A majority of American retailers reported earnings this week. Retailers sent out mixed signals, with some beating Wall Street expectations handsomely while a few failed miserably. Undoubtedly, the stock prices of most of these companies had already priced in a weak earnings season.
Retailers have been struggling with the issue of excessive inventory since the March quarter. A few even warned that they would undertake mass write-downs, especially on discretionary items, as consumers shifted preferences to daily necessities amid the inflationary environment.
We analyzed data about select retail companies since April 1, 2022, and here’s what we found. Let’s look at what analyst ratings and insider trading indicate about the Retailer’s earnings season.
1) Analysts Mostly Maintained their Ratings for Retailers
TipRanks data shows that a vast majority of analysts retained their previous ratings for retail companies barring one. Lowe’s Companies (LOW) was the only stock to be downgraded by analysts.
Home improvement retailer Lowe’s reported mixed Q2FY22 results, beating earnings but missing revenue expectations. Ahead of Lowe’s results, several analysts downgraded the stock and also slashed their price targets. Nonetheless, seeing the earnings beat and FY22 guidance maintained, Robert W. Baird analyst Peter Benedict lifted the price target on Lowe’s to $235 (9.1% upside potential) from $225 and maintained a Buy rating.
On the contrary, another home improvement retailer, Home Depot (HD) surprisingly beat its Q2FY22 expectations with solid margins and reaffirmed its outlook for the rest of the year. Most of the analysts on TipRanks reiterated Buy ratings on HD stock following its earnings beat, while one analysts maintained a Hold.
Similarly, everyday low-price retailer Walmart (WMT) proved its resilience even in the worst macroeconomic backdrop. Walmart’s Q2FY23 results beat estimates on both top and bottom lines by huge margins. This was followed by a slew of upward price target revisions by already bullish analysts.
General merchandise retailer Target Corporation (TGT) failed to meet analyst expectations in its Q2FY22 results. Way ahead of its results, Target had already warned investors about the huge inventory pile-up, which would require mass discounts to clear up. And notably, its results were nothing to boast about. Analysts have been mixed on Target’s stock trajectory with a mix of price upgrades and downgrades during the quarter.
Another multi-price point chain of discount variety stores, Dollar Tree (DLTR) is scheduled to report second-quarter Fiscal 2022 results on August 25. The consensus for earnings is pegged at $1.59 per share. In the past, DLTR has been able to consistently beat earnings expectations. Per TipRanks data, 75% of ratings for Dollar Tree came with a higher price target.
2) How are Insiders Viewing the Retailers?
It is interesting to see how corporate insiders behave during the earnings season. Insiders generally have a fair knowledge of the actual happenings at a company which an average Joe does not. This makes them take positions on the stocks, which can be considered a good measure to gauge a company’s health.
Albertsons is an American food and drug retailer. ACI’s Q1FY22 results beat both earnings and revenue estimates. Despite that, TipRanks’ Insider Trading Activity shows that the Insider Signal is currently Very Negative on Albertsons. Per TipRanks’ data, a majority of insider transactions for Albertsons Companies (ACI) have been “Sell” calls. In fact, Corporate insiders have sold $17.3 million worth of ACI stock in the last quarter. Most recently, the company’s EVP & COO Susan Morris sold $14,391,862 worth of ACI stock.
Membership-only big box retailer, Costco Wholesale Corporation (COST) also has seen most of its insiders sell their stock during the quarter. TipRanks’ Insider Trading Activity shows that Insider Signal is currently Negative on Costco, with corporate insiders selling $2.2 million worth of COST stock in the last quarter.
Notably, Costco is scheduled to report its Q4FY22 results on September 22. The consensus for earnings is pegged at $4.14 per share. Despite the inflationary setup, analysts remain bullish on COST stock, and some have even raised the price target on the stock recently.
Key Takeaways
The retail industry is facing a tough time, with record high inflation and looming recessionary fears. While consumer preferences are shifting, retailers are managing their inventories by offering discounts and cutting down on orders. If the latest inflation figure is any indication, the current undesirable scenario will soon be behind us and retailers will be able to recoup some of their past losses. Meanwhile, analysts and insiders have remained fairly positive about the retail industry.
