Macy’s and Dick’s Sporting Goods stocks experienced significant declines on Tuesday as both companies expressed apprehension about the future state of consumer health. This sentiment aligns with the concerns shared by several other retailers this earnings season.
Dick’s, a renowned sporting goods retailer, lowered its outlook for the fiscal year and fell short of earnings expectations for the first time in three years. Meanwhile, Macy’s, while posting a solid quarter, disclosed that credit-card delinquency rates had risen at a faster rate than initially anticipated, indicating potential financial strains for consumers.
Adrian Mitchell, Macy’s Chief Financial Officer, emphasized their cautious view on the consumer during an investor call on Tuesday. He highlighted various factors including the expiration of student loan forgiveness starting in October, higher interest rates, and a decrease in new job creation, all placing additional pressures on consumers.
Unsurprisingly, Macy’s stock plummeted by 14%, and Dick’s by 24%. The downward trend also impacted other companies within the consumer discretionary sector. The SPDR S&P Retail ETF (XRT) experienced a 2.8% decline on Tuesday.
However, these warnings from Macy’s and Dick’s should not come as a shock for those closely monitoring the retail earnings season.
Corey Tarlowe, an analyst at Jefferies, acknowledged that although the consumer has demonstrated resilience, there are underlying signs indicating increased strain. Other retailers such as Target, Home Depot, and Lowe’s have also expressed concerns about weak demand for significant discretionary purchases, sentiments echoed by Macy’s on Tuesday.
The Impact of Consumer Budgets on Retailers
Even with strong results from major retailers like Walmart (WMT), TJX Cos. (TJX), and Ross Stores (ROST), there are troubling implications for consumer health. These companies’ success can be attributed to the fact that shoppers are flocking to their stores in an effort to stretch their budgets.
According to Neil Saunders, managing director at GlobalData, Walmart’s success and Target’s weaker performance reflect two sides of the same coin. Target has experienced a decline in sales due to its larger selection of discretionary items, while Walmart has gained market share in its grocery business as consumers prioritize spending on food and essentials.
The Retail Landscape
Saunders argues that Walmart’s success is not indicative of a strong economy but rather a reflection of consumers feeling the financial strain. Conversely, Target’s struggles can be seen as a reflection of a more robust economy.
This current trend sets a somber backdrop for retailers, such as Abercrombie & Fitch (ANF), Kohl’s (KSS), Burlington Stores (BURL), Gap (GPS), and Nordstrom (JWN), who have yet to report earnings.
However, Tarlowe, a retail analyst, believes that companies with a strong emphasis on value or those with strong brand momentum still have the potential to do well, despite the macroeconomic outlook. He specifically points to Abercrombie, which surprised investors with a profitable quarter last time, signaling the success of the company’s reinvention plan.