#715: Walmart Reports Outstanding Earnings With an *

 Another great Morning Brew article from mid-August

Can We Get the Check?

Francis Scialabba

If you work in retail, you likely saw yesterday’s headline earnings beat. Walmart’s Q2 earnings defied expectations, led by a 97% jump in e-commerce sales.   But there’s an asterisk. Low-income shoppers who relied on federal stimulus checks make up a significant portion of Walmart’s customer base. And without a second round of $1,200 checks or renewed unemployment aid to keep filling carts, CEO Doug McMillon said Walmart’s boom period has already deflated. Comparable sales only rose 4% in July, compared to 9.3% gains for the quarter overall.  So far in August, “Consumers are still spending money but not at [the] pace they were in the middle of the quarter,” CFO Brett Biggs told Bloomberg.  It’s not just Walmart. Across retail earnings calls this week, leaders 1) dropped our forbidden words like Supreme collabs and 2) said that the end of stimulus relief is hurting sales.  Home Depot CEO Craig Menear: “When customers have more money in their pocket, there’s some benefit to that. So we don’t kid ourselves to think that that didn’t have some kind of impact.” Kohl’s CEO Michelle Gass: “Consumer behavior has been profoundly altered given safety and spending concerns, and we don’t expect this to change in the near term.” Analysts expected as much when overall retail sales rose only 1.2% in July, a marked slowdown from May and June surges.  The only exception? This morning, Target reported in-store and online sales rose 24.3% in Q2, a record for the Walmart rival. CEO Brian Cornell attributed rising sales to shoppers sitting out summer travel—not stimulus benefits. “The stimulus was a factor, but even as it waned we saw strong comparable-sales growth in June and July,” Cornell told Bloomberg. Looking ahead...Federal lawmakers will determine if the tide can turn in retailers’ (and consumers’) favor.  Congress is currently deadlocked over competing stimulus packages.  President Trump signed an order on August 8 granting supplementary unemployment benefits, but it’s short of the possible trillions the stimulus packages could offer and won’t reach beneficiaries for weeks. Bottom line: Stimulus or no stimulus, Walmart and company aren’t putting a restructuring expert on speed dial anytime soon. But waning benefits could set retailers of all sizes up for disappointing results in Q3.