Walmart and Home Depot warn that the US retail industry will face a difficult year

It is learned that on February 21, Walmart and Home Depot, two major US retail giants, simultaneously released their fourth-quarter financial reports. At the earnings conference, both retailers provided performance guidance for the coming year that was lower than expected, and warned that the US consumer outlook was full of uncertainty.

As the two largest retailers in the United States, Walmart and Home Depot represent the vane of the U.S. consumer market to a certain extent. Walmart serves approximately 240 million customers in its 10,500 stores worldwide, while Home Depot reported more than 1.6 billion transactions in 2022.

Walmart's earnings guidance for fiscal 2023 on its earnings call was below consensus expectations. Meanwhile, Home Depot expects earnings to fall by a mid-single-digit percentage in fiscal 2023 and assumes sales growth will be roughly the same as last year.

“Between inflation, rising interest rates, layoffs and other uncertainties, consumers are under considerable pressure, and it is difficult to accurately predict these fluctuations and macroeconomic conditions and their impact on consumer behavior at this time,” said John Rainey, Walmart’s chief financial officer.

Home Depot Chief Financial Officer Richard McPhail said that inflation is affecting customer decisions, price sensitivity is increasing, and we assume that real economic growth and consumer spending will be flat in 2023. McPhail also highlighted the continued shift in U.S. consumer spending from goods to services over the past seven quarters.

At Walmart, consumers are buying more essentials, such as groceries and light bulbs, rather than big-ticket items or discretionary items like electronics and home decor. At Home Depot, consumers may hold off on buying big-ticket items like appliances, opting instead for cheaper supplies for home maintenance and renovation projects.

If conditions worsen throughout the year, retail categories other than essential businesses like food and household items may not fare as well. Consumers often turn to Walmart to save money during tough times, and 90% of Home Depot's customers own their homes, which could translate into relatively healthy sales for both companies.

But Home Depot said it expects this year to be a slower year for home improvement tools as demand for its renovation products, such as soft flooring and roofing, slowed even as builders and contractors continued to buy big-ticket items such as plumbing and fittings.

Indeed, the U.S. economy has been sending a series of mixed signals over the past few months. For example, while layoffs have increased, spending remains strong, with retail sales surging 3% in January, nearly double what economists had forecast. However, inflation remains high, savings are starting to dwindle, and credit card debt is on the rise.

At the same time, a tight labor market in the United States has boosted wages for workers, with unemployment still near historic lows. Both companies are increasing their budgets for recruiting and retaining talent to meet consumer demand, with Home Depot planning to increase its investment in worker wages by $1 billion.

Other retailers may have a tougher time. Macy's and Nordstrom, for example, are skewed toward discretionary items like apparel, handbags and shoes. Both companies, which are scheduled to report fourth-quarter earnings next week, have already warned investors about holiday results.

Editor✎ Ashley/

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