The big economic news for Tuesday was the October retail sales report, which showed headline growth year-over-year of 16.3% for retail and food services, well ahead of the expected 13.9% increase.
Stripping out food, and focusing on retail, those sales climbed 14.8% year-over-year with particular strength in food services & drinking places (+29.3% year-over-year), department stores (+27.6%) and clothing & clothing accessories (+25.8%) and gasoline stations (+46.8%).
Taking a closer look at the sequential year-over-year pattern for September and October, we see a nice tick up in non-store retail sales, food & beverage stores (including grocery stores), auto & other motor vehicle dealers, and building materials. That month-over-month improvement seems to confirm that supply chain issues have improved at least some in October, further supporting the figures we've seen from the likes of Ford Motor (F) , Costco Wholesale (COST) and others.
As we discussed on today's Daily Roundup, we recognize that year-over-year price increases in gasoline, home heating, and food as well as those for other products and services, are taking a bite out of consumer wallets, hitting disposable spending dollars. We continue to see the portfolio well positioned to capture the shift in where consumers are likely to spend given our positions in Amazon (AMZN) , Costco Wholesale, and Walmart (WMT) . And speaking of Walmart....
Walmart Earnings
Despite the positive surprises contained in today's quarterly results from Walmart, the shares are trading off and paired with the increase in our price target for WMT shares to $165 from $160, we see that pullback as a good spot for subscribers who are underweight the shares to add to their holdings. Our bullish stance is touched on above and was also mentioned in Tuesday's Daily Roundup, but the bottom line is that Walmart remains well positioned as an omni-channel retailer that helps customers stretch disposable spending dollars. It also helps that Walmart is the largest grocer in the U.S., a position it can exploit as shoppers return on a semi-regular schedule. We'd remind subscribers the October consumer price index showed that meat, poultry, fish, eggs and other "proteins" rose 11.9% vs. year-ago levels, following the 10.5% year-over-year jump in September.
And Walmart's quarterly results show they are indeed capturing consumer wallet share as evidenced by the 9.2% comp store sales print ex-fuel for the quarter that handily beat the +6.9% consensus. U.S. e-commerce sales rose 8% in the quarter and were 87% higher than the same quarter two years ago. Sam's Club sales increased 13.9% and Sam's membership income was up 11.3%. While we tend to focus on Costco's membership revenue stream, we'd note "membership and other income" at Walmart accounted for just under 1% of Walmart's October-quarter revenue and ~23% of its operating income for the quarter.
If there was one bone to pick with Walmart's earnings report, it would be the little change in operating income for the quarter, despite the 4.3% revenue increase for the quarter. That can be chalked up to supply chain issues and higher input as well as transportation costs, which shows up in the 4.7% year-over-year increase in cost of sales. Given the strength of Walmart's supply chain and ability to negotiate with vendors, we suspect other retailers may not fair as well when their revenue and operating income performance is put under the microscope.
Based on the quarter's performance and its outlook for the current quarter, Walmart upped its EPS outlook for its fiscal 2022 to $6.40 up from the prior $6.20-$6.35 range. That improved outlook is the catalyst behind the boost in our price target to $165 from $160. We'd note through the first three quarters of this year, Walmart repurchased $7.4 billion in shares, roughly 35% of its $20 billion authorization. That leaves ample firepower to not only continue such activity, but it also provides nice downside support to the shares.
Boeing Boost
Shares of Boeing (BA) closed up 5.5% Monday after the company announced Sunday that it is getting close to resume deliveries of its 787 Dreamliner. Early this morning Boeing reported its received orders for a 787 Dreamliner, a 767 Freighter and two 737 MAX airplanes from the United Republic of Tanzania. Boeing also announced its first order from Akasa Air, an Indian low-cost airline, for 72 737 MAX jets in a deal valued at $9 billion.
With a few more days left for the 2021 Dubai Airshow, we'll be on the lookout for further wins.
Biden and Xi
Following Monday night's summit between President Biden and Chinese President Xi, the White House shared the discussion didn't produce any major resolutions, Biden was clear that the U.S. needs to protect American workers and industries from China's unfair trade and economic practices, Xi said Biden is "playing with fire" regarding U.S. support for Taiwan.
"China and the United States should respect each other, coexist in peace and pursue win-win cooperation. I stand ready to work with you, Mr. President, to build consensus, take active steps and move China-U.S. relations forward in a positive direction," said Xi.
Initial conversations can always be tricky, now to see what follow-through ensues, including topics for the next Biden-Xi conversation as well as subsequent progress.
Eurozone GDP: Round 2
The Eurozone's GDP growth rate in Q3 (second estimate) came in at 2.2% QoQ and 3.7% YoY after rising 2.1% and 14.2% respectively in Q2, matching the consensus forecast.
Notables
* Ohio Attorney General Dave Yost has filed a lawsuit against Meta Platform's (FB) Facebook for misleading the public on how it controlled its proprietary algorithm.
* Ahead of Cisco's (CSCO) quarterly earnings report this week, Rackspace Technology (RXT) shared demand for cloud solutions is "booming" and its sees new cloud spending hitting $44 billion next year, up from $34 billion this year and $22 billion in 2020.