Americans are still spending, but big U.S. retailers warn that spending may still slow down.
Walmart, Target and Home Depot all beat Wall Street estimates for second-quarter earnings. At least in that regard, the latest financial results confirmed the firmness of consumption. U.S. retail sales beat expectations in July, with gains across most major categories.
But there are signs of weakness, and retail executives voiced concerns about the rest of the year. Target and Home Depot posted better-than-expected profits, but sales were dragged down by consumers’ lack of appetite for big-ticket and non-essential items. And new pressures from rising interest rates and the resumption of student loan repayments could stifle spending in the second half, executives warned.
Retailers Outperforming
Four of the five biggest US retailers beat Wall Street consensus in the second quarter
Source: SEC Filings, Bloomberg
“Jobs, wages and disinflation are helping our customers,” Walmart Chief Executive Doug McMillon said on a conference call with analysts on Thursday. “However, rising energy prices, resuming student loan repayments, higher borrowing costs, tighter lending standards and the draining of surplus savings means households are still under pressure.”
In fact, surplus savings from the coronavirus crisis and rising wages in a historically tight labor market have fueled consumer spending for some time. But as savings dwindle and credit tightens, consumers are increasingly relying on borrowing. Wage growth has slowed from last year’s peak, and McMillon fears student loan repayments will resume in October, hurting the purchasing power of millions of households.
For Target, this is also a big risk. The company saw its biggest sales decline in nearly seven years as demand fell in categories such as apparel, home goods, electronics and toys. Despite solid earnings in the May-July quarter and strong sales of food and beauty products, the company cut its full-year profit forecast and emphasized caution in its outlook. “Consumers remain very cautious about discretionary spending,” Chief Operating Officer John Mulligan said on an earnings call.
At The Home Depot, customers were making fewer purchases, and sales of big-ticket items like patio sets and large appliances were sluggish. CEO Ted Dekker said while “fears of a deep recession have largely abated”, some shoppers have shifted their spending from goods to services after the pandemic.
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news-rsf-original-reference paywall">Original title:Americans Keep On Spending But Big Retailers Doubt It’ll Last(excerpt)
2023-08-18 02:27:24
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