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Q1 2022 Roundup: Big Box Giants’ Sales Growth Slows, Cool Weather Chills Home Improvement Results

Walmart Sue BJ's
Photo courtesy of Walmart

The nation’s largest retailers have been holding strong against supply chain challenges, high fuel costs and inflation, but their combined ongoing impact is finally starting to weigh on their performance. Both Walmart and Target reported weak single-digit sales growth in their latest quarters, and while continued home improvement interest elevated The Home Depot to record Q1 sales, cold weather was enough to dampen Lowe’s results.

Walmart reported 3% comparable sales growth and 1% ecommerce growth in Q1 FY2023 for a total of $141.6 billion in revenue. However, net income fell to approximately $2 billion due to increased costs. Brick-and-mortar sales slowed from the 5.6% growth reported in Q4 FY2022, though ecommerce growth remained on-par. By comparison, in Q1 FY2022 Walmart reported 6% comparable sales growth and 37% ecommerce growth.

The retail giant stated that the weak results “reflect the unusual environment,” and nevertheless raised its sales outlook for the year from a 3% to a 4% increase. However, shares dropped 11.38% to $131.35 following the results’ release on May 17 and continued dropping the morning of May 18, hitting $125.51.

“We’re not happy with the profit performance for the quarter and we’ve taken action, especially in the latter part of the quarter on cost negotiations, staffing levels, and pricing while also managing our price gaps,” said Doug McMillon, President and CEO of Walmart on a call with investors. “While we’ve experienced high levels of inflation in our international markets over the years, U.S. inflation being this high and moving so quickly, both in food and general merchandise, is unusual. We’ll control what we can control, reduce our inventory level, and keep prices as low as we can, especially on opening price point food items, while improving our profit performance.”

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Target posted similarly poor results and got a similar reaction from investors. Store comparable sales grew 3.3% while digital comparable sales rose 3.2%, reaching $25.2 billion in revenue. The growth marked a significant drop from Q4 2021, when store comparable sales were up 8.9%, and further back during Q1 2021, when store comparable sales were up 18% and digital comparable sales were up 50%. Target’s shares were down approximately 25% in early trading after the results were released on May 18.

The retailer blamed slower sales growth on a variety of factors: inventory that arrived either too early and too late, elevated compensation and headcount at distribution centers, increased costs and a changing mix of merchandise sales. Target customers have been shifting toward “experience-based” purchases, like toys for birthday parties and luggage for trips.

“As we move forward, we will stay focused on helping our guests navigate through continued uncertainty with what’s happening in the world around us, the pandemic and the macroeconomic environment,” said Brian Cornell, CEO of Target in a call with investors. “This includes the highest inflation in decades and the gradual loosening of supply chain bottlenecks. We will stay focused on delivering value and affordability to our guests. We know how to deliver exceptional value and manage profitability. We can protect prices whenever possible. We can offer an unbeatable range of owned and national brands across our portfolio categories. We can make value into our assortment. And we will work with our vendor partners from sourcing to production to shipping.”

Home Improvement Holds Strong, but Pro Shoppers Drive Stronger Results

The home improvement space has held strong since the start of the pandemic in 2020. as sheltering workers enhanced their home offices and tackled longstanding repairs, but this quarter’s results are demonstrating that this type of growth isn’t always reliable. Lowes reported a comparable sales decrease of 4% to $23.66 billion for Q1 2022 as a cool early spring reduced demand for outdoor DIY projects, while Home Depot’s comparable sales rose 2.2% to reach the highest Q1 sales in company history.

The divergence may be due to each retailer’s audience. Approximately 75% of Lowe’s sales come from DIY customers compared to 45% at Home Depot, which puts a greater emphasis on selling to professionals. As a result, Lowe’s is more exposed to events that can delay projects homeowners take on themselves, while professional handymen will continue to perform their work no matter the weather. Lowe’s expects its fortunes to turn as warmer weather rolls in.

“Now that spring has finally arrived, we are pleased with the improved sales trends we are seeing in May,” said Marvin Ellison, President and CEO of Lowe’s in a statement.

Home Depot reported a similarly rosy outlook for the coming months. While the company reported higher-than-expected inflation, it noted that its customers are less sensitive to price increases than initially expected. The retailer expects demand to remain strong as shoppers continue working on their homes.

“The home improvement consumer remains engaged,” said Ted Decker, President and CEO of Home Depot on a call with investors. “Customers continue to tell us that their homes have never been more important and project backlogs are very healthy. We believe that the medium- to longer-term underpinnings of demand for home improvement have never been stronger.”

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