Amazon results could bode well for rival retailers Walmart, Target

By Siddharth Cavale and Ananya Mariam Rajesh

NEW YORK (Reuters) – Amazon’s strong quarterly results are one more sign that Americans are still shopping, despite months of ominous economic indicators, and could be a positive signal for Walmart (NYSE:) and Target, who report next week.

The e-commerce giant reported a 4.2% jump in sales on Amazon.com (NASDAQ:) and a 6.4% jump in sales at its physical store operations, which include Amazon Fresh, Whole Foods and Go convenience stores, for the second quarter ended June 30.

Walmart and Target, the two biggest retailers in the United States, have set a cautious tone for the rest of the year. But despite rising interest rates and credit card debt, Americans are still spending.

David Klink, senior equity analyst at Huntington Private Bank, said he saw “encouraging” signs in Amazon’s results. North American retail operations were responsible for more than two thirds of Amazon’s $4.4 billion improvement in operating income, noted Klink, whose firm holds stakes valued at about $166 million in Amazon shares, $80 million in Walmart shares and $19 million in Target shares.

Yet a major question is “whether Amazon’s growth was more to do with improvements it has been making” than a reflection of stronger consumer demand across the board, said GlobalData Managing Director Neil Saunders.

Amazon has been making efforts to speed up its same-day and one-day deliveries, introduce adjustments at its Whole Foods business such as lower prices and embedded checkout technology, as well as sharpen in-stock levels and refine the decor of its Amazon Fresh stores, executives and analysts said.

The Seattle-based company forecast as much as a 13% rise in sales for the July-September period, driven by strong performance during its “Prime Day” event held on July 11 and 12. To be sure, Amazon’s second-quarter numbers reflect higher prices and relatively low comparisons. In the same period last year, U.S. inflation was at its peak, prompting shoppers to cut back on purchases.

Target, which reports April-June results on Aug. 16, in May forecast a grim second quarter and said it expects full-year comparable sales to either rise or fall by low-single digits. Walmart, which reports on Aug. 17, had a better-than-expected first quarter and forecast sales to be up about 3.5% for the year. But Walmart executives said they were “uncertain” about the back half of 2023, as goods become more expensive and people have less money to spend.

Other big companies have also signaled possible choppy waters ahead. Apple (NASDAQ:), shipping group Maersk and advertising giant WPP (LON:) said last week they expect less demand for iPhone shipments, global container volume and advertising spend respectively over the next few months.

Amazon’s performance following its Prime Day was a “good read for discount retailers,” however, said Joseph Feldman, an analyst with Telsey Advisory Group.

“I think that value-based retailers like Walmart and Target” will hold up better than others, he said.