Christine Short, VP of Research at Wall Street Horizon, joined Closing Bell to discuss the big week for the markets, as retail earnings and sales data are poised to impact major averages.

Closing Bell

Retail Sector in Focus Ahead of Walmart, Target Earnings

Welcome back to cheddar news is closing bell, everyone christian schiller down here on the floor of the stock exchange and it is a big week on Wall Street retail giants said to report their second quarter results were at the end of the second quarter reporting season. And we'll hear from big box retailers like walmart Target, Lowe's Home Depot, T. J. X. And more throughout the week. And of course it could be market moving reports. So all of this, coming just weeks after walmart and Target slash their profit forecasts, citing shifting shopping patterns and excess inventory in the wake of red hot inflation. And joining me now, is earnings expert, Christine short VP of research at Wall Street Horizon. Christine, it's great to see you, what are you expecting from the retailers this week? Yeah, you're right. This is gonna be a big week, not just from retail earnings, we also get retail sales on Wednesday, so we can finally start to understand what's going on with the consumer. As you know, there's been this big disconnect for most of the year between consumer sentiment and retail sales sentiments been pretty low, but retail sales have remained robust. So this week, um, like you said, looking at big box retailers walmart target. Um, those are the ones we said going into this supply chain disruptions, you know, they're very sophisticated, they know how to manage inventory. Um, and it looks like they over managed a little bit, you pointed out they have excess inventory and both of those companies admitted they didn't expect the mix in inventory or consumer demand to change as quickly as it did specifically for big ticket items. So they have an excess, it seems of home items, appliances think TVs, outdoor furniture, things like that are going to weigh on their bottom line, going into these reports. How crucial are these reports for the state of the overall economy Christine? Because I remember when, when walmart came out with its first profit warning earnings warning back in May, we had seen actually the stock market, you know, in the week or two after that, hit a new low at that point for the year. We had since pulled back even further in june, but it would seem like these results actually do matter quite a bit to Wall Street. Yeah, you would think since they both warned, since Walmart and Target particular warned that those numbers should be baked in, right? We've had a lot of time to digest. Um, and right now targets expecting to post a year over year decline of 79%. That's almost unheard of Walmart's looking a little better at a decline of 9%. Um, so we Tennessee companies be, you know, they do provide very conservative guidance and then maybe you see a pop in the stock, right? But overall, like you said, for the overall environment, just to understand where the consumer is at is important. These results are going to be closely watched along alongside retail sales. Right? And making sense where the consumer stands. Um, on friday, we heard the consumers not feeling as bad as they did perhaps back in june and july, the prelim numbers for august came in a little bit better off their lows, whereas retail sales are expected to come in a low in a little lower. So we're like I said, I'm going to see these two numbers finally, you know, come in line with each other. Um the National Retail Federation, they did their back to school survey. People are still spending right, They're still spending on what's considered essential. So back to school items, they expect to spend a little more than they did last year. However, these are considered necessities, right? And so consumers are willing to make sacrifices in other areas. And they said in their survey, most us consumers are going to stop spending maybe in other areas like apparel so that they can spend on more necessary items for back to school, there may be taking on another job. So we're starting to see inflation, although it's eased up, we're starting to see that impact consumer decisions, what's going to take away Christine so far this earnings season. I know when you joined me a few weeks ago, it sounded like companies were still by and large expected to be profitable in the second quarter. Fast forward to today. Is that where things still stand. Yeah, look, overall growth for S and P 500 earnings is about 6.7% at this point and we've got, you know about 90% of companies reporting. So it was a great season. Not as good as we saw post pandemic where we saw some really record level earnings numbers for for some of those big companies in the S. And P. 500. All in all great season. We're starting to see estimates going forward um falling back a little. So the second half I'd expect to be a little lighter in 2023 even a little lighter than that. So calendar year 2023 I'd expect to see very low single digit growth year over year but all in all Q. Two. Not as bad. A lot of that's been shifted out to the second half in 2023. So are you gauging? And of course this week we'll find out Christine but the consumers are still spending their just spending on different items. That's absolutely correct. We have a value focused consumer. I think if anyone watching that barclays note this morning on parse mark despite the fact that posh mark, that's the secondary um online site, secondary apparel and accessories didn't do so well. Last week however they were upgraded by barclays today because consumers are are trending downwards and they're they're flipping how they're spending so they want value, they're looking at second hand, they're looking at, we talked about T. J. Maxx. And Ross stores. So the bargain names they're not not spending, it's just they're shifting what they're spending on. So if they're gonna buy apparel, they're gonna want to value their um, they're still going to look at the discounters for back to school. So there's still a lot of spending. You We spoke about home sales earlier, so home costs have gone down. That's going to impact home depot and lowe's, which did remarkably well in the last two years when home prices are high, people think that they should invest in their homes, right? It's it's a worthy investment. However, I'd expect those to retailers to get hit in Q. two and the rest of of 2022 as home prices trend lower. I know you also follow Christina, your firm there as the VP of research uncertainty from major corporations, notably in terms of those corporations delaying their earnings results as a sign perhaps that there is some uncertainty about the outlook ahead. What does that indicator tell you about how corporate America is feeling right now versus even three months ago. Yeah, we have an index called the larry. It's a late earnings report index. And like you said, it tracks out wire earning states. So companies that report confirming earning states that are either earlier or later than they tend to report in to us when you see a company pushing their earning state later than they have historically have reported. That signals that signals uncertain academic research shows the later on earning state is pushed versus its historical reporting time. That tends to follow bad news on their earnings call. And we did see, um, not a record level. Certainly not the levels we saw during covid lockdowns in 2020 but it was the highest reading we've seen since that time. So 2021 was really good. More companies reporting earlier. Earlier reports tend to correlate with good news. But as we went through Q two earnings season and as we're going ahead next earning season, we are seeing a little more uncertainty creep in for these retailers specifically. And for companies overall, that just aren't quite sure what the lay of the land is going to be the rest of this year or next year. All right. Christine short VP of research at Wall Street Horizon Kristina. Always good to get your take. Thanks so much for joining in a busy week.