🛍️ Walmart and Target’s pile problem

Earnings in Aisle 5... America's favorite retailers are expected to report this week, and it’s looking like a rough quarter for Walmart and Target. High food and gas prices are causing Americans to cut back on discretionary splurges (think: TVs, bikes, air fryers). Now retailers have billions’ worth of unsold inventory (picture: a mountain of hoodies).

• Walmart cut its annual profit forecast in July and laid off hundreds of corporate workers this month. America's largest retailer missed profit expectations in Q1 as inventory surged 33% from last year. This latest quarter could be worse.
• Target issued a profit warning in June, saying earnings would take a short-term hit as it cancels orders and slashes prices to get rid of inventory. In Q1, Target shocked investors with a big profit miss as consumers scaled back on pricier items.

Ignoring the decorative pillows... and turning your back on the pajama rack. Like Target, Walmart’s been on a discounting binge to unload stuff like sweatsuits, patio furniture, and blenders. Those were hot commodities mid-pandemic, but consumers are shunning them now:

• Clothes down, food up: The pace of inflation slowed last month, but grocery prices continued rising from June, and consumer confidence hit another low in July.
• Not saved by the bell pepper: Groceries account for over half of Walmart’s sales (and a good chunk of Target’s) but they’re less profitable than apparel and electronics.

Dark clouds… US trade officials have halted imports from the Xinjiang province as part of a crackdown on China’s human-rights abuses of Uyghur Muslims and other ethnic minorities. Xinjiang produces over 40% of the world’s polysilicon, a key component of solar panels. Now panels from companies like Jinko Solar and Trina Solar can’t enter the US, and delays are expected to last at least six months. Trade troubles might spread beyond solar, since a quarter of the world’s tomato paste and 13% of its wind turbines also come from Xinjiang.

A-list after-party… in the metaverse. Crypto winter hasn’t stopped celebs from bringing the virtual heat. Last week, mega-fluencer and entrepreneur Paris Hilton debuted her virtual Malibu mansion on meta-gaming site Sandbox (think: digi-martinis by the meta-pool). The Sandbox has 2M users and 300 partnerships with big names like Snoop Dogg, Tony Hawk, Gucci, and Adidas. These “phygital” deals could help celebs and brands profit from fresh forms of entertainment (picture: a Snoop meta-concert). Still, this year virtual-land prices are down 85%.

Weekend treasure hunt… down the $7 jeans aisle. As inflation squeezes wallets, bargain-seekers are boosting sales at discount legends Ross and TJX (which owns TJ Maxx and Marshalls). Last quarter treasure-hunters helped fuel TJX's 13% sales growth. Off-price chains have also benefited by selling backlogged merch from larger, oversupplied retailers. Still, apparel prices are up 5% from last year and consumer spending is slowing. We’ll see whether the bargain boost is intact when Ross and TJX report this week.

Mixed signals… Economists expected unemployment to jump as interest rates rose, but the US economy added twice as many jobs as expected last month, finally recovering all jobs lost in the pandemic. But jobless claims also rose to their highest level since November last week, and mass layoffs are getting more common — a sign job growth may wane. The Fed wants the labor market to cool to curb #flation (just not too much). Economists are anxiously waiting to see if Thursday’s jobless claims rise again.

• WeCrash: Investment giant SoftBank lost a record $23B last quarter as its tech investments — from Uber to WeWork to Didi — plunged. Now it’s selling big tech stakes to curb losses.
• #Ad: Lyft is launching an ad biz (feat. in-car tablets and in-app Oscar Mayer Wienermobiles) to monetize users’ eyeballs as ride-hailing rebounds. Ads could help it gain an edge on larger rival Uber.
• Streamy: Disney+ added an expectation-crushing 14.4M subs last quarter, while Mickey’s parks and resorts posted record profits. But Disney’s streamers (Disney+, Hulu, ESPN+) are still losing billions.

• Green: On Friday the House Dems passed a massive $430B climate, health, and tax bill (confusingly dubbed “The Inflation Reduction Act”). President Biden’s expected to sign the historic bill into law ASAP.
• Privacy: Facebook said it complied with a search warrant and provided a teenager’s private messages to Nebraska police. The young woman and her mom now face felony charges in connection with an alleged illegal abortion.
• Dormy: College students are using student loans to cover their housing costs as average rent prices spike 15% from last year. Waiting lists for on-campus housing at some schools are thousands of students long.

• Monday: Earnings expected from Nu Holdings and Tencent Music
• Tuesday: Earnings expected from Walmart and Home Depot
• Wednesday: Earnings expected from Cisco, Lowe’s, TJX, and Target
• Thursday: Jobless claims. Earnings expected from Ross, Kohl’s, and Estée Lauder
• Friday: Earnings expected from Deere & Co. and Foot Locker

Authors of this Snacks own: shares of Walmart, Uber, and Disney

ID: 2379820