Some Americans are Making 'Choices Between Necessities,' Retailers Warn

Dow Jones
08/21

Retail earnings this week so far paint a mixed picture-both about how U.S. consumers are fairing and how large retailers are navigating those waters.

Target and Walmart, mainstream retailers that sell a range of goods including groceries, both reported higher sales, but flagged that shoppers continue to be cautious, in part because of higher gas prices.

Target said comparable sales rose 3.8% in the most recent quarter, its second quarter of solid growth after enduring a yearslong string of weak quarterly sales results. Walmart said its sales rose 2.6% in the most recent quarter, its weakest showing in more than six years. It didn't point to a major pull back in shopper spending for a slow down, but to new pharmacy-pricing regulations that ate into revenue for that business.

Still, Walmart sees lower-income shoppers spending cautiously, and it is lowering prices to appeal to more cautious customers, executives said. "It appears there were choices between necessities within the quarter because of where gas prices are," said Walmart Chief Financial Officer John David Rainey.

Home-improvement retailer Home Depot said shoppers were buying for smaller home projects and buying pricy one-time purchases such as dishwashers when needed. But they are holding back on big home renovations, and the stagnant housing market has damped sales, executives said. "We remain focused on what we can control," said Home Depot CFO Richard McPhail.

Meanwhile competitor Lowe's reported weaker growth, with comparable sales up just 0.2%, and executives pointed to weakness in consumer spending as one reason. Overall, consumers are healthy, but they "are just being cautious with their discretionary spend," Chief Executive Marvin Ellison said earlier this week.

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