Latest results and forecasts from retailers ranging from Macy's to Foot Locker are showing fresh signs of US consumer spending remaining under stress heading into second half of the year.
Middle-income Americans are spending less as many struggle to pay off existing card debts amid a surge in cost of living, raising worries for retail sector investors betting on more business during the back-to-school and holiday seasons.
"It is going to be a challenging back half," said Cristina Fernandez, analyst, Telsey Advisory Group adding that consumers are looking for value and spending on buying the things they need.
A bellwether for back-to-school demand, Foot Locker joined rival Dick's Sporting Goods on Wednesday to cut annual profit forecast, sending the shares of sportswear retailers tumbling.
"We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers," Mary Dillon, CEO, Foot Locker said.
Both the companies along with Target have warned that profits have been under pressure from loss of inventory due to instances of theft at their stores.
Kohl's and Macy's also kept their annual targets unchanged despite beating profit expectations for second quarter, with the latter warning of weak demand and a faster-than-expected rise in credit card payment delays.
"The macro environment is having the lion's share of the impact on credit and is a real indicator of where we think the health of the consumer is ... supporting our cautious approach," Adrian Mitchell, CFO, Macy's said on Tuesday.
Bigger Hit To Sales
Foot Locker and Macy's could see a bigger hit to their sales as they cater to lower-to-middle income consumers, said Thomas Hayes, chairman of hedge fund Great Hill Capital, while the winners would include Walmart and the dollar stores that benefit from consumers trading down.
Walmart last week raised its full-year forecasts and beat second-quarter results, benefiting from strong demand for its low-priced groceries.
"The consumer is still alive and well, but clearly more price conscious this year than last," said Art Hogan, chief market strategist at B Riley Wealth.