A gloomy cloud is looming over Black Friday.
Over the past few weeks, a number of retailers have released cautious, tepid, or downright disappointing fourth-quarter outlooks, casting a shadow over the vital holiday season just as they prepare for the biggest shopping day of the year.
The companies, which range from large boxer BJ’s Wholesale Club to luxury goods giant Tapestry, reduced their outlooks or issued forecasts that fell short of expectations due to a variety of factors.
Some retailers, like Best Buy and Nordstrom, blamed the consumer’s unpredictability after months of high inflation, while Hanesbrands claimed that as wholesalers try to control inventory, demand for their basic T-shirts, socks, and underwear is just dwindling.
Even Abercrombie & Fitch and Dick’s Sporting Goods, which both increased their full-year guidance on Tuesday following impressive third quarters, failed to impress with their holiday projections.
Caution is the one word that best sums up the commentary. While some retailers may have been unduly pessimistic in their projections, the overwhelming lack of confidence portends problems for the holiday quarter and raises concerns about the state of the economy as a whole.
Target CEO Brian Cornell told analysts on a call last week, “Consumers are still spending, but pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt, and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs.”
“Recent trends in the retail sector show that consumers are purchasing fewer units per trip at higher prices, which is driving dollar sales. In actuality, the industry’s total unit demand has decreased by 2% to 4% in recent quarters, and discretionary dollars and units have decreased for seven straight quarters, the industry said.
In response to a question regarding the approaching holiday season, Cornell stated that the company was “watching the trends carefully” and that it was too soon to comment on early sales.
Mediocre increase in holiday spending
Due to the Covid-19 pandemic, which provided consumers with stimulus payments and an opportunity to augment their bank accounts while they were stranded at home and unable to travel or eat out, the holiday shopping season has experienced abnormal growth over the last few years.
Holiday spending increased by 9.1% in 2020 compared to the previous year, as reported by the National Retail Federation. Spending increased by 12.7% in 2021 and 5.4% in 2022 compared to the previous year.
The growth in holiday spending is anticipated to slow to 3% to 4% as 2023 draws to an end, savings accounts shrink, and consumers continue to deal with inflation and high interest rates, according to the NRF. That is in line with the slower growth rates observed in the years prior to the pandemic, between 2010 and 2019.
Many retailers are approaching the holiday season more cautiously than Wall Street had anticipated due to the expected slowdown.
The consumer team at Bank of America discovered on Monday that of the 43 retailers who released earnings projections, 37, or 86%, were in line with Street estimates.
Consider Walmart as an example. The retailer saw a decline in consumer spending toward the end of October, so it was cautious in its outlook, which came in below expectations. According to LSEG, formerly known as Refinitiv, it stated last week that it anticipates adjusted earnings per share of $6.40 to $6.48 for the year, which is less than the $6.48 analysts had predicted.
In a call, Chief Financial Officer John David Rainey stated, “Halloween was good overall.” “However, there were certain business trends in the latter few weeks of October that caused us to pause and consider the consumer’s health.”
Even good news wasn’t cheery enough for some retailers.
Dick’s Sporting Goods increased its full-year earnings per share estimate to between $11.45 and $12.05 on Tuesday, according to LSEG, from the $11.27 to $12.39 range that analysts had previously predicted. The increase came after the company posted strong top- and bottom-line beats.
However, in light of its impressive third-quarter performance, the outlook seemed muted.
The retailer expressed its excitement for the holiday, but it tempered that sentiment with executives’ constant references to the things that were “within our control”—a theme that emerged four times in the sixty-minute call.
“We are really enthusiastic about what we can control for Q4.” We have our merchandise available. We possess amazing gifts. and the teams are fired up to provide an incredible holiday experience,” Lauren Hobart, the CEO, stated during a conference call with analysts. We’re striking a balance between all of that and caution regarding the macroeconomic climate and the consumer, as we are aware of their current struggles. Therefore, I believe that we have been fairly cautious in our advice.
