As the earnings season gradually comes to a close, the financial repercussions of the culture war controversies that shook Target and AB InBev this summer are becoming clearer.
AB InBev’s Declining U.S. Revenue
AB InBev (ticker: BUD) reported a significant decline of 10.5% in U.S. revenue, primarily due to the ongoing pressure on Bud Light sales. However, the company experienced strong overall growth in sales across other global markets.
Target’s Missed Expectations and Guidance Cut
Target (TGT) faced greater difficulties. The company failed to meet revenue expectations and subsequently revised its guidance for the fiscal year. Target acknowledged that the reaction to its Pride assortment, launched in mid-May, had an impact on revenue and traffic. It should be noted, however, that isolating the specific impact of the Pride assortment from other contributing factors in the quarter is a challenge, according to a company spokeswoman. These factors include ongoing inflation, pressure on consumer spending, and discounting activity.
The Backstory: Boycott Calls and Response
AB InBev faced calls for boycott over a Bud Light promotion featuring transgender influencer Dylan Mulvaney. In response to threats from customers, Target removed some items from its annual Pride collection, which resulted in criticism from consumers on both ends of the political spectrum.
Standing Firm: Target’s Management Stands by Decision
During an investor call on Wednesday, Target’s management asserted their position and decision-making process.
“To protect our team amid these threatening circumstances, we swiftly made changes, including the removal of items that were central to the most significant confrontational behavior,” stated CEO Brian Cornell. He further emphasized that Pride is just one of many cherished occasions for their guests and employees, and they will continue supporting these moments in the future.
Short-Term Impact: Target’s Revenue Challenges
Target’s controversy surrounding Pride month may continue to affect its ability to increase revenue in the near future, especially considering the declining consumer demand for discretionary purchases. This observation was noted by D.A. Davidson analyst Michael Baker in a Wednesday report.
Despite the challenges, there are positive indications for investors. Bud Light’s sales decline has begun to stabilize by the end of the second quarter. Additionally, Target has witnessed a notable improvement in same-store sales trends in July, according to a company spokeswoman.
Market Turnaround: Target Stock Outperforms S&P 500
Markets are showing signs of a potential turnaround as Target stock has gained 2.3% since the company reported its earnings on Wednesday, outpacing the S&P 500’s 2.3% drop.
Looking Beyond Missteps
Despite recent Pride marketing missteps, investors are optimistic about Target’s potential for a rebound. Ivan Feinseth, the chief market strategist of Tigress Financial Intelligence, highlights improving profitability and margins through lower markdowns, reduced freight costs, and the benefits of higher retail prices. This positive outlook is driving market confidence in Target’s performance.
AB InBev Outperforming the Market
AB InBev, despite experiencing a 2% decline since its August 3 report, has still managed to outperform the S&P 500. The stock was recommended by _ (source) earlier this year, further bolstering investor confidence.
Consumer-Facing Companies Overcoming Challenges
Consumer-facing companies often face public perception challenges, yet they have proven resilient and able to recover successfully. This summer, Kohl’s, Adidas, and The North Face (owned by VF) were also under fire for their Pride campaigns. While these controversies initially impacted their share prices in May, all three companies have rebounded since then.
Kohl’s stock, which fell 16% in May, has seen a remarkable recovery with a 57% gain since June 1. Similarly, Adidas and VF stocks have surged by 24% and 18%, respectively, outperforming the S&P 500’s 3.4% increase during the same period.
Boycotts’ Limited Long-Term Impact
Research suggests that politically motivated boycotts have a relatively muted long-term impact. Northwestern University researchers studied the aftermath of boycott calls against Goya, a privately owned Latin food brand, after the company’s CEO expressed support for then-President Donald Trump. According to the study, Goya’s sales actually increased by 22% immediately after the boycott calls due to a counter-boycott. However, the benefits of the counter-boycott dissipated within three weeks, and the negative impact of the boycott lasted around nine weeks.
The study concludes that the effect of engaging in political discourse, despite significant buzz and controversy, was modest and only short-lived. This suggests that both the risks and benefits of such engagements for a firm may be exaggerated.