Walmart and TJX Profits: Wealthy Shoppers Seek Value

As more major retailers report earnings, a theme is clearly emerging: Value players are winning over both the rich and the cash-strapped.

Walmart And TJXthe parent company of TJ Maxx, stood out from the pack this week by raising its full-year guidance and expressing optimism about the start of the holiday season. Both said sales increased as they gained shoppers of all incomes, in the same week as other major U.S. retailers. Home deposit, Lowes And Target slashed their profit outlook and said they saw consumer reluctance to make large purchases.

In an interview with CNBC, Walmart CFO John David Rainey said the big-box retailer has seen “value-seeking and choice-seeking” spending habits from consumers in recent quarters. He said: “It stands to reason that if there is a little extra pressure on the consumer it will only get worse, they will look for more value.”

And TJX CEO Ernie Herrman said the company, which includes Marshalls and Home Goods, had a “strong start” to the holiday quarter and was “confident that consumers will continue to look for value.”

Shares of Walmart and TJX rose Thursday, even as all three major U.S. stock indexes turned negative.

The performance of the two retailers, both of which are strongly associated with compelling deals, stands out at a time when investors, industry watchers and economists are trying to predict retail sales during the critical holiday season and the outlook for the U.S. economy next year. Their performance could bode well for other off-price brands, such as Ross And Burlingtonand value-driven players, including Dollar General, Dollar tree, Five below And Costcowhich will publish its most recent results in the coming weeks.

In recent months, a combination of factors has made it difficult to assess how retailers and the economy as a whole will fare in the coming months. This includes nervousness about the job market following significant layoffs at companies including Amazon, Verizon, UPS And Targetand fears that the stock market has been buoyed by artificial intelligence companies, contributing to bubble risk. A prolonged government shutdown has also muddied the waters by delaying the release of recent employment and inflation data.

There are also contradictions between what consumers say and do. Consumer confidence fell to its lowest level ever, even as retail sales strengthened in October, according to the CNBC/NRF Retail Monitor.

This has led to murky vacation expectations. For example, the National Retail Federation predicted that holiday sales would increase 3.7% to 4.2% year over year and exceed $1 trillion for the first time, while consulting firm PwC said consumers planned to reduce their average holiday spending by 5% compared to last year’s holiday season.

Home Depot, Lowe’s and Target put their thumbs on the scale this week. All three lowered their full-year profit forecasts and spoke of pressure on their businesses as customers hesitate to take on bigger projects or make more expensive purchases.

For Home Depot and Lowe’s, the lack of consumer confidence could extend a period of conservative spending driven by declining real estate sales. For more than two years, they’ve seen clients take on smaller home improvement projects rather than splurges like renovations that cost more or require financing. This trend has continued, even though these companies cater to U.S. consumers who typically own homes and have benefited from home equity gains.

Lowe’s CEO Marvin Ellison said even homeowners are “not immune” to being rattled by headlines about government shutdowns, rising tariffs and other policy changes that could hit their wallets — which could encourage price sensitivity and procrastination in purchases. He said the home improvement retailer has focused on ways it can advance its own strategies, such as expanding its merchandise assortment and attracting more home professionals as customers.

Target, which has faced some challenges of its own, expects shoppers to watch prices and make compromises during the holiday season, such as spending more on gifts and less on other areas like decor or food, Chief Commercial Officer Rick Gomez said on a call with reporters. The retailer slashed prices on 3,000 food and home essentials and tried to lure shoppers with low opening prices, like $1 Christmas tree decorations.

At Walmart, Rainey told CNBC the company was “winning [market] “shares among all income cohorts, but as we have noted for several quarters, they are most pronounced in the upper income segment.”

For TJX, Herrman said the company’s focus on value is a competitive advantage. He said during the company’s earnings conference call that its blend of “brand, fashion, quality and price sets us apart from many other retailers and has served us extremely well in many types of retail and economic environments over our nearly 50-year history.”

In a research note, Dana Telsey, retail analyst and CEO of Telsey Advisory Group, said TJX’s multiple top results “highlight the strength of its value-driven proposition, which continues to resonate with consumers in an increasingly price-sensitive environment.”

Customers of all incomes come to TJX’s stores and website, but lower-income shoppers drove sales growth in most of its geographies last quarter, Chief Financial Officer John Klinger said during an earnings conference call.

Although Walmart and TJX have weathered economic crises better than many other retailers, they are not immune to economic weakness.

Walmart’s Rainey said that despite its strong sales forecast for the year, the retailer has spotted “pockets of moderation” among lower-income shoppers because they feel more stuck than other customers. During the company’s earnings conference call Thursday, he discussed the stark disparity in wage growth between high- and low-income U.S. consumers.

He also told CNBC that the retailer noticed a pullback in customers who stopped receiving Supplemental Nutrition Assistance Program, or SNAP, benefits during the government shutdown. But Rainey said, “It’s starting to rebound now that people are getting these funds again.”

“We’re seeing the same things as everyone else, and we’re keeping a watchful eye on it,” he said during the company’s earnings conference call. “But again, I think Walmart is better insulated than anybody.”