Calendar Shift Flatters Consumer Earnings Reports

This week's consumer earnings reports from Walmart, Target, and Home Depot are being closely watched for signs of consumer health. However, according to a recent analysis, the numbers may not tell the whole story.

The July retail sales report showed a 0.6% drop against expectations for a small gain, the steepest decline since May 2025. But upon closer inspection, it appears that the calendar shift punished the July data point and flattered the reported quarter.

One key test to determine if a company's earnings are genuine or just a result of promotional activity is to examine its comparable sales growth (comps) alongside its gross margin. If comps grow while gross margin compresses, it means the company purchased its traffic, indicating a rollover in demand rather than real growth.

Another important consideration is that Walmart's strength can be ambiguous and potentially bearish for the consumer. A strong Walmart quarter can indicate trade-down from Target to Walmart, which may not be a clean bullish signal on the consumer.