Recent bullish behavior in the market has been largely, and correctly, attributed to the Big Tech giants such as Apple and Amazon. However, as the S&P 500 hits all-time highs this week, completely eradicating its coronavirus-driven losses, another sector stands to share some of the credit:
Isn’t retail dying?
You may have heard about the dreaded ‘retail apocalypse’ which describes the closing of numerous brick-and-mortar stores. In 2019 alone 9,302 U.S. retail stores closed, a jump of 59% year-on-year (YoY). Now, thanks to the coronavirus, this trend will likely continue in 2020.
However, the same cannot be said of the discount superstores such as Walmart (NYSE: WMT), Target, and Home Depot (NYSE: HD). Walmart and Home Depot’s knockout Q2 earnings reports outlined an upward trend during this global pandemic.
Walmart’s Q2 earnings
The world’s largest company by revenue posted its biggest earnings surprise in more than 30 years, fueled largely by consumers rushing to spend stimulus checks last quarter. While Q1 saw a rise in shoppers panic-buying when the coronavirus first took hold, e-commerce played a huge role in Walmart’s earnings beat last quarter as it soared 97%.
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Same-store sales jumped 9.3% for the second quarter, while earnings per share (EPS) came in at $1.56 adjusted versus $1.25 expected on revenue of $137.74 billion versus $135.48 billion expected. Walmart also reported that net income rose to $6.48 billion, or $2.27 per share, from $3.61 billion, or $1.26 per share, a year earlier.
Interestingly, Walmart declined to offer guidance for the full year, stating that there was a notable slowdown in spending as soon as stimulus checks ran out. The company also declined to provide a date on when it would launch its Amazon Prime competitor, Walmart+, though it did say that it will be moving forward soon.
Due to this uncertainty, shares dipped marginally on Tuesday following the report, though Walmart’s share price remains up 13% year-to-date (YTD).
Home Depot’s Q2 earnings
Home Depot (HD) followed in rival Walmart’s footsteps in Q2 to post blowout earnings, yet shares still fell 1.1% on Tuesday due to the company’s increased spending.
Home Depot’s profit surged 25% to $4.33 billion, or $4.02 per share in Q2, versus $3.71 on revenue $34.53 billion expected. Like Walmart, stimulus checks did cause a surge in consumer spending as same-store sales jumped a whopping 25% with the average customer purchase also rising by 10.1%.
However, it wasn’t all sunshine and rainbows as pandemic-related costs also saw expenditure rise substantially, including $480 million of additional compensation for its employees. Home Depot shares have weathered the pandemic well, rising 31% YTD as lockdown measures caused a rise in at-home projects.
The power of e-commerce
With so much uncertainty surrounding COVID-19, one thing in business is certain: E-commerce is king!
The retail stores that are thriving right now have all invested heavily in their online marketplace as customers are less willing to go to brick-and-mortar stores, while online shopping is as easy as clicking a button. This pivot by consumers is highlighted perfectly in the tweet below:
E-Commerce Retail Sales were up over 44% year-over-year in the 2nd quarter, the highest growth rate since 2000. pic.twitter.com/4Nec3EDIEK— Charlie Bilello (@charliebilello) August 18, 2020
It will be interesting to see how Target performs later today when it reports its Q2 earnings. Investors should look at same-store sales increase, COVID-related expenditure, and e-commerce sales.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.