In late August, Walmart (WMT) offered investors worried about the health of the U.S. consumer a lifeline. CFO John David Rainey told investors that Walmart’s customers were “picky,” but when asked about signs of a broader slowdown, Rainey added, “We’re not seeing it.”
However, this week’s results from a number of major retailers show that the situation for the US consumer is a lot more uncertain.
Retailers from Dollar General (DG) and Lululemon (LULU) to Abercrombie & Fitch (ANF) and Ulta Beauty (ULTA) received mixed reactions this week after issuing cautious comments about the overall spending environment and the potential impact on their businesses.
Dollar General shares were the hardest hit, falling 32%, the biggest loss ever, after the discounter cut its full-year forecast, blaming weaker sales on a core customer facing financial difficulties.
CEO Todd Vasos called the last week of each of the calendar months in the quarter “by far the weakest,” with customers primarily choosing a mix of the 2,000 items still priced at $1 or less.
“All of those points would indicate that this is a cash-strapped consumer, even more so than we saw in Q1,” Vasos told analysts during the company’s earnings call on Thursday. Dollar General noted that consumers were leaning more toward consumables and less toward household and seasonal items.
The latest retail sales figures showed sales rose 1% in July, beating Wall Street’s expectation of 0.4% growth.
But a look under the hood provided less optimistic signs, said Forrester Research retail analyst Sucharita Kodali.
“Consumer spending is basically in line with inflation and in some categories below inflation. That means that even though the numbers are positive, the consumer is really softening,” Kodali said in a recent interview with Yahoo Finance.
The data, which are not adjusted for inflation, showed a 0.1% monthly decline in spending at clothing stores, while department stores saw sales fall 0.2%.
Kodali, like other analysts, has pointed to large retail chains such as Costco (COST) and Walmart, which have increased their market share in several categories.
“Lower income consumers continue to take on debt, they’re the ones that are bearing the brunt, and they’re probably the ones driving some of these Walmart numbers,” the analyst said. “I would argue that Walmart’s growth is probably coming at the expense of other retailers.”
But even brands that target higher-income consumers making non-essential purchases, such as Ulta Beauty, said a more budget-conscious consumer is partly to blame for the company’s disappointing sales and profits.
“Consumer behavior is beginning to change as consumers become more focused on value and more cautious with their spending,” CEO Dave Kimbell said during the company’s earnings call.
Kimbell cited increased competition within the high-margin makeup industry as an additional challenge for the sector.
“Today, there are significantly more places to buy beauty, particularly prestige beauty, with over 1,000 new distribution points opening in the past three years. As a result, our market share continues to be under pressure, particularly within prestige beauty,” Kimbell said.
As consumers become more discerning and competition increases, there is little room for error for retailers.
Lululemon noted that sales of its U.S. women’s apparel slowed due to a lack of “novelty,” or seasonal updates, within styles typically expressed in color, print and patterns.
“It has become clear to us that this reduced novelty, which is lower than our historical levels and stems from past product decisions, has impacted conversion rates given that there are fewer new options available to our female guests,” CEO Calvin McDonald said during the company’s earnings call.
“The novelty we had performed well – we just didn’t have enough to inspire her to make a purchase,” McDonald said.
Even after a strong quarter at Abercrombie and Fitch, CEO Fran Horowitz warned about the economic conditions during the company’s earnings presentation.
“In addition to record sales in the second quarter, this is the seventh consecutive quarter of net sales growth in a dynamic and often uncertain consumer environment, underscoring the strength of our brands,” Horowitz said.
Abercrombie shares fell 14% after the results were announced, despite being among the best-performing stocks in the S&P 500 over the past year.
“We think investors may be a little bit worried that this is peak growth for [Abercrombie]”, CFRA analyst Zachary Warring told Yahoo Finance.
“It was a great quarter. We think they are the best performing apparel brand in the US right now.”
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X on @ines_ferre.
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