Investors are looking toward big box retailer earnings expected out next week to better gauge the state of the U.S. consumer — after key inflation prints this week. Retailers Walmart (WMT), Target (TGT), TJX Companies (TJX), and Home Depot (HD) are on deck to post earnings.

"The consumer has increasingly wanted to spend on things like vacations, concerts, going out to eat, and that's also been more expensive," UBS U.S. Hardline & Broadline Food Retail Analyst Michael Lasser tells Yahoo Finance Live. "What has been left out is discretionary goods, things like consumer electronics, apparel, home-related products."

Lasser outlines how investors will be eyeing the performance of big-ticket retail items and increased sales driven by price hikes. He shares his outlook on Walmart's omnichannel approach for shoppers and Target's inventory concerns.

This post was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: The focus is going to be on retail next week with some of the sector's biggest names set to report earnings results.

Walmart, Target, and Home Depot are among the companies that will give us a closer look at the health of the consumer and some of the shopping trends.

Here to break it all down, we want to bring in Michael Lasser, UBS retail analyst.

Michael, it's great to see you.

Before we get into individual names, just first give us your sense of the consumer because we've been talking about for months and months and months that the consumer has been so resilient.

Is that going to be the case this earnings season?

- I think this earnings season we're going to see a mixed picture of the consumer.

The consumer has had to spend more money to buy basic necessities like food, household products given all the inflation that's happened over the last year.

At the same time, the consumer has increasingly wanted to spend on things like vacations, concerts, going out to eat, and that's also been more expensive.

What has been left out is discretionary goods.

Things like consumer electronics, apparel, home-related products.

And we are likely to see the composition of this spend in the upcoming reports of these retailers.

Now, the question is, what happens in the back half of the year and in the next year as some of this excess savings work down, the labor market becomes a little less certain.

And so I'm expecting mixed results and a cautious tone from some of these retailers as the pressures linger on the consumer.

SEANA SMITH: Yeah, it feels like it's more of a continuation of some of the narrative that we've heard from some of these big-box retailers.

You know, those like Target as well as Walmart over the last few quarters talking about consumers spending more on groceries less on big ticket items as well.

What are you going to be looking for when they report next week in terms of where things are likely to go?

I mean, to your point consumers are still spending, but it is services over goods.

MICHAEL LASSER: Yeah.

So here's a couple of things we're going to be looking for.

Number one, is the pressure on those big ticket items, is it starting to stabilize?

Meaning is it just not getting worse even though it might not be getting better.

Because obviously, that would be a prelude to an eventual recovery in those big ticket discretionary items.

Number two, a lot of these retailers because they report their sales in nominal dollars, they've been seeing significant growth simply from raising prices.

So what is the outlook for seeing growth from either more people going to their stores buying more products while they're there because they're going to rely less on raising prices as a way to drive growth into the back half of the year?

So those are going to be two critical areas to watch as we get into the reporting season over the next few weeks.

SEANA SMITH: So Michael, Walmart is one of the names that you cover.

It's been able-- it's been faring relatively well given some of the pressure that consumers have been under-- a number of consumers have been trading down.

How do you think Walmart is then positioned in this environment?

MICHAEL LASSER: I think Walmart is positioned really well.

Not only because consumers have been trading into Walmart because Walmart is as good of a retailer as any to help consumers stretch their budgets, but also Walmart's been more effective at doing things like rolling out Walmart Plus to make it easier and more cost effective to do online shopping and delivery of online purchases.

They've been expanding their assortment into more value-oriented products.

I think all of those factors along with some price inflation, and the contribution from rapidly expanding demand of weight loss drugs, GLP-1 drugs, all of that's going to contribute to very strong sales for Walmart in the second quarter.

The most likely case, though, is they take a prudently cautious outlook for the back half of the year.

The stock is in a nice run.

We think it's in the midst of a continued appreciation cycle.

We like the stock.

From here we would own it not only into the earnings report but also for the longer term as well.

SEANA SMITH: How does that compare with somebody like Target?

So Target has more of a lean to discretionary categories like home, consumer electronics, apparel.

It also has less exposure to fresh food.

So it's mix is going to act as a drag on its total performance in the quarter.

And we expect that with that being said, it's been recovering from some of the inventory disposition that it incurred last year.

Really the key for target here is what does the ongoing long-term profitability of this business look like?

We think as the sales stabilize and it continues to execute its strategy, which is to make it easy to do business with Target, we're going to see that its profitability is much higher than where it is today.

And as that comes into view, that's going to be very bullish for the stock.

SEANA SMITH: Michael, retail shrink-- when we speak of Target, they were the one company that said that they could take up to a $500 million hit in its profits because of retail shrink.

And we heard it from a number of Target competitors really across the retail landscape last quarter.

Have retailers at all-- have they been able to mitigate some of this pressure, and what do you think that pressure then looks like still?

MICHAEL LASSER: Well, so we think it's going to still be a source of pressure.

We don't think it's going to get worse.

We don't think it's going to get that much better.

But shrink has proven to be cyclical over time, especially during difficult periods where the consumer is facing a lot of pressure.

The consumer is more likely to engage in malicious acts, and that's in addition to some of the more cyclical challenges that have occurred with organized retail crime.

Our view is that as we move into 2024, these retailers are going to act more aggressively, deploy more strategies to try and address the shrink.

If that's not successful and it doesn't work, they're simply going to close some of these stores because it's not going to be economical to run those locations that are being most afflicted from this issue.

It is a industry-wide issue, but we think it does get better eventually.

And Target, as you rightfully mentioned, is the one that has the most leverage to the upside as shrink gets better.

AKIKO FUJITA: One of many factors no question investors are going to be focused on when those results start to come in next week.

MICHAEL LASSER: No doubt.

AKIKO FUJITA: Michael Lasser, thanks so much for joining us today.

MICHAEL LASSER: Have a wonderful weekend.