What to expect from retail earnings this week

Joe Feldman, senior managing director of Telsey Advisory Group, joined Yahoo Finance Live to discuss what he expects from retail earnings this week.

Video transcript

– And I wanted to jump right into Walmart. We know it’s a powerhouse. But some of us may not be aware of what we’re doing – as you pointed out in the note – with advertising, merchant services, healthcare, and digital payments. We just got, you know, the credit card. It seemed to me very, you know, 20th century that Walgreens made a credit card. Tell us about Walmart.

JOE FELDMAN: Yes. So Walmart is doing the same things Amazon is trying to do, efficiently. They are almost mirror images of each other. And Walmart has a huge amount of data, huge customer traffic in their stores. Well, they’re starting to look for ways to monetize some of that.

Advertising is one way. They can help consumer products companies find better ways to market their products in-store to the customer, also online. They have a market very similar to the Amazon market that they have. A lot of the money Amazon is making and a lot of its sales are really owed to the third party vendors that they have in the market. And so, again, this is something that Walmart does.

So Walmart has become very savvy, a very forward-thinking company, and they’re really innovative, I think, in the way they look at their business trying to create a whole ecosystem the same way Amazon tried to do it. . do for their consumer.

– It’s Emilie. I’m wondering with Home Depot, of course the other big retailers that are releasing their results tomorrow morning, what are your expectations out there, especially when it comes to overall trends, what advice they can actually give, given a little downturn have you seen in the housing market as we move through 2021?

JOE FELDMAN: Yes. So Home Depot, and Lowe’s for that matter, it’s pretty interesting. I think the second quarter will be fine. I think we saw some really good trends for home improvement in the second quarter.

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That being said, there has been a deceleration and each month has been a little slower than the month before. And I think that’s where we could see in the second half, as things unfold, people have been spending a lot on home improvement supplies. And I think that might become a bigger issue as you go along. Additionally, supply chain constraints will likely continue to impact gross margin.

So while the quarter should be good they should post some good numbers, hope I am wrong. I hope home improvement spending holds up better than I think right now. But the second half, we could see a continued slowdown in this trend.

– I also want to point out that when we take a look at Lowe’s on Wednesday, you maintained the same price target. But for Target, you increased the target price from $ 265 per share to $ 305 per share. So let’s take a look at Target. What do you think they are doing well and will they confirm it on Wednesday?

JOE FELDMAN: So Target has done a lot of good this year and the last couple of years, really. I mean, I think they really reinvented themselves by rethinking their entire merchandising strategy. They really focused on better quality products, differentiated products. These are mostly private label products at this point apart from the grocery store where there are a lot of CPG companies’ consumables and staples.

But on the clothing and home side, they did a really good job. It is attracted traffic. It attracts customers, especially as the economy has reopened. Now I know the Delta variant is having an impact there. But thanks to this reopening, we’ve seen people turn to more clothing, while still spending on furnishings. Target is right in that wheelhouse.

And now, with the start of the school year, I think Target and Walmart are on course to do very well during this time, especially with the child tax credit which is given to families once a month. And schools are starting, like it or not. And I think there will continue to be expenses there.

– You mentioned the Delta variant. And what do you think of this potential risk for the American consumer? Because we got the University of Michigan consumer surveys and this overall index to its lowest level in 10 years last week. And I’m wondering, where do you think consumer spending could go from here if there are these concerns?

JOE FELDMAN: Yes. We’re worried that the slowdown might happen a bit again because of the Delta variant now and its impact on people going to stores, restaurants.

The good news is the consumer has the money. Their record is much better than it was before COVID in many ways. Better-off people certainly do a lot better. But even those at the bottom of the income scale, they received a lot of support from the government. And so I think that while you could potentially see a slight slowdown in traffic to stores and restaurants, spending on goods is going to remain high.

We still hope the back to school and holiday season will be pretty strong overall. I think vacations should always be good. People want to feel good. This COVID has really weighed on us for so long that I think people want to spend, and will continue to spend.

– I think the estimates are that going back to school will cost around $ 38 billion. I want to ask you a generic question about general retail and brick and mortar retail, based on my bad observations. I was inside Macy’s here in New York City yesterday. We need new leaves. And it was crowded … a lot of people.

Is the death of the brick and mortar retail business overestimated? Because before the pandemic what we heard people say is that real estate is over. But we have seen this real estate number contract. Are we now at a point of equilibrium?

JOE FELDMAN: We are in a much better position than before. I think better real estate definitely makes people go to the stores. We believe the physical is here to stay. It’s not going away. And if you think, for so many old-fashioned retailers, like a Macy’s, a lot of their business now, even though it’s done online, it’s actually picked up at the store, or it’s accomplished by the store.

Target is like the poster child for it. They do a great job with the completion of the store. Like 95% of all their sales hit a store in one way or another. So we believe a lot in physical retail. I think it’s a healthier industry than it was a few years ago. There is still physical dead space out there that needs to be cleaned up and gone. But for the most part, we’re on a better path than we had before COVID.

– What do you think of some of the labor shortages we’ve heard about in the service sector, as well as for many of these retailers? Do you think we will have passed this peak of mismatch between supply and demand on the labor front in the second quarter?

JOE FELDMAN: I hope so, but I am worried. I mean, when we talk to retailers and suppliers, restaurant companies, they really have a hard time finding and retaining a workforce. And then I’ve heard some people over the last few days telling me that even if you find people for the job, bringing them in is part of the problem.

So there’s that concern right now about what’s going on from a labor perspective. Every retailer we talk to, every manufacturer we talk to tells us that there is wage pressure. And the workforce pressure is there – I think it’s going to be there for many years to stay. We’re just going to see this pressure continue every year that it’s just a part of doing business that you’re going to have to deal with as a retailer.

But it’s definitely impacting margins right now. And it was difficult to provide proper service. In fact, just a personal anecdote. I was in a restaurant the other day and had to wait 15 minutes to get a table, even though there were about 60% of the tables available in the restaurant, simply because they didn’t have enough of waiters to service for me to sit down.