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Big Earnings News Recap:

This week, there were significant earnings reports that you might have missed. Walmart had an impressive quarter, while Target and Home Depot faced challenges due to weak consumer demand. Alibaba’s earnings had mixed results.

Walmart’s Success:

Walmart had a remarkable quarter in Q1. Despite inflationary pressures, they exceeded expectations with sales of $152.3 billion, which was 7.6% higher than the previous year. This success was driven by their strong performance in e-commerce and increased demand for groceries. In the United States, Walmart’s key operations saw sales rise to $103.9 billion, fueled in part by a 27% surge in e-commerce sales, particularly in advertising and pickup/delivery services. They also experienced growth in grocery sales, including among higher-income households. However, Walmart faces the challenge of keeping prices low as inflation threatens to raise input costs.

Home Depot’s Challenges:

On the other hand, Home Depot faced difficulties in the first quarter. They fell short of Wall Street expectations as consumers were cautious about non-essential spending due to concerns about the cost of living. Home Depot earned $3.82 per share, missing the estimated $3.87. Furthermore, they revised their full-year earnings projection, expecting a decline of 7% to 13%, higher than their previous forecast of a mid-single-digit decline. They also anticipate a shrinkage of 2% to 5% in full-year sales and comparable sales, compared to their previous estimate of flat sales. Home Depot’s Chief Financial Officer attributed these disappointing results to factors such as lower sales caused by falling lumber prices, unfavorable weather conditions, and uncertain consumer demand.

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Analysts’ Reactions:

Analysts were not surprised by Home Depot’s results, as the quarter was challenging for many retailers, especially those with outdoor exposure. Some analysts downgraded Home Depot’s stock due to near-term difficulties. Bernstein, while maintaining a “Market Perform” rating, expressed concerns about management not considering the impact of falling lumber prices and weaker-than-expected consumer demand. They also suggested that the recent decline in Home Depot’s shares might present a short-term opportunity for other companies like Lowe’s and Floor & Decor Holdings.

Market Impact:

Following the earnings reports, Walmart’s shares rose by 2% to approximately $152 in early Thursday trading. In contrast, Home Depot’s shares initially declined by more than 2% on Tuesday but recovered in the next session.

Target Faces Challenges in Consumer Environment:

Target, another major retailer, reported its earnings on Wednesday. They exceeded the Street estimate by earning $2.05 per share in Q1, with revenue in line at $25.32 billion. However, comparable store sales remained flat, falling short of the expected 0.2% increase compared to the previous year. Goldman Sachs noted improvements in Target’s inventory position, as inventory decreased by 16% year-over-year, primarily driven by a reduction in discretionary merchandise categories. Stifel described Target’s numbers as “solid” given the current environment of restrained discretionary spending. 

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For the current quarter, Target expects earnings per share to be in the range of $1.30 to $1.70, reflecting softening sales trends observed in the first quarter. This is lower than the analysts’ estimate of $1.93. Additionally, Target projects full-year earnings to be $8.25 per share, below the Street estimate of $8.44. Chief Growth Officer Christina Hennington attributed these projections to the pressure on consumers, citing consistent inflation, dwindling savings, and general economic uncertainty as factors influencing consumer choices and tradeoffs.

Following the earnings report, Target’s shares rose by 2.6% during Wednesday’s trading session, although profit-taking affected the stock early on Thursday.

Alibaba’s Mixed Earnings Result in Stock Decline:

Alibaba, the Chinese tech giant, experienced a decline of more than 4% in early Thursday trading after missing Q1 revenue expectations, despite beating earnings estimates. In the quarter, Alibaba reported earnings per share (EPS) of RMB 10.71, surpassing the analyst estimate of RMB 9.46. However, their revenue of RMB 208.2 billion rose by only 2% year-over-year, falling short of the consensus estimate of RMB 209.02 billion.

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Alibaba’s gross merchandise value of online physical goods on its Taobao and Tmall platforms, excluding unpaid orders, decreased in the mid-single digits. Direct sales and other revenue also declined by 1% from the previous year, primarily due to decreased offline store sales affected by COVID-19 disruptions in January and seasonal volatility. Normalizing grocery demand following the decrease in consumer hoarding behavior post-COVID-19 also contributed to the decline.

In addition, Alibaba announced its approval for a full spin-off of the Cloud Intelligence Group, intending to establish it as an independent publicly listed company. The company aims to complete the spin-off within the next 12 months in a tax-efficient manner for its shareholders.

Alibaba’s shares were trading at around $86 in recent transactions.

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