Blowout financial results from US retailers Target and Lowe’s sent their share prices up sharply on Wednesday and provided evidence that Americans are continuing to spend despite fears over the outlook for the economy.
Shares in big-box retailer Target were up 20 per cent to close at an all-time high. Meanwhile, home improvement chain Lowe’s closed 10 per cent higher.
Both companies posted stronger-than-expected sales growth during the second quarter. That boosted the consumer discretionary sector as a whole, which rose 1.5 per cent.
The results also provided more evidence that spending by US consumers is one of the global economy’s bright spots, even as investors worry about recession risks and the Trump administration’s trade war with Beijing.
This month’s inversion of the yield curve, which plots US government bond yields of different maturities and is seen as a harbinger of recession, sparked a new round of gloom. But Brian Moynihan, chief executive of Bank of America, told CNBC on Wednesday that he believed too much attention was being given to Treasury rates, pointing to consumer spending as a more important indicator.
“What it’s going to come down to is what’s really going on in the economy,” Mr Moynihan said. “The underlying consumer is doing well and making more money. They’re employed. And more importantly, they’re spending more money.”
Last week Walmart, a bellwether for middle-class spending, said US consumers were in “solid” financial health as it raised its outlook, and the US government released data showing retail sales remained robust.
Some signs of consumer skittishness are emerging. A University of Michigan survey earlier this month showed consumer sentiment turning less positive. Notably, it showed the Federal Reserve’s quarter point rate cut in July, aimed at supporting the economy, raised consumers’ fears about a possible slowdown and led them to conclude they may need to reduce spending in anticipation of a recession.
Results on Wednesday signalled, however, that the consumer economy is humming along. Same-store sales rose 2.3 per cent at Lowe’s, ahead of estimates of 1.7 per cent. Target said sales at established stores were up 3.4 per cent, topping forecasts for a 3 per cent advance.
Target — which sells homewares, clothes, electronics and beauty products across the US — showed it was reaping rewards from investing in its online offering, same-day deliveries and in-store experience. It increased its full-year adjusted profit forecast to between $5.90 and $6.20 per share, compared with the prior range of $5.75 to $6.05.
Sales through Target’s digital channels grew 34 per cent in the second quarter on a comparable basis. Its same-day delivery service accounted for nearly 1.5 percentage points of the group’s 3.4 per cent comparable sales growth.
“In a world where consumers have more choices than ever, inferior brick-and-mortar experiences will go away,” said John Mulligan, chief operating officer at Target. “That’s why we’re investing heavily, both in our store assets and in the experience our team provides.”
Lowe’s, which was forced to cut its profit guidance in May as rising costs hurt its first-quarter earnings, sounded a more optimistic note this time. “The underlying macroeconomic fundamentals in the US remain supportive as demonstrated by the solid pace of job growth,” said David Denton, chief financial officer.
The strong results for US retailers have not been universal. Macy’s the department store chain, said last week it was having to discount merchandise, sending its shares down 13 per cent. And Home Depot, the world’s biggest home improvement retailer, cited the US-China trade stand-off among the factors in a downgrade of its sales forecast for 2019.
On Wednesday, though, Home Depot shares set a new intraday record high.
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