The second-quarter earnings announcement season may be winding down, but not before the largest big-box stores – Walmart (WMT) and The Home Depot, Inc. (HD) – had had their say. And, for this quarter, their results said quite a lot.
Here’s a quick recap:
Walmart’s second-quarter adjusted earnings rose 22.8% year-over-year to $1.56 per share on revenue of $137.7 billion. The analyst community was expecting adjusted earnings per share of $1.26 and revenue of $134.2 billion. So, WMT posted a 23.8% earnings surprise and a 2.6% revenue surprise. The 23.8% earnings surprise marks the company’s largest earnings beat in more than three decades!
Comparable same-store sales climbed 9.3%, topping estimates for a 5.3% rise. However, the big number was the e-commerce net sales growth, which surged an incredible 97%!
Company management attributed the growth to the government stimulus package, which enabled more customers to buy their products online and take advantage of WMT’s same-day delivery and curbside pickup services.
Home Depot, one of my Growth Investor companies, also knocked it out of the park. Comparable sales increased 23.4%, while comparable sales in the U.S. rose 25%. Total second-quarter sales jumped 23.4% year-over-year to $38.1 billion, exceeding analysts’ forecasts for $34.53 billion.
The Home Depot also reported that second-quarter earnings soared 26.8% year-over-year to $4.3 billion, or $4.02 per share, up from $3.5 billion, or $3.17 per share, in the second quarter of 2019. The analyst community was expecting earnings of $3.72 per share, so HD posted an 8.1% earnings surprise.
And, as the cherry on top, HD announced that it will pay a second-quarter dividend of $1.50 per share on September 17. This dividend represents the 134-straight quarterly dividend that the company has paid.
Now, since we’re on the subject of major retailers, I’d be remiss if I didn’t discuss two other big companies that announced blowout second-quarter results this week: Lowe’s Companies (LOW) and Target (TGT). So, let’s see how their reports stack up, too.
Lowe’s Companies’ reported second-quarter net earnings of $2.8 billion, or $3.74 per share. This is a whopping 75% year-over-year increase from earnings of $2.15 per share from the second quarter of last year. Sales were also strong, coming in at $27.3 billion. E-commerce sales, in particular, surged 135%.
Analysts were expecting earnings of $2.95 and sales of $24.25 billion, so LOW posted a 26.8% earnings surprise and 12.6% sales surprise.
Company management credited the success to “a wallet share shift away from vacations, away from dining out, away from apparel purchases… People are taking those dollars and they’re investing in their home.”
As for Target, the company unveiled a record quarter. Adjusted earnings climbed 85.7% year-over-year to $3.38 per share. Analysts were expecting earnings of $1.65, so the company walloped estimates by 104.4%. Revenue rose 24.8% to $22.98 billion. Estimates called for $20.11 billion, so Target posted a 14.3% sales surprise.
Comparable sales increased a record 24.3%, significantly above the expected 5.8% rise. And e-commerce sales soared 195%, representing 13.4% of comparable sales. Same-store sales climbed 10.9% and same-day services jumped a whopping 273%.
Similar to Lowe’s, Target believes the growth was largely due to folks spending money on retail rather than restaurants, movies or vacations. And, since the company was deemed an “essential retailer,” it also grabbed more market share. TGT brought in 10 million new online customers – upping its market share by $5 billion in the first half of 2020.
Wall Street cheered the big-box retailers’ earnings, driving the stocks to new 52-week highs following their results.
Clearly, this was a stunning earnings season for the big-box retailers. So, it’s no surprise that each company is a “Buy” in Portfolio Grader.
Now, as I mentioned earlier, HD is one of my Growth Investor stocks. Subscribers who bought HD when I first recommended the stock back in December 2017 would be sitting pretty with about a 49% return right now.
But I don’t expect the fun to stop there.
I know I’m typically a little grumpy during this time of year. In fact, sometimes I’d personally like to shut the stock market down in August! The reality is that, after the second-quarter earnings announcement season winds down, it’s normal to see an increase in profit taking. Add in the fact that most of Wall Street and Europe are on extended vacations, and trading volume diminishes until mid-September. As a result, we often find ourselves swimming in choppier waters.
However, I am very, very excited this year. Thanks to the incredible second-quarter earnings season and analysts revising their estimates higher for the third quarter, there are more stocks popping up on my radar. In fact, I added four new stocks to my Growth Investor Buy List late last month and expect to recommend more stocks to my Buy Lists in the coming weeks and months.
Of course, I will only add the crème de la crème – fundamentally superior stocks with growing sales and earnings and increasing institutional buying pressure (i.e., stocks like HD). And I do expect to find more fundamentally superior stocks, thanks to a special stock market event taking place. I call it a Foreshock, and it bodes well for my Growth Investor companies.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Lowe’s Companies (LOW)