Karmali and Sozzi on upcoming earnings

Executive Editor Brian Sozzi joins Ramzan Karmali on Market Sunrise to talk about the major earnings calls coming up this week, including Target (TGT), Home Depot (HD) and Walmart (WMT).

Video Transcript

00:00 Speaker A

Welcome back to Market Sunrise. And as promised, we're going to take a deep dive into those big box retailers, Target, Home Depot, and Walmart. And who better to do it with than our executive editor, Brian Sozzi. Brian, thank you so much for joining us. Let's start by looking at the earnings season as a whole. What have you made of earnings season so far, Brian?

00:27 Brian Sozzi

Robs are good to see you, man. Uh look, I think earnings season has completely shocked a lot of people on the street. I mean, you're talking about double digit profit growth. Margins haven't fallen off a cliff because of Trump tariffs. Sales have beaten estimates, earnings have beaten estimates. We've actually we also actually actually got guidance, uh coming out of the second quarter compared to what we heard from the first quarter. So I think yeah, everybody's excited about a potential 25 basis point rate cut from the Fed in September and yeah, it's usually helpful to stocks, but the bottom line is this market's set records because earnings haven't fallen off a cliff yet.

01:22 Speaker A

Now, let's focus in on these big box retailers. Let's start with Target. Now, I heard an analyst on Julia Tyleman Show last week, and he was pretty negative about Target. Is he right to be negative on on this one?

01:42 Brian Sozzi

Yeah, Rob's probably whoever that guest was, probably wasn't negative enough. I targeted uh no pun intended and try to play into like bullseye dog mascot. It's been a dog. It's been a dog stock. Uh it is put up some very dog-like financial results, not only this year, Rob on, um but also over the past uh year and a half. Company is materially underperformed Walmart on same store sales earnings. uh narrative on earnings calls, you name it. Target has just not hit the bullseye in any stretch the imagination. When they report today, there's I I think the street is expecting them to not report anything worse. Now, keep in mind, three months ago, target came out here and warned uh pretty materially on guidance. So I think the street is looking for this notion that maybe Target did the kitchen stink in terms of earnings growth three months ago. Uh I would push back on that. I wouldn't be surprised if Target comes out here and lowers guidance below their $7 to $9 uh full-year EPS range. This a company heavily exposed to tariffs about 50% of their cost sold tied are tied to imports coming to this country. They bring a lot of apparel in here. Uh they have a smaller grocery section relative to Walmart. So I'd be concerned about that guidance. If you're feeling up a beat uh here if uh on Target as if all the bad news is priced in, I'd push back on that.

03:57 Speaker A

So Target on Wednesday, on Tuesday, it's Home Depot. I'm sensing you're a little bit more optimistic about them than you are about Target.

04:12 Brian Sozzi

Yeah, you look Rob if uh Home Depot beats because I bought some very expensive grass during the quarter. A little top soil, a little concrete for my yard. No, but I think Home Depot the stock has gotten out of front of these results. Home Depot shares, I'm just looking at some of the Yahoo finance data I wrote down, up 11% in the past month. Uh home uh lowes uh up 17% uh in the past month. These stocks have risen really on two reasons. One, the 30 mortgage has backed off its highs of around 7% seen earlier in the year. Also, this these stocks Home Depot and Lowes are starting to price in that uh aforementioned rate cut from the Federal Reserve in September, which theoretically could unleash better remodeling trends in the United States next year. Maybe you go out and buy that appliance that's maybe 25 years old. You finally pull the trigger on that new whirlpool appliance. Uh but by and large, Home Depot might report one of the better quarters out of big box, but still sales will be slow. We've heard from many building materials companies that sell stuff inside Home Depot, like a Whirlpool, things will be challenged.

05:44 Speaker A

Believe it or not, Brian, I am a reluctant DIY as well. But let's move on to Walmart, probably the best of the bunch, you reckon out of the three.

06:04 Brian Sozzi

Well, you can pick up a good hammer at Walmart too there, maybe Asda, Rob and over there in the UK. Doesn't love a good trip to Asda. Um yeah, Walmart will probably be the best uh big box retail results uh out of this whole group. And that would be nothing new. Walmart uh won the Yahoo Finance company of the year award last year because sales were so strong, earnings were so strong. Seemingly every single quarter came in better than expected. Great narrative by CEO Doug M and CFO John David Brady. I think you will hear more of that when the company reports this week. Uh, everybody that is not shopping at Target has gone to Walmart. Their prices are lower. They have a bigger grocery section. Uh, their overall merchandise assortment is just better. Their website works better. So they're checking a lot of box rooms on uh and I think you'll hear from Walmart uh a strong sales quarter and probably guidance that is at least uh reaffirmed.

07:51 Speaker A

And Brian, um, we seem to have a lot we do pay a lot of attention to the MAG 7. Are we being a bit harsh on these some of these retailers and maybe we should focus a little bit more on some of them now and again?

08:12 Brian Sozzi

It's hard to, you know, Walmart to me has been a great story for for the past two years. I mean what that team has done has been absolutely mind-blowing. New stores, uh putting more AI in in the in the stores, the website now works. I mean same day delivery, they're taking share I would argue from an Amazon. So all good things at Walmart and like it's just not a sexy story or as sexy a story Rob on Walmart versus let's say a meta. I mean meta is out there spending tens of millions of dollars to hire people to go work on various AI projects. Earnings have been through the roof. They're they're repurchasing billions of dollars of stock. Um so meta just on paper, and it's not just meta, it's alphabet, it's Microsoft. I'm going to put Apple off to the side because they're trying still trying to figure out AI. Those have just been sexier growth stories, but don't discount Walmart and they've been doing quite well in terms of fundamentals.

09:39 Speaker A

And just finally, if there is a miss from any of these three, how big a reaction are you expecting in the in the markets?

09:52 Brian Sozzi

I'm going back, well look, I'm going back to Target. If Target comes out here and takes down their guidance, which is earnings this year $7 to $9. They come out here and say, hey, we're reporting $6 potentially this year. I I think Target stock is going to get absolutely waxed. And I think that'll be viewed as more company specific than an indictment on the broader market because I do believe Walmart will come out here and at the bottom line, like I mentioned, reiterate their full year outlook. Um, I I think as long as Walmart comes in here, keeps their outlook intact, reports another good quarter, that would be a a good signal for the market. It might even justify uh stock prices continuing to trade at records.

10:50 Speaker A

Brian Sozzi, our executive editor, first time on market Sunrise. Hopefully not your last. Thank you so much for your time this morning.

11:00 Brian Sozzi

I will be here.

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