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Proprietary Data Insights Financial Pros Top Retail Stock Searches This Month
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Watch Retail Earnings for Clues Walmart (WMT) reports earnings on Thursday. Target (TGT) reports on the 1st of March, with Costco (COST) on the 3rd. These will be key tests as to whether consumers keep spending. Many consumer goods companies from Procter & Gamble (PG) to Coca-Cola (KO) jacked up prices to offset higher input costs. As our article below highlights, that didn’t seem to impact January’s sales. Since most price hikes occurred at the start of the year, we can assume it hasn’t deterred spending. However, we could see shifts in consumer behavior as price increases aren’t uniform. Shortages continue to drive excess demand in areas such as autos and housing, where consumers are entering bidding wars. Ideally, the Fed’s rate decisions will have a large impact on these big ticket items. However, as noted below, a build in wholesale inventories bodes well for more basic items. As consumers experience fewer product outages at stores, they’re less likely to continue panic buying even if prices remain elevated. That’s why we want to hear the following from these retail earnings calls:
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Economy |
Retail Sales Soar in January |
Key Takeaways
Higher prices didn’t faze consumers as spending jumped 3.8% for the month compared to estimates of 2.1%. Digging Into The Details January’s sales come after a decline in December of 2.5%. Excluding autos, retail gained 3.3% compared to a decline of 2.8% the prior month. With Omicron still rolling across the nation, online shopping kept to its strong growth trend with nonstore retailers gaining 14.5%. Hard to get items saw higher than average gains for the month including:
Department stores saw huge gains with sales up 9.2% month over month. There were some declines out there including:
Interpreting the Data With American household wealth at historically high levels compared to income and debt, purchases should remain strong through all of 2022. That means we’re likely to see aggressive moves from the Fed earlier than many expected. You see, the Fed needs to stop spending to bring demand back in line with supply, which is driving inflation. With so much cash sloshing around between banks and households, gradual rate hikes aren’t going to cut it. They’ll need to shock the system a bit to get people to hold back on spending. That’s why we expect a 50 basis point rate increase in the Federal Funds Rate (the rate at which banks borrow and lend their excess funds to each other) which is double the typical 25 basis point rate hikes. The Silver Lining If there is one good piece of news for consumers it’s that inventories are rising. Ports are still jammed. But, many businesses are ordering extra to build up local inventories rather than rely on just in time shipments. That’s ramped up in the last few months as measured by the Fed’s Merchant Wholesale Inventories. The rapid rise in the month-over-month percentage change implies wholesalers are stocking up on inventory at a rapid pace. That will certainly improve GDP’s next reading. But for Mainstreet, it means that even with higher prices, we’re likely to at least stop seeing stock outages so often. The Bottom Line: Retailers from Amazon (AMZN) to L Brands (LB) and everything in between will continue to see high sales volumes so long as they avoid stock outages. While many warned of transportation inflationary pressures, if sales remain this robust, retailers could make up for the lower margins with volume. In this industry, we like companies with tight supply chains that have room to grow their online presence. |
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