over week, according to Circana. Shares of Boot Barn (BOOT) ran modestly through last month. However some analysts have expressed concerns about competition.

-Bill Peters

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05-12-24 1001ET

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