The worst may be over for the bloodbath of supermarkets.

On Tuesday, Walmart Inc. predicted that its profits this year would not decline as much as it predicted three weeks ago when it issued a profit warning. The Home Depot Inc. also posted record quarterly sales and profits and maintained its guidance for the remainder of its fiscal year.

After two profit warnings from Walmart in just over two months, the latest results are a relief that things haven’t gotten any worse, at least for the world’s biggest retailer. Target Corp., which has also issued earnings warnings twice in recent months, will release its second-quarter results on Wednesday.

Given that Walmart’s customer base closely resembles the US population, this marks further good news for the broader economy on top of last week’s data showing slowing inflation.

Walmart’s U.S. same-store sales growth was better than expected, rising 6.5% in the second quarter. While this was likely boosted by inflation, it shows that the company’s focus on value still appeals to customers, including upper and middle income families. It now expects adjusted earnings per share for the year to the end of next January to fall as much as 11% – a slight improvement from the 13% drop it forecast at the end of July.

The retailer, which on Monday struck a streaming deal for its membership program with Paramount Global, is also grabbing its mountain of unsold stock. Although product inventories rose 26% to $59.9 billion at the end of the second quarter from a year earlier, this is down from the end of the first quarter. The shares rose 5% in early trading.

And yet, it’s too early to open Walmart’s private label wine.

The retailer must not only manage its excess inventory, but also control its rising costs. It has made progress in reducing the glut of surplus products, for example in clothing, where its shelves were most full, and it has canceled billions of dollars in orders. But there’s more streamlining to be done in apparel, as well as furniture and electronics.

The company’s fortunes – along with those of other muscle retailers – will also depend on consumer behavior for the rest of the year.

Signs of slowing US inflation are helpful, but price hikes, for example in food, continue to be a reality for consumers. Americans also face higher borrowing costs and any weakening in the labor market.

Walmart CEO Doug McMillon said he expects a strong end to the crucial back-to-school shopping season, often an indicator of how winter holiday shopping will go.

Home Depot, meanwhile, needs to pay attention to other factors. Renovating the family bathroom is a much bigger expense than buying a new robe or even a couch. When budgets are tight, these major purchases are often postponed. Of note, while the average amount spent by Home Depot customers rose to $90.02 in the second quarter from $82.48 the year before, the number of customer transactions fell 3%. Inventories also rose 38% to $26.1 billion from the same period in 2021.

Do-it-yourself projects are also linked to transactions in the housing market. Americans are more likely to take on a renovation project when buying a new home, and that’s slowing down.

Home Depot makes 45% of its sales with professional customers, ahead of 25% with its rival Lowe’s Cos. Inc., according to Bloomberg Intelligence. So while some consumers have limited their DIY spending, contractors have continued to be busy and have been able to pass on price increases to their own customers. Indeed, this is one of the factors that has contributed to the strong performance of the company. However, if the economy weakens later this year, this positive effect could be dampened.

For now, battered big box retailers have reason to look on the bright side. Customers have yet to reduce their buying behavior, which is encouraging not just for businesses, but for the rest of the US economy.

More other writers at Bloomberg Opinion:

• Stock market rebound has history on its side: Aaron Brown

• Democrats edge out Republicans, just in time for midterms: Matthew Yglesias

• Will housing prices flatten or collapse? :Jonathan Levin

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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