Retail Earnings Puts Spotlight on Consumer Spending

Reporting This Week

With consumer spending comprising about 70% of the US economy, analysts are scrutinizing all the related data they can find in hopes of gaining insight into how inflation is impacting Americans’ appetite for shopping. This week, several retailers including Macy’s (M), Dollar General (DG), and Costco (COST) will release their quarterly results. All the while, inflation has pushed up the cost of nearly everything, and stimulus payments are a thing of the past.

It seems investors aren’t optimistic. The S&P Retail Select Industry Index has declined over 30% in 2022.

Target and Walmart Disappoint

Last week, Target (TGT), Walmart (WMT), and Kohl’s (KSS) all reported earnings that fell short of Wall Street expectations. Though he had expected a slowdown this year, Target CEO Brian Cornell said “we didn’t anticipate the magnitude of that shift.” The weak results posted by these industry leaders have prompted some analysts to lower their outlook for the broader retail sector.

The concern is that low and fixed-income Americans are beginning to scale back their purchases, focusing on the must-haves while cutting discretionary spending.

Discretionary Demand

As consumers adjust to the highest inflation in 40 years, industry observers expect a shift in buying habits. Shoppers looking for bargains may flock to dollar stores. Brand names may be snubbed as consumers take advantage of the cost savings offered by store labels. Plainly stated, Americans may look to prioritize necessities and try to stretch their dollars further. Since the US economy is driven largely by consumer spending, these actions could slow growth.

Many retailers haven’t been able to pass on the higher costs fast enough to offset the increase in prices. Some worry more pain at the stores is on the horizon.

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