US retail sales figures for January proved strong across the board and supported the rosy view the American consumer can remain resilient in the face of inflation, rising interest rates and dwindling pandemic savings.

According to the Commerce Department, retail sales for the month grew by 3%, beating expectations of a 1.9% rise and with no categories seeing a decline, as shoppers continued to spend in the face of higher gas prices.

However, earnings from two of America’s biggest retailers, Walmart (WMT:NYSE) and Home Depot (HD:NYSE) suggested resilient consumer demand may finally be running out of steam.

Both issued gloomy outlooks with their fourth quarter results (21 February). Arkansas-based Walmart was cautious on the year ahead with consumers likely to continue shopping for cheaper items that hurt margins at a time when suppliers are planning further price hikes.

For the year to January 2024, it expects same-store sales for Walmart US to rise by a modest 2% to 2.5% excluding fuel and adjusted earnings per share (EPS) to come in between $5.90 to $6.05 range, below the $6.50 analysts were looking for.

The downbeat guidance overshadowed forecast-beating fourth quarter sales and earnings from the big-box retailer renowned for its value credentials, as Walmart lured in price-sensitive shoppers with its budget groceries, household goods and gifts.

For the quarter to January 2023, Walmart generated revenue of $164 billion and adjusted EPS of $1.71, both ahead of the $159.7 billion and $1.51 analysts were calling for, as Walmart US same-store sales excluding fuel skipped 8.3% ahead and e-commerce sales surged 17% higher.

CEO Doug McMillon insisted Walmart had ‘acted quickly and aggressively to address the inventory and cost challenges we faced last year’ and is ‘well-positioned to start this fiscal year’. In addition, the board signed off on a 2% hike in the annual dividend for 2024 to $2.28, marking Walmart’s 50th consecutive year of payout increases.

Nonetheless shares in Walmart came under pressure and DIY chain Home Depot also fell after sales for the fourth quarter ended 29 January 2023 came in below estimates due to weak demand caused by inflation and a housing market slowdown. Revenue of $35.8 billion was up 0.3% year-on-year but below the $35.97 billion analysts were looking for  marking the first time the world’s largest home improvement retailer – has missed Wall Street’s sales expectations since November 2019 – as like-for-like sales in the US decreased by 0.3%.

Investors were also spooked as Home Depot, led by CEO Ted Decker, issued a downbeat outlook for the coming year amid a toughening consumer backdrop. Home Depot is now guiding for flat comparable sales in 2023 and a mid-single digit decline in EPS.

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