Investors are anxiously awaiting the release of the latest earnings reports in the retail sector in an effort to gauge the direction in which the industry as well as the U.S. economy at large is headed. Retail giants Walmart Inc and Target Corp are expected to be among the first companies to make their earnings public this week.
Both Walmart and Target built up significant inventories during the first quarter, with the two companies projecting growing sales of lower-margin goods such as food and fuel as the year progressed due to an expected decline in earnings.
Bill Smead, the chief investment officer of Smead Capital Management, explained that “Target made it pretty plain that the next couple of quarters were going to be difficult as they got rid of inventory at lower prices”. Smead’s company owns approximately $200 million worth of Target shares.
The second half of the year is typically expected to be a high-earning period for the retail sector, with consumers increasing purchases around the back-to-school and holiday seasons.
Some optimism has been derived from the recent decline in gasoline prices, thereby easing pressure on low-income shoppers. Also, while the consumer price index rose by 8.5% in July, this is a decline in the rapid growth rate that was experienced the previous month.