🔺 What to do when markets are at an all-time high? Find smart bargains, like these.See Undervalued Stocks

Retail Earnings In Focus As Kids Return To The Classroom

Published 03-08-2022, 06:37 pm
Updated 09-07-2023, 04:01 pm
GS
-
SBUX
-
WMT
-
HD
-
TGT
-
TJX
-
LOW
-
DLTR
-
DG
-
XLY
-
  • Back-to-school shopping season underway
  • Another record year of spending expected
  • Consumer Discretionary sector performed best since the market low
  • The back-to-school shopping season is in full swing as kids gear up to return to the classroom and as college students embark on the fall semester. The National Retail Federation (NRF) issued its annual seasonal outlook a few weeks ago. The trade group expects solid spending among families across the country. According to the survey, families expect to dole out $864 in advance of the school year, on average. For college-related expenses, $1,199 was the average figure. 

    Big Spending

    The winter holidays and Christmastime is, of course, known as the biggest shopping period annually, but few realize that late July and August is the second biggest spending season of the year. So, this handful of weeks is critical for retailers big and small. What makes right now also particularly important is that Q2 retail earnings hit the tape in earnest in less than two weeks.

    Retail Price Action

    For background, since the June 16 low in stocks, the Consumer Discretionary sector leads the overall market. It’s not an entirely rosy picture on the consumer front, though. We’ve already heard a profit warning from Walmart (NYSE:WMT) earlier during the reporting period. 

    Sector Returns Since June 16: Discretionary Leads

    Sector Returns

    Source: Stockcharts.com

    Mixed Retail Sales Trends, Downbeat Expectations

    Moreover, the latest retail sales figure for June revealed a 1% gain, but that was driven mainly by high inflation. Core retail sales increased by just 0.4%. Analysts at Goldman Sachs expect further declines in spending growth over the back half of the year and in 2023. Still, the bulls can point to more than $2 trillion in excess savings for American consumers right now. Perhaps a chunk of that will be deployed ahead of the school year.

    Americans Still Have a Cash War Chest

    Savings As A Percentage Of Income

    Source: Goldman Sachs Investment Research

    A Tale of Two Consumers

    The tone so far is that the families on the high-end of the income scale are doing just fine according to card data and spending trends. The lower quintile of income earners has pulled back on discretionary spending as inflation takes a bite out of purchasing power. The upshot is that wage gains, according to the Atlanta Fed, are best among the lower-income tier. 

    Income Growth Best Within the Lowest Quartile

    Wage Growth Tracker

    Source: Federal Reserve Bank of Atlanta

    Earnings Roundup

    The earnings calendar lights up with many major firms reporting second quarter results in the coming days and weeks. Starbucks (NASDAQ:SBUX) kicked things off on Tuesday this week with a solid report, beating Wall Street expectations as demand for cold drinks buoyed the company. The real activity does not begin until Tuesday, August 16, when Walmart and Home Depot (NYSE:HD) report. Then comes Target (NYSE:TGT), Lowe’s (NYSE:LOW), and TJX (TJX).

    Retail Earnings on Tap

    Retail Earnings

    Source: Bank of America Global Research

    Strength in Dollar Stores?

    I will be particularly interested to see what the dollar stores have to say about the state of the consumer. The Wall Street Journal recently profiled families trading down to dollar store dinners amid the tough inflationary environment. Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) issue Q2 earnings reports on August 25 and 26, respectively.

    The Bottom Line

    The back-to-school period is a key time on the calendar for retailers. Families spend significant amounts on electronics, clothing, shoes, and furnishings before that highly anticipated first day of class. Retail earnings are also on tap to wrap up a busy earnings season. The Consumer Discretionary sector has strong momentum right now, but a major hurdle will be this month’s key profit reports.

    Disclaimer: Mike Zaccardi does not own any of the securities mentioned in this article.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.