By Senad Karaahmetovic
Evercore ISI analyst Greg Melich said he and his colleagues were “swamped” with questions this week after Walmart (NYSE:WMT), Target (NYSE:TGT), Home Depot (NYSE:HD), and Lowe’s (NYSE:LOW) reported earnings below market expectations.
Investor questions were mostly focused on the state of the consumer, why retailers missed, which categories are most likely to hold up, etc.
Melich said that consumers are still ok and reminded investors that April retail sales grew 6%. On the margins, he sees two reasons why they fell.
“[First] $ sales are down yoy in many Gen merch areas as we cycle peak stimulus, with HSD unit declines. But unit inventories are up low-teens yoy in General Merchandise, Home Furnishings, Electronics, and some other more narrow products. So harder to pass through price, or markdowns start to clear inventory. [Secondly] Inflation is pressuring costs across the P&L, but particularly in freight. Incrementally $6 diesel cost and supply chain investments (see eComm survey for more),” the analyst said in a client note.
When it comes to categories that may perform the best in the current environment, the analyst lists categories with high pricing power and non-perishable products with some Pro or services linkage.
Target shares are down 30% this week while the Walmart stock price is at a 2-year low.