Finance
A slew of retail names this week offered repeated warnings about cash-strapped American consumers
In late August, Walmart (WMT) offered a lifeline to investors concerned about the health of American consumers. The CFO, John David Rainey, told investors Walmart’s customers have been “picky,” but when asked about signs of a broader slowdown, Rainey added, “We don’t see it.”
However, this week’s results from a slew of major retail names make the situation much more uncertain for American consumers.
Retail names ranging from Dollar General (DG) and Lululemon (LULU) to Abercrombie & Fitch (ANF) and Ulta Beauty (ULTA) received mixed reactions this week after making cautious comments about the overall spending environment and the potential impact on their businesses.
Shares of Dollar General took the hardest hit, falling 32%, the most on record, after the discount retailer cut its full-year outlook and blamed weaker sales to a financially strapped core customer.
CEO Todd Vasos labeled the last week of each of the quarter’s calendar months as “the weakest by far,” with customers leaning on a mix of the 2,000 items still priced at $1 or less.
“All of these points would indicate that this is a cash-strapped consumer, even more so than we saw in the first quarter,” Vasos told analysts during the company’s earnings call on Thursday. Dollar General noted that consumers were more attracted to consumables and less attracted to household and seasonal items.
The latest retail sales data showed a 1% increase in July, above Wall Street expectations for 0.4% growth.
But a look under the hood showed less optimistic signs, according to Forrester Research retail analyst Sucharita Kodali.
“Consumer spending is essentially in line and below inflation in some categories, so that means even though the numbers are positive, consumers are really softening,” Kodali said in a recent interview with Yahoo Finance.
The data, which have not been adjusted for inflation, showed a 0.1% monthly decline in clothing store spending; Department stores saw turnover fall by 0.2%.
Kodali, like other analysts, has pointed to giant retailers like Costco (COST) and Walmart, which have increased their market share in several classes.
“Lower-income consumers continue to take out debt, they are the most stressed and are likely the driving force behind some of these Walmart numbers,” the analyst said. “I would say Walmart’s growth is probably at the expense of other retailers.”
But even brands that target higher-income consumers who make discretionary purchases, such as Ulta Beauty, pointed to a more money-conscious customer as part of the reason for the company’s revenue and profit miss.
“Consumer behavior is beginning to change as consumers increasingly focus on value and become more cautious about their spending,” CEO Dave Kimbell said during the company’s earnings call.
Kimbell then cited increased competition within the high-margin makeup industry as an additional challenge for the company.
“Today there are significantly more places to buy beauty, especially prestige beauty, with more than 1,000 new distribution points opened in the last three years. As a result, our market share remains challenged, especially in the prestige beauty space,” said Kimbell.
As consumers become more discerning and competition increases, retailers have little room for error.
Lululemon noted that its U.S. women’s business slowed due to a lack of “newness” or seasonal updates within styles typically expressed as color, print and patterns.
“It has become clear to us that this reduced newness, which is below our historical levels and stems from previous product decisions, has impacted conversion rates given the fewer new options available to our female guests,” CEO Calvin McDonald said during the company’s earnings call the company.
“The new thing we had done well, we simply didn’t have enough to inspire her to purchase.” McDonald said.
Even after a strong quarter at Abercrombie and Fitch, CEO Fran Horowitz warned about the economic backdrop during the company’s earnings reports.
“In addition to record second quarter sales, this is our seventh consecutive quarter of net sales growth in a dynamic, often uncertain consumer environment that underpins the strength of our brands,” said Horowitz.
Abercrombie shares sold off 14% after the results, even though the stock was one of the S&P 500’s best performers over the past year.
“We think investors may be a little concerned that this could mean peak growth [Abercrombie],” CFRA analyst Zachary Warring told Yahoo Finance.
“It was a great quarter. We think they are the best performing apparel brand in the US today.”
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X @ines_ferre.
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