News and analysis

Unfortunately, some leading U.S. retailers failed to inspire investors. While Walmart (WMT), Costco (COST) and Home Depot stocks continued to rise in November, Lowe’s Companies (LOW) lost nearly 5% this week, despite improved forward guidance and nominally better than expected quarterly results in both top and bottom lines, yet it was a peanut compared to a 18% plunge in the market value of Target Corporation (TGT) in today's pre-market trading.

Lowe’s is a well-known big box home improvement chain, which operates over 1,700 stores and employs about 300,000 associates. The stock became clearly overbought by mid-October as its market value increased by almost a third since the beginning of 2024. That's why updating historical records at $287 per share led to a natural price correction, which accelerated its pace when Q3 numbers confirmed that the chain's revenue and profit came down YoY, even though moderately beating consensus estimates. Overall, further sliding below $250 per share, or even to $225-235 per share, is our baseline scenario at the moment, with the stock's potential to willingly resume its uptrend after bottoming out.

Lowe’s provided net sales of $20.2 billion in the recent three months, better than $19.95 billion averagely expected by expert polls but 1.5% below its achievements in the same quarter of 2023. Same store sales lost 1.1% YoY, hit by big-ticket items, especially large "do-it-yourself" projects. Online sales and loyalty programs grew to soften the damage. Another portion of good news is that the company's management coped well with the task of cutting costs of sales, which came down 1.5% to $13.4 billion, while administrative and other expenses only added 1.7% to $3.8 billion. This helped to improve additional losses of profit, which were reduced to 11.5% vs potentially worse analyst projections.

Based on this data, the company's own guidance for the whole year of 2024 was adjusted to a higher range of $83.0 to $83.5 billion, vs $82.7 to $83.2 billion in August estimates, but it was still below the $84 billion to $85 billion range, which was set at the beginning of the year. The guidance for same store sales drop has been lowered in Q2 from the 2% to 3%, and now it is raised to a range between 3.0% and 3.5%. It is still better than the previous estimate of a 3.5% to 4.0% loss in same store sales.

More complicated scenarios could be related with Target stock recovery after the chain of hypermarkets surprisingly generated only $1.85 of quarterly EPS (equity per share) vs $2.10 in the same period of 2024, $2.57 in Q2 2024 and $2.30 in consensus projections for the recent quarter. The revenue of 25.67 billion was only slightly lower but mostly in line with average forecasts around $25.87 billion. This means that the discount policy was good enough in maintaining sales, not profits. Potential dip buyers and mid-term bulls may be terrified by currently entering into Black Friday, then Cyber Monday and finally launching the Christmas season, with growing chances of exacerbating the overall pattern. Target CEOs commented on potential holiday quarter sales by revealing their profit forecast of $1.85 to $2.45 per share, compared to the Wall Street's analyst pool hopes for $2.66 per share, with flat comparable sales projections YoY, instead of consensus bets for 1.64% gains.

"We are seeing the consumer become increasingly resourceful and strategic on how they shop," the chief commercial officer at Target, Rick Gomez, said, following the chain's cutting its prices on thousands of essential and gift items, as well as food, beverages and toys. According to Gomez, only apparel sales were weaker than normally with warmer-than-usual weather across the United States. Spending on other items was strong but the seller probably benefited from lower prices less than consumers did. Again, persistent weakness in selling higher-margin items like home decor and electronics is still here for Target when more families are watching their budgets.

While Amazon, Walmart or even TJX are performing better plus raising their inner predictions for holidays, Target looks to be more careful by moderating its 2024 forecast to between $8.30 and $8.90 in terms of EPS (equity per share) from its own previously forecasted range of between $9.00 and $9.70.

Shopper visits were O.K. to gain 2.4% in the last three months ended November 2, with a 10.8% jump in digital sales being also detected. This means that consumers still love shopping in Target, and so the root cause of solving trouble with earnings lies in price policy and may be logistics. "We encountered some unique challenges and cost pressures that impacted our bottom-line performance," Target CEO Brian Cornell said. He mentioned a three-day strike of U.S. dock workers and port operators in early October to partially shut down shipping on the East Coast and Gulf Coast, so that Target had to carry additional costs to reroute some shipments before the key season.

