At the onset of the pandemic, consumers almost overnight adopted a new set of shopping rituals. Judging from two major retail earnings reports on Tuesday, those habits haven’t loosened their grip.
Walmart Inc. reported that its US comparable sales rose 6.4% from a year earlier in the quarter, far stronger than the 3.8% analysts expected. While traffic was down significantly, average spending per receipt soared 24%. That’s an indication that people are continuing to consolidate their shopping into fewer trips, likely reflecting pandemic-related safety concerns. Meanwhile, Walmart’s e-commerce growth clocked in at 79%, driven in part by services such as pickup and delivery, which notched triple-digit increases.
The continued propensity for stock-up behavior was also evident in the strong results at Walmart’s Sam’s Club chain, where comparable sales were up 11.1% from a year earlier. The company said it saw “high teens” growth in the warehouse club’s fresh and frozen departments, as well as “low 20%” growth in the category that includes laundry and paper goods. With its large pack sizes, it makes sense that Sam’s would be a beneficiary in a moment when shoppers are trying to make less-frequent store visits.
Meanwhile, analysts had expected a 17.4% increase in comparable sales at Home Depot Inc., a figure that would’ve represented robust growth, but would have been a slowdown from the booming 23.4% surge it recorded on this measure in the second quarter. Instead, the big-box home-improvement chain reported a blockbuster 24.1% rise in comparable sales, as consumers who are stuck at home continued to splash out on remodeling and decorating projects to make their nests a bit more comfortable.
These earnings reports are a snapshot in time for a period that spanned August through October. But public health conditions are changing in a way that only seems likely to intensify the behaviors that fueled these companies’ strong quarters. With new cases of Covid-19 raging across the country, local restrictions on restaurants and other businesses appear poised to tighten again, forcing people to double down on dining in and entertaining themselves within the four walls of their homes.
Even before this latest wave of the pandemic, surveys showed that consumers planned to spend less on travel this holiday season. That – along with months of scant opportunities to buy things like concert tickets or sporting events – frees up space in shoppers’ budgets to spend in other categories.
Walmart CEO Doug McMillon told investors on a Tuesday conference call that in his own family, they’re looking forward to “some sense of joy and normalcy” at the holidays despite a smaller gathering, adding, “I think we’ll see that play out as it relates to consumption patterns in the US and beyond.” I suspect consumers will try to create that feeling of the Before Times by springing for lavish holiday dinners, splurging on big-ticket gifts and going all out with holiday decor. All three of those patterns could benefit Walmart, and the second and third could benefit Home Depot.
It’s notable that Walmart and Home Depot don’t expect these conditions create a clear glide path for them in the near-term. Neither company issued guidance today, suggesting they still anticipate significant volatility in the coming months. They are right to gird for uncertainty: The Commerce Department’s retail sales report for October, also issued Tuesday, showed sales rose at their slowest pace in six months, a potential warning sign that shoppers — especially those who are unemployed or furloughed because of the pandemic — are starting to rein in spending as Congress has failed to step in with a new stimulus package to help them.
There are other unknowns around this very unusual year. The retail industry has made a concerted effort to pull holiday sales forward into October amid the pandemic in order to prevent unsafe crowding in stores and bottlenecks in their e-commerce operations. It’s hard to know how much of the strength these chains saw in October was a result of these efforts, which might in turn make November and December sales a bit lighter.
The upbeat news about vaccines in recent weeks have made it easier to envision a not-so-distant future in which the pandemic doesn’t loom so large in Americans’ everyday behavior. For now, though, these earnings reports are a reminder that the public health situation shapes nearly every spending decision — and, in turn, which companies are holding up best.
Bloomberg
