Esperio: Hypermarkets Battle for Sales and Investors Are at the Zenith

As nearly 95% of the S&P 500 companies have delivered their Q2 2022 financial reports, this week is clearly marked by the reports of large hypermarket chains. The heroes of the coronavirus period, like Walmart and The Home Depot, consider themselves as being the best companies in the market and this has a kind of truth to it if we look at their recent reports, which showed they are ahead of most others in terms of profit. Although investors did take this into consideration, the market's attitude towards them was quite different due to some details in each of the reports.

Walmart’s share prices led by more than 6% to $140.88 and this is pretty much a repetition of roughly the same record value of almost $152.9 billion which was previously performed in the company's all-time best Q4 2021. This is not the only detail that stands out in the report. Walmart’s EPS almost duplicated another one of its records of $1.78 per share. This time, the profit fell short by one cent only but at the same time, it exceeded preliminary consensus estimates by 14 cents. The volume of sales at U.S. stores jumped by 6.5%, while the total number of sales was $11.3 billion higher compared to Q1.

Such a phenomenal result was achieved due to discount clearings and some lower fuel prices over the last two months. Decline in consumer spending was compensated for by significant discounts on apparel, appliances, and electronics which helped to boost sales to more than $61 billion of inventories reportedly accumulated by Walmart before the end of the first quarter. Despite Walmart's CEO John David Rainey mentioning that current inventories amount to nearly $60 billion, which is still 25% higher than in the same season of 2021, he assured the market that "it's going to take another quarter, maybe get into the fourth quarter a little bit, to get back to where we want to be from an overall inventory perspective".

Nevertheless, the negative side starts here as Walmart corrected the expected decline of "adjusted earnings" in the next fiscal year of 2023 which may fall by 9-11% instead of 11-13% according to its previous forward guidance message broadcasted about a month ago. With this understanding, Walmart's stock prices slowed down and lost some of it previous gains. It is very likely that most funds and private investors could be more cautious regarding new purchases, so they may prefer to track the dynamics of Walmart stocks for at least the next two or three days before any further decisive action is taken.

The Home Depot showed its all-time records in both sales of $43.79 billion and earnings per share of $5.05, almost a whole dollar above its Q1 result. Although its shares slid by 0.5% after trading hours, during regular trading hours investors decided to lift the price by 4.06%. Such an unorthodox market reaction happened because the famous home improvement retail corporation mentioned that it is still ready to maintain the overall financial outlook for the whole fiscal year of 2022, which means that gains equal to the current ones or slightly lowered gains may be made in the second half of the year.

Esperio analysts believe a moderately positive attitude may persist for both Walmart and The Home Depot after Walmart's minor competitor Target Corp dropped by more than 2.5% after reporting a nearly 82% fall in its Q2 earnings compared to sad Q1 results, while Lowe's home improvement network grew by 1.3% but only after warning the market about a proposed hit to its annual sales with a surprise drop in comparable sales. Yet, Lowe's expects its equity per share profit could be at the top-end of its self-forecasted range of $13.10 to $13.60, due to "tighter cost control" as well as steady demand from professional builders.

Alex Boltyan, senior analyst of Esperio company.