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Friday, November 18, 2022
Today’s newsletter is from Julie Hymananchor, and correspondent at Yahoo Finance. Follow Julie on Twitter @juleshyman. Read this and other market news wherever you are with Yahoo Finance app.
Macy’s has been one of the stars of the retail earnings season so far. Its shares jumped 15% yesterday after the department store owner reported better-than-expected profit and raised its forecast.
Key to the company’s surprising success has been its small inventory build, which was up just 4% in the last quarter from a year earlier. Earlier this year, Macy’s (M) began offering discounts to shoppers and has maintained them, helping to phase out old merchandise as some of its competitors faced a growing clothing glut.
The defining question for the retail figures has been how companies are managing this inventory in the face of changing consumer spending habits.
After Thursday’s close, Gap (GPS) became the latest example with its numbers, with a lower inventory increase (12% compared to a 37% year-over-year increase in the second quarter) in a context of “higher discounts”.
Walmart (WMT) has moved goods by delivering value to consumers, especially in grocery stores, its chief financial officer David Rainey told Yahoo Finance, which drove traffic. Target, on the other hand, found that consumers didn’t want its usual higher-margin areas of strength: Pinched by inflation, shoppers were saving up to buy necessities instead of clothes, electronics, and household items.
This means that Target (TGT) has to put items on sale to roll them up.
“They are looking for promotions and looking for that good deal. And I expect the promotional focus to continue throughout the holiday,” CEO Brian Cornell said on a call with reporters. Perhaps that’s why the retailer is holding its “biggest Black Friday sale of the week.”
Consumers have sniffed out these offers and suspect that more are to come. According to a recent Morgan Stanley/AlphaWise survey, “70% of shoppers said they wait for stores to offer discounts before they start holiday shopping” – and they wait to buy until discounts hit 20%
“High inventory levels will give stores additional incentive to offer discounts as they attempt to clear merchandise from shelves. Firms offering the deepest discounts will be able to capture the largest share of wallet, but with an impact on margins,” Morgan Stanley’s Michelle Weaver and Katie Solovieva wrote in a note to investors.
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Discounts may even last beyond the holiday season.
Barclay’s Adrienne Yih told Yahoo Finance that “stocks in this sector will likely be cleaned up by the middle of next year.” Retail consultant Jan Rogers Kniffen disagreed, saying the strength in retail sales means promotions will end soon.
“I’m pretty sure we’re going to see the consumer store later because they think there’s going to be some deals, and I’m willing to bet there’s going to be a lot of people who will be disappointed, because we going to see a slow environment for the promotion, totally different from what we saw in the first half,” Rogers said.
What to watch today
Economy
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10:00 a.m. ET: Sales of existing housesOctober (4.40 million expected, 4.71 million in previous month)
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10:00 a.m. ET: Sales of existing housesmonth-over-month, October (-6.6% expected, -1.5% in prior month)
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10:00 a.m. ET: Main indexOctober (-0.4% expected, -0.4% in previous month)
Earnings
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