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Category: Market Commentary Tags: ,

Some of the nation’s largest retailers reported earnings over the last few weeks, and the results were a mixed bag. After reporting earnings that fell well below expectations, Walmart and Target made headlines as inflation in wages, transportation costs, and strained supply chains ate into their profits. Despite the news cycle focusing on these two names, earnings from other retailers beat expectations and gave indications of a healthy consumer that is still spending.

Discount stores like Dollar Tree and Dollar General produced results and guidance that beat expectations as consumers shifted spending to cheaper alternatives amid persistent elevated inflation. Big box retailers like BJ’s and Costco met expectations, helped partly by their gas businesses offering lower prices than most independent gas stations. Specialty retailers such as Dick’s Sporting Goods, Ulta Beauty, and Williams-Sonoma all posted earnings that beat expectations by a wide margin. The CEOs of both Bank of America and JPMorgan have publicly stated that stimulus money has still not yet been completely spent, and specialty retail earnings were indicative of this.

Part of Target’s and Walmart’s disappointing earnings reports reflect the trend that consumers are now spending on “experiences” rather than on big-ticket items like TVs. Target additionally made a point of making people aware that they were doing its best not to pass costs onto the consumer to boost its long-term market share. It is important to note that despite earnings missing the mark for Target and Walmart, their revenues both saw healthy increases. This also follows the trend of the GDP results reported earlier this quarter, in which consumer spending as well as wages increased a healthy amount. Retailer earnings indicate that the consumer remains healthy. Despite inflation, consumers are still spending at elevated levels, as they utilize reserves built up during periods of stricter Covid restrictions. Consumers’ balance sheets remain strong but are beginning to trend back towards pre-pandemic levels. Overall, the consumer is still in a good place, and there is still money to be spent, but headline inflation is leading them to think twice about how they are spending their money before they make purchases.


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