Like many retail stocks this year, Best Buy (BBY -1.35%) recently reported poor first-quarter numbers and remained pessimistic about the rest of the year. Surprisingly, the shares bounced after the report. Meanwhile, fellow retailers Walmart (WMT 1.02%) and Target (TGT -0.71%) reported better first-quarter numbers, and shares of those companies cratered. Wall Street's expectations helped fuel this strange reaction -- but the analysts who drove those share gains or losses seem to be missing the point.
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Retail results send strange signals
Best Buy's first-quarter report showed that sales fell 8.5% from the same quarter last year. The report also revealed that sales from existing stores, also known as comparable sales, were down 8%, with GAAP earnings down 42%. Yet shares popped over 9% after the announcement.
Walmart, on the other hand, offered better results. The company reported that sales rose 2.4% in the first quarter. Additionally, comparable sales were up 3%, and GAAP earnings down 24.8%. Similarly, Target reported what seemed to be better numbers than Best Buy. Sales were up 4%, comparable sales up 3.3%, and GAAP earnings fell 51.9%. Despite announcing superior results, Walmart and Target stocks tanked after reporting.
The different reactions might owe to analysts' short-term expectations for each stock. Best Buy analysts expected it to report GAAP earnings per share of $1.59. The company missed by only $0.02. But analysts expected $1.46 in GAAP earnings per share from Walmart, and $3.00 from Target. Walmart missed the mark by 11%, and Target missed by 27%.
But all three companies share a common thread. Each noted on their first-quarter announcments that supply chain issues and inflation would make it tough for the retailers to top an outstanding 2021.
Consumer-focused companies warn of shared struggles
Best Buy CEO Corie Barry remarked, "We expected our FY23 financial results to be softer than last year as we lap stimulus and other government support, the consumer electronics industry cycles the last two years of unusually strong demand, and we continue to invest in our future. In addition, we planned for increased promotional activity and higher supply chain expenses."
Walmart CEO Doug McMillon, "Bottom-line results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected."
Brian Cornell, CEO of Target, added, "Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations."
As a result of deteriorating conditions for retailers, Best Buy and Walmart decreased their earnings-per-share guidance for the full year 2022. Target pulled its earnings-per-share guidance altogether.
Buyer beware
On top of the cost-related issues cited by each company's management, consumers will likely ramp up spending on travel and dining out, rather than retail items in the months to come. That's not good for any retailer, regardless of short-term analyst expectations.
Don't let a short-term anomaly like this deceive you. Though Best Buy's stock outperformed based on its first-quarter results, 2022 has been a bad year for retailers, and it will likely get worse from here.
