Here's what Walmart, Target, Home Depot and Lowe's are telling us about the state of the American consumer (2023)

How well is the American consumer coping with skyrocketing inflation? It depends on who you ask.

Four big retailers -walmart,he,home storageILowe'a— reported their quarterly financial results this week, each offering a different perspective on where and how people spend their money.

Walmart said some of its more price-sensitive customers are beginning to trade in private labels, while Home Depot has highlighted resilience among its customers, a significant percentage of whom are professional home builders and contractors.

The reports came later.Amazonasat the end of Aprilflashing warning signs for the retail industrywhen it posted its slowest revenue growth in any quarter since the dot-com crash of 2001 and made gloomy predictions.

Still, expectations on Wall Street were higher this week for both Walmart and Target. Analysts and investors did not expect the two mass retailers to see such a big drop in profit in the recent period, as supply chain costs weighed on sales and unwanted inventories such as TVs and kitchen appliances built up. . Walmart closed Tuesday down 11.4%, marking its worst day since October 1987. Walmart fell another 7% on Wednesday, while Target hadworst day in 35 years.

However, Home Depot and Lowe's have seen increased buying power in recent weeks.

“Our clients are resilient. We don't see the sensitivity to the level of inflation that we initially expected,” Home Depot CEO Ted Decker said Tuesday during a company earnings call. (Shares of both home improvement chains closed up 5% on Wednesday.settlement in the wider market.)

The conflicting feedback from these retailers stems in large part from the fact that Americans experience economic volatility differently depending on their income level. Businesses and consumers are in an unexplored transition period after months of Covid-related lockdown measures that prompted purchases of canned goods, toilet paper andPlatoonSlider bikes. Multiple rounds of stimulus dollars boosted spending on new sneakers and electronics.

But as that money dries up, retailers must adjust to the new normal. including inflationin 40 year highs, Russia's war in Ukraine and the still damaged global supply chain.

"While we have experienced high levels of inflation in our international markets over the years, it is remarkable that inflation in the US is so high and changes so quickly, both for food and general goods," said the Tuesday Walmart CEO Doug McMillon. conference.

This week's results could spell trouble for many retailers, includingmacy's,Kohl,NordstromILucas, which has yet to report first-quarter 2022 results. Businesses that rely on consumers coming into their stores to buy new clothes or shoes could come under particular pressure, as Walmart has suggested shoppers are starting to withdraw from discretionary spending items. more money on groceries.

At the same time, retailers are citing an increase in demand for items like luggage, dresses and makeup as more Americans plan vacations and attend weddings. But the concern is that consumers will have to compromise somewhere to pay for these things. Or they will look for discounted products in stores likeTJ Maxx.

Here's what Walmart, Target, Home Depot, and Lowe's are telling us about the state of the American consumer.

Walmart sees a mixed picture, shaped by consumer household income and attitudes toward the future. But in the last quarter, the country's largest retailer said shoppers were showing they were paying attention to budget.

Customers were leaving the retailer's stores and website with fewer items purchased. More of them skipped out on new clothes and other general items when they saw gas and groceries go up in price. Some sold to cheaper brands or smaller products, including a half-gallon of milk and a store-bought brand of deli meat instead of the pricier brand, chief financial officer Brett Biggs told CNBC.

On the other hand, he said, some customers swooped down on new outdoor furniture or were eagerly chasing a flashy new game console.

"If you look at the demographics of the United States and put our customer map on top of that, we'd be pretty close to the same thing," Biggs said. "So there are people who will feel more pressure than others and I think that's what we're seeing."

Target said it sees a resilient consumer with new priorities as the pandemic becomes more thoughtful.

"They've gone from buying TVs to buying luggage," CEO Brian Cornell told CNBC's "Squawk Box." He later added, "they're still buying, but they've started spending dollars differently."

He said the change came with purchases in the first fiscal quarter. Customers bought decorations and gifts for the Easter and Mother's Day celebrations. They organized and attended larger children's birthday parties, which led to an increase in toy sales. They also bought fewer items, such as bicycles and small kitchen appliances.booked flights and planned trips.

Cornell pointed to the high levels of spending Target reached in the first quarter of last year, as Americans received money from stimulus checks and had fewer places to spend it.

He noted that comparable sales continued to grow despite this difficult comparison. Additionally, Target store traffic and website traffic increased nearly 4% year-over-year. The sales growth figures, however, would include the effects of inflation, which makes everything from transportation costs to groceries more expensive.

Target also saw a higher level of discounts last quarter, a staple of a retail industry that more or less disappeared during the pandemic as shoppers had a greater appetite to buy and retailers had fewer items to put on shelves.

The home improvement retailer told investors on Tuesday that it still didn't see any difference in consumer behavior.

Home Depot's average ticket increased 11.4% in the quarter, driven primarily by inflation. But the directors also said that consumers were trading higher, not lower. For example, consumers are trading in gas-powered lawn mowers for more expensive battery-powered options, according to Jeff Kinnaird, Home Depot's vice president of merchandising.

This behavior is likely because the vast majority of Home Depot customers are homeowners who have seen them.share capital increasesin the last two years. Chief Financial Officer Richard McPhail said in a phone call that more than 90% of his DIY customers are homeowners, while essentially all sales to contractors are made on behalf of the owner.

McPhail also said that about 93% of his mortgage customers are fixed-rate.With rising interest rates and house pricesconsumers considering relocation choose to stay in their existing homes and remodel.

Lowe's echoed similar sentiments during its conference call on Wednesday. Chief Executive Marvin Ellison said rising home prices, aging homes andpermanent housing shortageare key economic drivers of Lowe's operations.

"That's one of the reasons why I think home improvement is a unique retail sector and can have this macro environment where a lot of consumer health questions come up," he told analysts.

Consumers working on DIY projects account for about three-quarters of Lowe's sales, a higher share than rival Home Depot. So far, the company has yet to see any significant trade from these consumers.

However, consumers are beginning to feel the effects of rising energy prices. Ellison told CNBC that Lowe's customers are listing more energy-efficient battery-powered landscaping tools and lawn mowers and washing machines.

“I think it has something to do with fuel prices? The answer is absolutely, she said.

Lowe'amissed Wall Street expectations for quarterly salesBut management blamed the retailer's disappointing performance on weather.