By Bill Peters
Walmart has said that customers start to cut spending when gas prices hit $4.50 to $5 a gallon
Walmart reports quarterly results on Thursday, in a big week for retail earnings.
As the Iran war began driving gas prices higher in March, Walmart executives told UBS analysts that consumers' attitudes start to sour when gas prices hit $3.50 to $4 a gallon. At around $4 to $4.50, shoppers start making substitute purchases. At $4.50 to $5, they cut spending.
Above $5, the analysts relayed, would represent a &#34;material drawback&#34; in demand.
With the retail bellwether's (WMT) earnings due on Thursday, we'll see more clearly how demand has held up.
As of Friday, the nation's average gas price sat at around $4.53 a gallon, according to AAA. Some retailers have said they're not worried about higher gas prices, even as elevated fuel costs drive up costs for shipping and other supplies. Consumers, though, have adopted a gloomier attitude, even as analysts note that they continue to spend despite the biggest price shocks seen since the pandemic.
Walmart joins Target (TGT), Home Depot (HD) and an array of other retailers in reporting quarterly earnings this week. Taken together, the results will represent the deepest look yet from corporate America at how consumer shopping patterns have changed - or not - as markets mostly shrug off the war's impact.
Major retailers have more resources to absorb those shocks and keep prices lower. The UBS analysts, led by Michael Lasser, said in a note on Wednesday that the impact of higher gas prices on Walmart's first-quarter results was likely limited.
Moreover, they said, higher gas prices likely represented an opportunity for the chain to capture incremental business - particularly among wealthier customers and in its large grocery business. The analysts noted that the company is also better able to handle the effects of higher gas prices than it was in the past.
&#34;Given the inroads [Walmart] has made in penetrating high-income consumers of late, its overall customer base is likely less sensitive to increases in fuel prices,&#34; the UBS analysts said.
&#34;Plus, the buildout of its [e-commerce] business provides an opportunity to retain business it has typically lost in past fuel price shocks from consumers who are reluctant to drive to stores,&#34; they continued.
The UBS analysts estimated that grocery chains were facing costs that were at least 3% to 4% higher - with many passing on a bit less than that in the form of price increases, as they try to eat the extra costs and hope for a quick end to the Iran conflict. Stomaching those higher expenses will get more difficult the longer the war goes on.
Still, Mizuho analyst David Bellinger was more cautious on Walmart heading into the results. The state of lower-income shoppers, he said, would be in focus.
Bellinger said both Walmart and Target, which reports earnings on Wednesday, are likely to stick with their full-year outlooks, which would be typical of first-quarter results. However, he noted that holding on to those forecasts &#34;could be interpreted as more of a cautious stance on the balance of the year and spending at large.&#34;
&#34;All in, we take somewhat of a prudent approach into both prints,&#34; he said.
Target reports as its new CEO, Michael Fiddelke, settles into the job. The retailer is trying to turn itself around and rediscover its sense of style, after inflation over this decade forced consumers elsewhere.
But TD Cowen analysts said that with Target's stock up 24% so far this year, expectations are high. They said sales of home goods, clothes, and things like electronics and appliances - items that make up around half of the retailer's sales mix - would be crucial to accelerating that turnaround.
Meanwhile, Home Depot and Lowe's (LOW) also report this week, as Wall Street braces for the impact of a possible thaw in the housing market. Some analysts see potential gains for home-improvement retailers, since consumers can only put off repairing aging homes and replacing furniture and appliances for so long. And amid the hunt for deals, Ross Stores (ROST), TJX (TJX) and BJ's Wholesale Club (BJ) also report.
Elsewhere, Hasbro (HAS), Urban Outfitters (URBN), el.f. Beauty (ELF), Ralph Lauren (RL), and Hoka and Ugg maker Deckers Outdoor (DECK) report results during the week as well.
Prices for clothing have risen in recent months, as higher oil prices (CL00) from the war translate to higher costs for materials like polyester and, indirectly, cotton. Whirlpool (WHR), which makes appliances like washing machines and refrigerators, likened its own pullback in demand to the financial crisis that occurred nearly two decades ago.
In recent weeks, executives at some of the companies that make a lot of consumer basics, like Procter &amp; Gamble (PG), have said prices on some basic household products could move higher, as companies digest higher costs for oil and other materials and try to attract shoppers with new, more innovative products. However, economists have been concerned about how much more room consumers have in their budgets for higher prices.
Rod Little, CEO of Edgewell Personal Care (EPC) - the company that makes Schick razors and Edge shaving gel, among other personal products - told MarketWatch that the war had pushed costs higher for steel, which it uses for razor blades, and aluminum products like aerosol spray cans. Steel and aluminum imports also get tariffed, he noted, while costs for oil-derived materials used in plastic bottles for sunscreen and grooming products had also risen.
Little added that the steel Edgewell uses for its blades comes only from Finland and Japan. The supply chain for those products, he said, doesn't exist anywhere else.
&#34;We've not taken any pricing in the last two years - even longer than that,&#34; he said about raising prices for company's shaving and sunscreen products in the U.S. The CEO added, however, that &#34;it's a requirement that we put [price increases] on the table now.&#34;
-Bill Peters
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
05-17-26 1100ET

Walmart and Target are set to report quarterly earnings amid rising gas prices due to the Iran war, which have affected consumer spending habits. Analysts note that spending tends to decline significantly as gas prices exceed $4.50. While Walmart may benefit from higher gas prices by attracting wealthier customers, concerns remain about lower-income shoppers. Target's new CEO faces challenges in revitalizing the brand. Other retailers, including Home Depot and various clothing brands, will also report earnings, reflecting the broader impact of inflation and changing consumer behavior.

- Walmart's analysis reveals that consumer spending declines as gas prices rise, particularly when they reach $4.50 to $5 per gallon, causing shoppers to seek alternatives or cut back.  
- While gas prices average around $4.53 a gallon, major retailers like Walmart are better equipped to handle these fluctuations, potentially attracting higher-income customers and capturing additional grocery business.  
- Analysts remain cautious about Walmart's earnings outlook, focusing on the financial health of lower-income shoppers amidst growing concerns over rising costs affecting consumer budgets.

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UBS Group AG

Mizuho Financial

Mizuho Financial Group, Inc.

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Lowes

Ross Stores

BJs Wholesale Club

Hasbro

Urban Outfitters

ELF Beauty

Ralph Lauren

Deckers Outdoor

Whirlpool

Procter & Gamble

WHIRLPOOL CORP DEP REPSTG 1/20TH INT MAN CONV SER A

Walmart and Target are about to show just how much shopping habits have changed due to the Iran war