Walmart and Home Depot beat earnings estimates, post strong inventories amid supply chain issues

Yahoo Finance’s Julie Hyman and Brian Sozzi discuss earnings for Walmart and Home Depot, as well as the outlook for those retailers as the holiday season approaches.

Video Transcript

JULIE HYMAN: Let's drill down now into some specific companies and what they reported on the retail sales front. Walmart, of course, first up. Those comparable sales, they're up 9.2% excluding fuel, because as we know, fuel prices went up a lot last quarter. 7% was the estimate from analysts. And there are the top and bottom line numbers.

About 45 in earnings, also coming in ahead of estimates. And the company now adjusting its forecast for the full year earnings per share. The range for that now looking at an upper end of that range of $6.40, the upper end had been $6.35. So again here, it looks like these numbers coming in better than estimated.

Also, the company says, in the US, Walmart only comps, excluding gas, will be above 6% for the year, which is also slightly ahead of estimates. Grocery store sales strong.

And something that caught my eye, Brian Sozzi, is the commentary that Doug McMillon had looking ahead to the holiday season. He said, looking ahead, we have the people, the products and the prices to deliver a great holiday season for our customers and members.

What that says to me is he thinks they're going to have in stocks, that they're going to be OK, and that they're going to be able to maintain some level of price, and they're going to have enough staffing. That seems to be the message that he's trying to send there.

BRIAN SOZZI: Well, and they also have turkey, Julie. Just following up for your intro there. $20 turkey on right now, about 16 pounds frozen turkey.

But look, if you're looking at this quarter from Walmart, I think you have to separate it from two different angles here. One is the pure consumer macro story. That was good, to your point. You saw Walmart, their same store of sales better than expected, really coming up at close against another double digit increase in them.

Sam's Club membership fee income up 11%. Another good quarter out of Sam's Club. Many departments in Walmart and Sam's Club same store sales were in excess of mid single digit percentage gains, very good.

But you ask yourself, well, why is the stock down a little bit here in the pre-market? Two things, I would point to. One, I think it was a low quality earnings beat for Walmart. They remain very aggressive in buying back their stock. Billions of dollars they have spent so far this year to buy back their stock, lower their share count, and prop up their earnings.

And then secondarily, why are they doing this? They saw operating margin pressure in international and in Walmart US, Julie, in large part because of inflation. They called out wage inflation. They called out lingering COVID-19 related cost inflation, inflation in their transportation. So the inflation is impacting their business here. And I just don't think the market wants to see that stuff this morning.

JULIE HYMAN: Yeah. It doesn't feel that way, does it? Let's talk Home Depot as well. That company seeming to still benefit from what's going on in terms of the renovation wave, if you will. Comps there up 6.1%, well above estimates there. And so it's really interesting here, because it felt like this trend was sort of waxing and waning. But that doesn't seem, indeed, to be happening.

Here, it also has to do with higher prices and higher ticket. I'm seeing customer transactions were down 5 and 1/2 percent, but average ticket size rose to $82.38.

BRIAN SOZZI: Yeah, good comeback quarter, I would say, for Home Depot. They had a little bit of challenges in the first and second quarter, I think, with their results and their messaging to the street. But some notes I've seen trickle in so far after this quarter are giving Home Depot high marks for better than expected same store sales and much better than expected earnings here.

And really is a tough and challenging quarter. We've talked to a lot of suppliers, Julie. Look at Stanley Black & Decker. We talked to that CEO, Jim Loree. A lot of inflation in the suppliers that sell at Home Depot. So for them to come out here and still beat on earnings and put up this type of same store sales increase, very important.

And then a side story. You know, you briefly mentioned in stock, Julie, and inventory levels. Inventory up 27% year over year for Home Depot, up about 11% year over year for Walmart. These are two retailers that have understood and been very out in front, I would say, of the supply chain bottlenecks. You may not see empty shelves at both of these retailers this holiday season because of their efforts to bring inventory in early and make sure they have stuff for people to buy.

JULIE HYMAN: And one thing to mention is the backdrop here, as we continue to see housing prices go higher, if people are going to be fixing up their homes to potentially get drawn into that housing market and put their places up for sale, that's something that could continue to fuel these numbers at the likes of a Home Depot.

As we take a look at the ensemble of retail as well, we had those retail sales this morning. We have Walmart and Home Depot. We're going to hear from Target as well this week. Target closing at a record high yesterday. Costco closing at a record high yesterday. So we've been seeing some generalized strength in consumer discretionary.

BRIAN SOZZI: Yeah. I think the message is very clear. And I will agree with you, Julie, the message right now is that the consumer is going to come out gangbusters this holiday season after many respects not having a holiday season last year.

The savings rate is close to 10%. They have the financial firepower to go out there and spend. And it's something I'm seeing, anecdotally, getting back out there in the malls. I went this past weekend to my local mall. It was packed. It was jam packed on Saturday and Sunday. People shopping many different stores, many different departments inside of the malls. It was actually pretty fascinating to watch.