What happened
Three of the biggest retailers in the United States report second quarter earnings within 72 hours of each other this week. Home Depot goes first on Tuesday 18 August before the US market opens, Target follows on Wednesday 19 August, and Walmart, the largest retailer in the country, reports on Thursday.
Analyst expectations are modest. Home Depot is forecast to deliver earnings per share of 4.73 dollars against 4.68 dollars in the same quarter last year, essentially flat. Target is expected to post around 2.25 dollars per share, a 9.8 percent increase year on year, on revenue of 26.1 billion dollars, up 3.4 percent. Walmart is forecast at 0.74 dollars per share on revenue of 186.7 billion dollars.
The backdrop gives these numbers unusual weight. US retail sales fell 0.6 percent month on month in July, the first decline in nine months, although part of that reflects lower petrol prices and the timing of the Amazon Prime Day promotion rather than a collapse in underlying demand. Distinguishing genuine weakness from calendar noise is exactly what these three reports should clarify.
They arrive near the end of a strong earnings season. Some 88 percent of S&P 500 companies have now reported second quarter results, and both the share of companies beating estimates and the size of those beats are running above recent averages. The index closed at a record 7798.99 during the week, so expectations coming into these reports are not low.
Why it matters
Consumer spending accounts for roughly two thirds of the US economy, and these three companies together see a remarkable slice of it. Walmart alone serves well over 100 million customers a week in the United States, which makes its commentary on shopper behaviour closer to a national survey than a corporate update.
Each firm illuminates a different segment. Home Depot reads the market for big ticket, credit sensitive purchases such as kitchens, roofing and renovation, which respond directly to interest rates and housing activity. Target sits squarely in discretionary spending, where shoppers trade down or defer when they feel squeezed. Walmart captures essentials, and typically gains share when consumers become cautious.
That divergence is the useful signal. If Walmart beats while Target misses, the story is a consumer trading down rather than disappearing. If all three disappoint, the July retail sales dip looks like the start of something. If Home Depot surprises to the upside, it suggests households are willing to take on credit again ahead of expected rate cuts.
For UK investors the connection is indirect but firm. American consumer strength drives S&P 500 earnings, which drive global equity sentiment, which drives the value of the global funds sitting in most UK workplace pensions. A weak read here would land at exactly the moment markets are priced for perfection at record highs.
Explained simply
These three retailers are the tills of the American economy. One sells the things you cannot skip, one sells the things you would like, and one sells the things you only buy when you feel confident enough to borrow. Listening to all three tills at once tells you more than any government statistic.
Earnings per share, usually shortened to EPS, is a company total profit divided by the number of shares in issue. Analysts publish forecasts in advance, and share prices generally react not to whether profit rose but to whether it beat or missed those forecasts. A company can grow profits handsomely and still see its shares fall if the growth was smaller than expected.
The more revealing number is often not profit at all but same store sales, sometimes called comparable sales, which measures growth at shops that have been open for at least a year. It strips out the effect of opening new locations, so it captures whether existing customers are actually spending more. That figure, plus management guidance for the rest of the year, usually moves the share price more than the headline profit line.
Guidance is the forward looking statement about what the company expects next. Retailers reporting in August are giving their first real read on the crucial back to school season and their early view of Christmas. In practice, a solid quarter paired with cautious guidance is treated as bad news.
What it means for you
If you hold a global equity fund or a US tracker in a pension or ISA, these results feed straight into the value of that holding, since the three companies are all S&P 500 constituents and the index is at a record. No action is required, but it explains why your balance may move noticeably midweek.
If you are considering adding to US shares, the sensible approach is to wait for the guidance rather than the headline profit. Markets priced for a soft landing and a September rate cut are vulnerable to any evidence that the consumer is weakening, and buying immediately after a record close leaves little margin for error.
For anyone tempted to trade around single results, it is worth remembering that individual retailer shares routinely move 5 to 10 percent on earnings day in either direction. That is a level of volatility that suits neither a pension pot nor an emergency fund, and broad index exposure captures the sector without the single company risk.
More practically, the read across for UK households is about inflation. If US retailers report that they are absorbing costs rather than passing them on, that is disinflationary for globally traded goods and eventually helps British shop prices. If they report raising prices, the opposite applies.
The bigger picture
The American consumer has repeatedly defied forecasts of exhaustion since 2022, supported by a strong labour market and accumulated savings. The July retail sales decline is the first genuine crack in that pattern for the better part of a year, which is why an otherwise routine set of retail earnings has become a focal point.
What to watch beyond the headline numbers is the language around inventories, promotional activity and credit. Rising markdowns and stretched consumer credit are the classic early signals of a slowdown. The Federal Reserve, which meets on 17 September, will be reading these results with the same attention as investors.
