Here’s How Wal-Mart and Home Depot Sales are Bucking the Economic Slowdown

Home Depot (NYSE:HD) shares are up this morning after the company reported second-quarter earnings. The S&P 500 component reported a net income of $1.36 billion, a year-over-year increase of 14.3% that beat analysts’ expectations. Revenue rose 4.2% to $20.23 billion from the year earlier quarter — analysts were expecting revenue of $19.96 billion.

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With its earnings report, Home Depot raised its full-year profit forecast, expecting that last quarter’s increases in traffic and spending will continue. Rating Home Depot as overweight, JPMorgan Chase (NYSE:JPM) analyst Christopher Horvers said in a note to clients today that customer visits to the home-improvement outlet “tend to build like a snowball rolling down a hill as an improved customer service experience on one visit emboldens that consumer to come back in the future.”

Home Depot’s (NYSE:HD) success may partly rely upon its customer service and variety of products, but it also might be the result of a do-it-yourself mentality coming out of the recession, with Americans trying to save money on household projects by doing them themselves. It could also be that Americans are choosing to improve upon or add on to their homes rather than sell in order to upgrade, with the poor housing market meaning many would be forced to sell at a loss.

Though the economy has improved since 2010, growth has been stagnating, and Americans might be getting used to the idea that a full recovery may still be well in the future, and are adjusting their spending habits accordingly. Home Depot’s (NYSE:HD) success in its second quarter could actually be a negative economic indicator, or at least an indicator of declining sentiment and lowered expectations.

The same goes for Wal-Mart (NYSE:WMT), which markets itself as a low-price, one-stop shopping center. The company reported second-quarter net income of $3.8 billion, up from $3.6 billion in the same quarter a year earlier, marking a 5.7% year-over-year increase. Revenue climbed 5.4% to $109.37 billion from the year-earlier quarter as shoppers looked to save money.

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While the company’s Wal-Mart (NYSE:WMT) stores sales figures actually declined 0.9% during the last quarter when excluding fuel, sales at the membership-only retail warehouse Sam’s Club climbed 5% year-over-year. Sam’s Club, which sells bulk items at discounted prices, accounts for 11.8% of sales for Wal-Mart Stores, Inc. in the 2011 fiscal year.

Wal-Mart (NYSE:WMT) stores performed better overseas, with international net sales increasing 16% to $30.1 billion, while Sam’s Club’s net sales rose 9.5% to $13.6 billion. Net sales in the U.S. climbed a much more modest 0.4% to $64.9 billion.

Wal-Mart (NYSE:WMT) shares are trading up nearly 4% so far today, while Home Depot (NYSE:HD) shares are up 5%.

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