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Executives are less worried about inflation. Walmart and Target earnings could disagree

When Walmart Inc. and Target Corp. report quarterly results, analysts expect to see evidence of consumer needs massively eclipsing consumer wants, even as signs emerge that corporate America is growing less worried about inflation.

The results from Walmart

and Target

in the coming week — along with Home Depot Inc.
bargain retailer TJX Cos.

and Foot Locker Inc.

— follow a surge in food prices last year that gobbled up more consumer spending power, leaving clothing and consumer electronics unsold. Analyst sentiment heading into the results largely cleaves according what stores sell more of the basics — namely groceries, where retailers have pushed price increases to buoy sales.

“Overall, we generally expect a difficult start to the year, mainly driven by ongoing headwinds in discretionary categories partially offsetting continued robust momentum in grocery,” retail-store analysts at Oppenheimer said in a research note on Wednesday.

Target, which reports results Wednesday, has more exposure to the former, Walmart, which reports Thursday, sells more of the latter.

Opinion: Rate hikes haven’t brought inflation down to the Fed’s 2% target. Here’s what the central bank could do next.

The Oppenheimer analysts said that Walmart was still cutting prices on offerings like clothing and TVs, but said grocery demand and market-share gains for the big-box chain would likely help its results. For Target, they said “sluggish” sales were likely for the quarter, as weaker demand for home goods, apparel and consumer electronics work as a counterweight against a better showing in its store’s food, beverage and beauty aisles.

For home-improvement chain Home Depot, which reports on Tuesday, Oppenheimer analysts, in a separate note, said that new home sales in March were improving, and said that wetter, colder weather that month could propel extended demand for gardening supplies. However, they said lower lumber prices could be a drag on same-store sales.

Still, JPMorgan analysts have said that “the forest looks darker” for consumer spending. And data from, a foot-traffic analytics firm, shows that for the first four months of this year, consumer visits to Walmart, Costco and BJ’s Wholesale Club were largely down from last year.

Target, at least through January and February, was the outlier to that trend, before visits slipped into negative territory. The firm said seasonal trends — namely, a drop-off from the holiday-season surge — and more conservative consumer budgeting could be partly responsible for the slump. But they also said that consumers’ visits to those stores were getting longer.

“The increase in median dwell time indicates that — although consumers may be visiting these chains less frequently — they seem to be doing more with each visit by filling larger carts and drawing out the time between each visit to save on gas costs,” said.

Food prices are still rising, and were up 7.7% last month. However, D.A. Davidson analysts said that while the rate at which prices was moderating, prices were still “stickier than many would have expected,” given the Federal Reserve’s efforts to raise interest rates and orchestrate a slowdown in the labor market, where employers have raised wages in an effort to attract talent, and then raised prices to offset those costs. More recently, economists and Fed policy makers have also pointed to corporate America’s efforts to guard profit margins — through price increases and cost cuts — as a key driver of inflation.

See also: Why the latest inflation report could spell trouble for stocks

Still, other evidence has emerged that executives, in quarterly earnings calls, aren’t as concerned about inflation, as price increases overall begin to slow — the most recent consumer-price index showed year-over-year consumer inflation dipping lower than 5% for the first time in two years in April. A FactSet analysis found that so far this earnings season, fewer S&P 500

companies than usual had remarked on the subject during earnings calls.

FactSet Senior Earnings Analyst John Butters, in a report on Friday, said that from March 15 through May 11, 278 companies that held earnings calls mentioned the word “inflation.” That’s down from prior quarters.

This week in earnings

Thirteen S&P 500 companies and three of the 30 Dow Jones Industrial Average

components are set to report quarterly results during the week.

There are also many outside the major indexes, including from overseas. As China moves on from COVID-19 restrictions, investors will get a clearer look at online activity and shopping trends in the nation when search-engine giant Baidu Inc.

and e-commerce platform Alibaba Group Holding Ltd.

report. And when Rumble Inc.

last reported, the right-leaning social platform happened to do so right before a Manhattan grand jury voted to indict Donald Trump. The results and the indictment launched the stock higher, and executives could offer a sense into whether the indictment turned into any more actual engagement.

Jack in the Box Inc.

and Deere & Co.

also report.

The call to put on your calendar

Take Two’s second take: Videogame publisher Take-Two Interactive Software.

— the RockStar Games owner that is behind “Grand Theft Auto” and “Red Dead Redemption” — reports quarterly results on Wednesday. Those results will arrive after disappointing holiday results for the industry. The company in February said it planned to cut costs and personnel and said it had miscalculated on its earlier expectations for the year, with Chief Executive Strauss Zelnick telling analysts “we’re operating in an environment that is in many ways more challenging than we anticipated.”

For more: Wall Street wants to know when ‘GTA VI’ is going to drop, too.

But as the company recalibrates, Stifel analysts said they expected the disappointment to continue, thanks in part to underwhelming reception to new launches like “WWE 2K23” and “Kerbal Space Program 2.” The results will hit markets after rival Electronic Arts Inc.

got a lift from investors following its earnings last week.

The numbers to watch

Chip supply, tech demand, sales figures: IT network provider Cisco Systems Inc.

reports results on Wednesday, while Applied Materials Inc.
which sells manufacturing equipment to manufacturers of semiconductors, reports Thursday. With businesses looking to cut tech costs and otherwise tighten their belts, the results will help quantify the state of the tech industry’s rebound from the pandemic boom, as AI becomes the must-say phrase on earnings calls.

This story originally appeared on Marketwatch

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