Consumer carnage

May 20, 2022 in News by RBN Staff

source:  zerohedge


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ROST: Another consumer stock -25%: low-end consumer wallet getting pinched by inflation

Ross no Boss…..Stock -25% after-hours is the biggest move in over a decade on a surprising miss + guidance cut, providing another data point the low-end consumer may be pulling back as wallets get pinched from elevated inflation + higher gas prices. This should exacerbate concerns on retailers levered to the low-end consumer given less pricing power to offset cost inflation (freight + wages) (Morgan Stanley)

Is all about the consumer now

Probably the most important question right now – how can the consumer hold up while credit card debt rising, car loans rising, home mortgage costs rising, utility bills rising, food bills rising and inflation adjusted wages declining? The net net is that household savings are declining and inventories across goods and real estate are starting to go up. The median home price to median income was around 5x in 2008/09 and now it is around 7x. Unemployment and housing are key shoes to drop.

25% discount

Walmart has lost a quarter of its stock market value in less than a month….And most of it has come in 3 days….Walmart’s stock is down 19.7% over the last 3 days. The only time in its history with a larger 3-day decline was during the October 1987 crash.

Source: Refinitiv

The Staples outperformance trend came to an abrupt end

Has been a rough week for the “hide out in staples” crowd.

Source: Bespoke

What’s driving elevated inventory?

Some answers to the key investor questions following WMT, TGT, HD, LOW

1) Retailers were buying inventory as if Q4’21 levels of demand would hold

2) they didn’t want to be out of stock and risk leaving sales on the table

3) top-line trends were so strong, the risk of over-buying seemed minimal

4) unfavorable weather caused a slowdown in seasonal sales

5) retailers underestimated the demand reversion in certain discretionary categories and overbought in durables

6) consumer wallets shifted further to consumables from discretionary categories due to higher Inflation

7) the rapid spike in fuel prices further increased retailer costs and exacerbated spending shifts

8) markdowns were necessary to clear slower moving inventory out of DCs, make room in stores for faster turning consumables where demand was holding up, and get ahead of a broader promotion cycle

(Morgan Stanley)

And here comes the hikes

Money markets are pricing 10 rate hikes from the FED this year… how will this NOT blow up the consumer?

Source: Refinitiv

House consumer horror

From the combination of mortgage rate increases and home price increases, housing affordability has taken a huge hit.

Source: Bespoke

Guidance: pandemic style

In the last two weeks we’ve seen more companies lower guidance than raise guidance. We haven’t been in a “net lowered guidance” environment since May 2020.

Source: Bespoke

Earnings ex-energy: recession style

Earnings revisions ex energy going down the toilet…

Source: Barclays