Key Highlights: Home Depot, Cisco, Walmart, Lowe's, Target
Fed minutes from the prior month indicated that the Fed would continue interest rates hikes until inflation comes down substantially. While there was no guidance, market is expecting a 50bps increase in the upcoming September FOMC meeting.
Moreover, advanced estimates for US retail and food sales for July were almost flat sequentially.
United Kingdom’s inflation saw a surge with CPI up 10.1% in July to a 40 year high with food prices and energy prices a key contributor to the rising prices. Europe has been the epicenter of an energy crisis given the ongoing geopolitical tensions that saw a reduction in natural gas flows through the Nord Stream 1 pipelines.
European equities also saw weakness with $DEKA E STOXX50(0MPR.UK)$ 50 falling by -1.3%.
$Home Depot(HD)$ recorded its strongest quarterly sales in 2Q.
Growth was better than expected on resilient repair and remodeling demand, bucking the slowdown in housing turnover amid rising mortgage rates.
Same store sales growth impressed, growing 5.8% due to rising prices while margins also impressed despite rising cost pressures.
Despite the inflationary issues and slower macroeconomic environment, no down trading has been observed from the latest quarter, as both professional and DIY segment sales still saw growth.
$Lowe's(LOW)$, a home improvement retailer that is relatively more focused on the DIY segment, also alleviated fears of homeowners sharply delaying their improvement plans.
$Cisco(CSCO)$ supply challenges have finally eased with less advanced chip capacity for enterprise networking easing. Revenue guidance is back to low single digit range of 2%-4% for 1Q and 4%-6% for FY2023.
This also signals that the demand for chips have started to falter for the chip sector, especially seen in the consumer-focused products such as personal computer and graphic processing units. Backlog for Cisco continue to remain at record highs mainly due to the previous supply issues, which provide visibility in the fiscal year ahead.
$Wal-Mart(WMT)$ ’s Q2 results showed a pivoting of consumer spending away from discretionary products to more of groceries and necessities, as inflationary pressures continue to hit households.
It saw weakness in apparel and electronics product sales as inventory levels surged.
$Target(TGT)$ , another big-box retailer, missed same store sales guidance, and saw profits falling by 90% in 2Q22 given its focus on discretionary products. Despite price reductions, Target continued to face inventory issues from consumers curtailing discretionary items.
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