Over the last twenty-four hours or so there has been a rush of retail earnings, the details of which can be found at the always useful Nasdaq.com’s earnings page. Among this morning’s releases were two big dollar store chains, Dollar General (DG), and Dollar Tree (DLTR), along with Burlington Stores (BURL) and Macy’s (M). Yesterday we heard from Williams-Sonoma (WSM) and Dick’s Sporting Goods (DKS), and the parade will continue later today when Costco (COST) and Gap (GPS) report.
On the surface so far, the news is good. Of those that have reported over the last couple of days, only Burlington has posted a miss of expectations, but even there the stock is trading higher post-release after they showed good sales numbers and issued upbeat guidance. Still, I have often pointed out in these pages that earnings, and retail earnings in particular, are not as straightforward as they sometimes seem.
Where people are spending their money is almost as important as how much they are spending. For example, if the good quarters of Dollar Tree and Dollar General had been outliers, it would suggest that consumers were turning to ultra-low-end outlets to shop, presumably because they were feeling the pinch of inflation and a slowing economy. Needless to say, if that were the case, good numbers for DG and DLTR would not have been a good sign at all. However, that isn’t what we saw. Williams-Sonoma did well too, and they are distinctly high end, while Macy’s, which caters to the middle tranche of consumers, also beat expectations.
So, these numbers are actually quite encouraging no matter how you look at them. They show consumer activity is still strong and, just as importantly, retail businesses managing severe supply chain issues and able to supply them with the things they want to buy. However, just over a week ago, the two biggest retail names, Walmart (WMT) and Target (TGT), both posted big misses on their first quarter earnings, and a month ago, Amazon (AMZN) also missed in a big way. After Walmart and Target disappointed, I wrote that that had to be bad news for the economy overall.
So, which is it? Are retail earnings a good sign, or a bad one? Is the consumer spending as usual or pulling back?
The honest, if unsatisfying, answer to those questions is "I don’t know." I will say, though, that on the basis that wise people change their minds when the facts before them change, I am a lot less pessimistic now than I was a week or so ago. It is much more likely today than it was then that what we saw from WMT and TGT was more about them as companies than it was about weaker consumer sentiment. Both referred to a change in the mix of goods that shoppers were buying, and now it looks quite possible that their woes stemmed from a failure to anticipate that change in preferences and react accordingly, rather than from a reluctance from shoppers to spend.
You can make excuses for Amazon, too. They are so big that they are as much a logistics company as a retailer, and massive increases in fuel costs and the supply chain disruptions could easily explain their disappointing numbers.
When it comes to retail earnings, then, more information has resulted in less, not more, clarity as to how economic issues are impacting the American consumer. However, just a week or so ago, it looked as if they were sending a depressing message, so confusion is at least an improvement. On that basis, and because of the technical signals that I wrote about a couple of days ago, I am much more optimistic about the stock market’s direction than I was a week ago.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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