Americans are getting more cautious about their spending, and signs are emerging that they may be trading down to cheaper options, according to quarterly earnings reports from the biggest names in US retail.
For instance, Walmart (WMT), known for its low prices, says it got a boost from wealthier consumers in the first quarter.
"We continue to gain market share in the grocery category, including with higher income and younger shoppers, and we saw good growth in membership income in both businesses,” Walmart CEO Doug McMillion told investors on the company’s earnings call.
Walmart topped Wall Street estimates for same-store sales growth and boosted its full-year earnings per share forecast. Strength in grocery as well as health and wellness was “offset” by weakness in general merchandise, a trend seen across other retailers in the first quarter as well.
The quarterly results of Target (TGT), which is more exposed to discretionary general merchandise, tell a different story.
Target sees comparable sales in a range of a low-single digit decline to a low-single digit increase for the year as the discretionary category slows.
“(Consumers are) investing more in those household essentials and food and beverage items, and they're shopping more cautiously when it comes to all things discretionary,” Target CEO Brian Cornell said on a call with reporters.
Target also saw a decline in digital comparable sales for the second-straight quarter. Meanwhile, first-quarter e-commerce sales grew by 26% at Walmart.
When asked how Walmart grew e-commerce sales while the category lagged at Target, Walmart CFO John David Rainey didn’t address the competitor directly but told Yahoo Finance Live, “Clearly our value proposition is resonating.”
In other earnings, TJX (TJX) said that HomeGoods sales dropped 7% in the first quarter from the year-earlier period. But sales in its Marmaxx business, which includes discount chain TJ Maxx, rose 3%.
When asked directly about trade downs, TJX CEO Ernie Herman was hesitant to discern what his business is seeing from consumers.
“It’s hard for us to read into trade down and what we're seeing,” Herman said. “There's just so many moving things that are going on right now that it's just tough to read. But like I said, we are seeing that the higher demographic stores in higher demographic areas being more of the driver of our comp at Marmaxx.”
Walmart is well-positioned
Some Wall Street analysts see this environment setting up ideally for Walmart. Amid a “soft macro environment," Bank of America wrote in a note to clients that Walmart’s diversified business is positioned better than Target's.
Jefferies research team, which expects a recession in the second half of 2023, agrees that Walmart could be a standout.
Ahead of the company’s earnings report, the firm’s retail analyst Corey Tarlowe noted that Walmart is gaining market share from “many other retailers and across the consumer income spectrum.”
Reviewing prior recessionary environments, Walmart stock didn’t perform as well as the dollar stores but it still significantly outperformed the overall market, per Tarlowe.
“(Walmart is) clearly one that we expect that, despite what economic uncertainty may come, is very well-positioned to outperform," Tarlowe told Yahoo Finance Live.
More news on the state of consumer spending is expected with Dollar General and Dollar Tree earnings next week.
Josh is a reporter for Yahoo Finance.
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