Retailers Start Ringing Up Q4 Results

Walmart leads the way as major retailers start weighing in on a positive year for consumer spending. But will it hold true as individual companies report results?

Solid holiday sales numbers were a gift to investors in the largest U.S. brick-and-mortar retailers like Costco Wholesale (COST), Target (TGT), and Walmart (WMT). But the only data investors have had to measure the success so far are industrywide numbers.

Now it's time for the merchants to weigh in on their individual performance. The unofficial start to the fourth-quarter retail earnings season begins before Tuesday's opening bell as Walmart, the biggest U.S. retailer, and home improvement leader Home Depot (HD) are scheduled to report.

Investors may be experiencing a case of whiplash from broad retail sales numbers in recent months. The Census Bureau's initial estimate for December retail sales posted an unexpectedly strong 0.6% monthly gain. Then, earlier today, the bureau said January sales tumbled 0.8%, far worse than the 0.2% decline analysts expected. December sales were also revised lower to a 0.4% monthly gain.

While expectations for record holiday sales helped lift many retailers' gains in recent months, today's surprisingly weak sales may cast a cloud over retailer earnings amid concern consumers may be pulling back. Investors will likely want to know how those numbers connect to the reality retail executives are seeing in-store and online now that we've reached the middle of the first quarter.

Any sustained slowdown in consumer spending could make it difficult for shares of many retailers to extend last year's firm performance. In 2023, a subsector of the S&P 500® index (SPX) that includes companies like Costco and Walmart posted an 18.2% increase, according to Sam Stovall, chief investment strategist of CFRA. That's not far behind the 24% surge in the overall S&P 500 index.

Through mid-February, shares for companies in the Consumer Staples Merchandise Retail subsector were up 6.3%, which ranked the group in the top dozen among approximately 125 subsectors tracked by CFRA. The overall market, based on the S&P 500, was up 4.2% for the year through February 14.