Wal-Mart Talks Bounceback, but Home Depot Isn't Sure

Call it a tale of two companies.

While discount-oriented Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks), the nation's largest retailer, said Tuesday it sees consumer spending "stabilizing" and predicted a return to double-digit earnings growth in the second half of 2001, Home Depot (HD Quote - Cramer on HD - Stock Picks), another retailer whose business stretches across a wide swath of the country, was decidedly more cautious.

These contrasting outlooks, plus last week's release of April sales data that were better than expected but hardly bullish, in most analysts' estimation, suggest the much-anticipated second-half recovery remains far from a sure thing. And considering the importance of the consumer to the U.S. economy, that could mean bad news for all stocks, not just retailers.

"We believe that it may be too early to forecast a meaningful turn in consumer spending," wrote retail analyst Mark Picard of Lazard Freres in a recent report. In recent trading, Wal-Mart shares were down $1.32 at $53.03, while Home Depot shares were up a buck at $50.15.

Now for Vishnu

The two retail juggernauts released quarterly earnings Tuesday, but as is usually the case the numbers weren't the only story. The companies' comments on the general economy are widely watched, as their businesses are seen as a reliable gauge of the health of the consumer sector.

For the record, both companies reported earnings in the range of expectations. Sales and earnings growth were lower than the companies have historically posted, with the faltering economy to blame. As expected, Atlanta-based Home Depot faced a tougher time attracting customers, and reported a 3.3% decline in same-store sales, a measure of activity in shops open at least a year and one of the most important financial metrics used to judge the health of retailers.

"The economic uncertainty has fought us every step of the way," Robert Nardelli, Home Depot's president and chief executive, told analysts and investors in a conference call Tuesday morning. "It was our toughest sales quarter in history."

Andal's Poetry

Meanwhile, Wal-Mart, based in Bentonville, Ark., said it doesn't see consumer spending falling further, and predicted its earnings will grow at a much higher rate in the second half as it benefits from consumers seeking out bargains. "As historically has been the case, this is a good environment for Wal-Mart," Lee Scott, the company's president and chief executive, said on a conference call with analysts. However, even these upbeat comments marked a retreat to what the company said earlier this year, when it predicted a "reacceleration of spending" spurred by lower gasoline prices and tax cuts.

But unlike Wal-Mart, which offered financial guidance for the remainder of the year, all Home Depot said was that it was comfortable with the current Thomson Financial/First Call consensus estimate for the second quarter of 37 cents a share in earnings. Same-store sales growth would again be flat or slightly negative in the quarter, the company added.

Nardelli also emphasized that Federal Reserve interest-rate cuts haven't yet resulted in lower mortgage rates, which would tend to boost demand for Home Depot's products.

"We are concerned with consumer confidence relative to certain big-ticket items," Nardelli said. Despite the nervousness toward the economy, the company still intends to open 200 new stores by the end of the year, and won't drastically reduce inventories or slash jobs, he said.

"We are confident we will be there when [the recovery] comes, and that we will be able to capitalize on the recovery," he said.

But when that recovery comes is still anyone's guess.