Daily Brief: Retail Sales Fell In July, As Home Depot And Walmart Know All Too Well…

Daily Brief: Retail Sales Fell In July, As Home Depot And Walmart Know All Too Well…

over 2 years ago3 mins

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Home Depot announced record second-quarter sales on Tuesday, but the company might need more than a fresh coat of paint if it's to win investors over.

What does this mean?

Home Depot’s revenue and profit both exceeded expectations last quarter. The home improvement specialist’s shareholders still weren’t happy, however. That’s because it fell short on one of the most important financial figures for any retailer: “comparable sales growth”, which shows revenue expansion at pre-existing stores. If your old stores aren’t doing as well as hoped, then it’s probably only a matter of time before growth from new ones starts to tail off and the company as a whole disappoints.

Fall off

Walmart gets it. Quarterly earnings at America’s largest retailer came in ahead of estimates, as did its forecast for the rest of 2021 – and Walmart’s comparable sales growth beat expectations too.

Walmart sales

Why should I care?

For markets: The have nots and the haves.

Home Depot’s stock, having previously sat 27% up for the year, fell 5% on Tuesday. So too did rival retailer Lowe’s, with investors likely concluding what’s bad for the goose is bad for the gander. While the US housing market is as strong as it’s ever been – usually good news for home improvement demand – the reopening economy may be distracting shoppers from DIY. Walmart, meanwhile, saw its share price rise: selling just about everything should insulate it from individual shopping category trends.

The bigger picture: Shop till you drop.

Fresh data out Tuesday showed US retail sales fell by a greater-than-expected 1.1% in July compared to the month before. Investors will have taken note, given the likely effect on retailers’ earnings this quarter. Analysts floated a couple of potential reasons for the drop: stimulus checks may now be spent, while the lifting of pandemic restrictions may have sent food and drink sales up last month at the expense of online shopping.

Retail sales

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Tougher Competition Rules Are On The Way In China

China image

China’s largest artificial intelligence company is planning an initial public offering (IPO) in Hong Kong, perhaps vindicating the country’s recent crackdown on its software sector.

What does this mean?

SoftBank-backed SenseTime has reportedly sought HSBC’s help with an IPO which could see it raise some $2 billion selling shares. “The world’s local bank” is particularly big in China, which may mean SenseTime’s able to find foreign investment without falling foul of both Chinese and US crackdowns on Sinostocks listed overseas.

SenseTime develops AI technology for use in autonomous driving, augmented reality, facial recognition, and medical image analysis. The sensitive nature of the data it gathers might help explain why China’s so keen to keep the company’s business within its borders – and why the US added it to a blacklist in late 2019.

Why should I care?

The bigger picture: The proof of the pudding is in the beating.

SenseTime’s move could be seen as evidence that the Chinese government’s heavy-handedness is working wonders. And enthusiastic authorities on Tuesday announced even more trouble for the country’s beleaguered tech giants, with plans now afoot to tighten competition rules and data restrictions. False advertising, fraudulent online reviews, interoperability issues, and consumer privacy (if not from the state) are also in the spotlight.

For markets: 404 error, buyers not found.

Investors don’t like uncertainty: it messes with earnings forecasts and therefore makes their assessments of what stocks are worth less reliable. Government crackdowns on companies are unpopular as a result – something made clear by recent selloffs across Chinese markets and driven home once again on Tuesday as the share prices of local tech giants Alibaba, JD.com, and Baidu all fell 5%.

Another retreat
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