We think this promises the transitory nature of unearned profits, with Target share price to recover sooner than later. Yet, the stock may first come through re-testing of a below $120 area, plus potentially 3 to 6 more months wait for renewal of the crowd's enthusiasm, before coming back to $150+ and then targeting $180+ again.

ApeCoin (APE) is up by 2.7% this week, trading at $1.1000, lagging behind Bitcoin’s 4.7% rise to $93,340 and the broader altcoin market, where some tokens are surging by 10-20%. APE's subdued performance comes after a significant 140% rally in mid-October, spurred by Yuga Labs’ announcement of the ApeChain launch. This rally prompted profit-taking by large holders, leaving APE still 54% above pre-announcement levels, compared to Bitcoin’s 36% gain in the same period.

Momentum appears to be fading for APE. However, from a technical perspective, prices remain above the key support at $1.000 and are holding steady near the middle of the ascending channel at $1.100. While this positioning typically signals potential for further upside, the market action suggests sideways consolidation rather than a decisive upward move.

Walmart's performance captivated the Wall Street audience once again. The world's largest retailer employing over 2 million associates in more than 10,500 stores generated 169.6 billion of revenue from August to October, compared to 167.67 billion of average analyst projections. Its EPS (earnings per share) came out at $0.58 to beat consensus estimates of $0.53 as well. This allowed the stock to rise over 4.5% in the first hour of premarket trading on November 19 to reach a new absolute high just above $88 per share. Its low price policy concerning essential products plus online sales expansion and the AI features helped a lot amid softening demand from budget-conscious households. What is important for the market dynamics of Walmart is improving the retail giant's own forecast for EPS outlook to the range between $2.42 and $2.47 for fiscal year of 2025, above its previous $2.35 to $2.43 projections. Its CEOs anticipate overall sales growth of 4.8% to 5.1% in the next 12 months, with currency-adjusted operating income to add 8.5% to 9.25%, despite currency fluctuations reportedly made a $1.2 billion negative contribution to the recent quarter results. Advertising sales driven by marketplace sellers were up about 50%. Thus, we are keeping our $100+ target area for Walmart, also considering investment into U.S. retail segment leaders as a quasi-protective way of money allocation.

Walmart's domestic comparable sales, excluding the fuel small correction, was even stronger than we supposed to rise 5.5% against consensus annual pace at 3.8%. Revenue from Walmart Sam’s wholesale Club to enjoy the best perks in terms of premium quality, cheaper or free services like curb side pickup and exclusive savings for loyal customers (it costs $50/year or $110/year for a Plus membership) warmed up even better to grow by 7%, amid 4.22% projection on average by expert pools. In May, Walmart just opened its 48th Sam's club warehouse in China, and nearly 50,000 people visited the place on its opening day.

Doug McMillon, the current president of Walmart who actually began his career here in 1984 as an hourly associate to pick orders and unload trailers in a warehouse, freshly commented that the whole process of assembling and delivering grew faster to become more convenient for buyers. While speaking in August, he argued that Walmart is using data and large language models from others and building its own features to leverage generative AI tools designed to improve the customer, member and associate experience. He mentioned improving a product catalogue containing over 850 million pieces as a very simple example, which expands from just helping people to "find and buy what they're looking for" to "how we store inventory in the network" before picking up orders.

Without the use of generative AI, "this work would have required nearly 100 times the current head count to complete in the same amount of time", he added. The AI even shows higher quality images of product packages for the stores' personnel to make everybody quickly find necessary items. The AI-powered search on Walmart's mobile application and site increases sales by providing advice and ideas of what a customer may choose. The AI assistant may answer questions like "which TV is best for watching sports" or "what is the most popular choice for the party with children". The same AI assistant can also briefly summarize to give important answers to sellers in offline shops so that they may better help customers.