Economists have been looking for gaps in U.S. consumer spending for years amid persistent inflation and rising interest rates, but until recently, Americans were beating the odds at every turn. Despite lingering recession forecasts and sluggish consumer confidence amid soaring costs of living, Americans were spending at record levels until recently. But retail sales growth completely stopped in April. Now, earnings reports from major retailers reveal some stark warning signs about the health of American consumers.
First, to be clear, Walmart is winning. The retail giant’s first-quarter profit and revenue forecast exceeded Wall Street expectations, with adjusted earnings per share of $0.60 compared with expectations of $0.52; revenue of $161.5 billion beat expectations of $159.5 billion. E-commerce offerings and spending from high-income customers helped boost results. But the company also witnessed a key spending pattern that often occurs when consumers feel financially stressed: a shift from “want” spending to “need” spending.
As Walmart Chief Financial Officer John D. Rainey explained during an earnings call with analysts on May 16: “Many consumers’ wallets are still stretched thin, and we’re seeing that impact on our business mix, as they spend more of their salaries on non-discretionary categories, and general merchandise prices are lower.
Walmart said it was increasing the number of price cuts or “rollbacks” on key items to boost sales, in part because, as Rainey reiterated on the call, “wallets are already stretched thin.” Rainey also gave a telling response, emphasizing his uncertainty about consumer spending, when asked by Morgan Stanley analyst Simeon Gutman why he declined to raise Walmart’s expected earnings guidance. sex.
“I think we can all agree that the consumer environment we’re in is far from specific. We read about consumer health every day, and considering we’re only a quarter of the way through the year, we’re just trying to be patient.
Walmart wasn’t the only one to raise concerns about consumer health in its first-quarter earnings report. Target’s net sales in the first few months of 2024 fell 3.1% annually to $24.5 billion, and profits missed expectations. Diluted earnings per share were $2.03, below expectations of $2.05. Target said inflation-weary shoppers turned to essentials this season, leading to lower sales and revenue.
Chairman and CEO Brian Cornell said in a follow-up call with reporters that the “biggest challenge” facing Target shoppers is “inflation in food and household staples,” according to Yahoo Finance. Cornell even added that there was “stress on consumers’ wallets,” echoing comments from Walmart CFO John Rainey.
Comparable store sales at Target’s brick-and-mortar stores fell 4.8% in the first quarter as consumers looked for cheaper options, while comparable online sales rose only slightly. To prevent further sales declines, the company unveiled a plan to cut prices on nearly 5,000 daily items, including groceries and diapers.
But during Target’s earnings call with analysts on Wednesday, Chief Growth Officer Christina Hennington noted that she was closely monitoring continued financial pressure on consumers to determine the right path for the company. Showing price cuts may not be enough to revive growth.
“Continued price increases are having a significant impact on many families’ budgets and savings,” Hennington said. “Currently, one in three Americans is maxed out or nearing the limit on at least one credit card. For these and other reasons , we remain cautious about near-term growth prospects.
