The Scary Story Of Dwindling Savings

Proprietary Data Insights

Financial Pros Top Discount Stores Stock Searches This Month

Rank Name Searches
#1 Walmart 134,384
#2 Target 115,217
#3 Costco 100,552
#4 Dollar Tree 21,773
#5 Dollar General 18,702

That’ll Be One Dollar Please 

You can learn a lot by digging into a company’s earnings report and attendant quarterly conference call. So that’s precisely what we do to piece together today’s story about consumer savings and debt. 

Two big dollar stores reported earnings last week – Dollar Tree (DLTR) and Dollar General (DG).

Dollar Tree Crushed It

  • Earnings per share (EPS) increased 48%, setting a company record. 
  • Net sales up 6.5% to $6.9 billion. 
  • 2022 EPS guided up, from $7.80 to $8.20. 

Dollar General Expects To Sort Of Crush It

  • Net sales up 4.2% to $8.8 billion. 
  • Upped 2022 net sales growth guidance from 10% to 10%-10.5%. 
  • Upped 2022 same store sales growth guidance from 2.5% to 3.0%-3.5%.

Source: Google Finance 

Year-to-date, both DLTR and DG have outperformed Walmart (WMT) and Target (TGT). In part, because both of the latter reported relatively weak earnings. 

But also – we hypothesize – because cash-strapped consumers are hitting up the biggest discounters among the so-called discount stores. 

An interesting nugget from Walmart’s crappy earnings via CEO Doug McMillon on the company’s May 17th conference call:

… we knew that we were up against stimulus dollars from last year but the rate of inflation in food pulled more dollars away from GM than we expected, as customers needed to pay for the inflation in food.

Translation: Margins got hit because consumers shifted spending from general merchandise to groceries. And Walmart generates lower margins on groceries than general merchandise. 

The Juice’s Take: All of this info tells us large swaths of the population are hurting, spending their money on necessities such as food first. So discretionary spending, on things you don’t actually need, falls by the wayside. 

This story of consumer behavior directly relates to the other big story on rapidly declining savings and increasing debt.

Savings And Debt 

The Scary Story Of Dwindling Savings

Key Takeaways:

  • Personal savings rates continue to rapidly decline. 
  • Credit card debt continues to significantly increase. 
  • This has little to do with long-expired pandemic stay-at-home orders. 

 

Source: Bureau of Economic Analysis

That chart shows plummeting personal savings among Americans. 

At the end of Q1/2022, Americans had just over a trillion dollars saved. 

The Bureau of Economic Analysis just released April’s data. And personal savings continues to plummet. 

It came in at $815 billion in April, a 11.6% decline from March and a whopping 44.3% decrease from September of last year. As a percentage of disposable income, the personal savings rate dropped to 4.4% in April, almost half of September’s 8.1% and the lowest number since 2008. 

Stop Blaming Everything On The Pandemic

We haven’t been staying at home for a long, long time. Even here in what was once tightly locked down California. Not even during the Omicron wave. 

So a prevailing theory on why personal savings continues to rapidly erode doesn’t hold water. That suddenly we’re allowed to go out and spend money so we’re blowing all the cash we had saved. 

Such an old narrative. For at least the last year, in most parts of the country we’ve had pretty close to a full slate of opportunities for spending. It has felt like the old normal out on the streets for a while now. It ain’t 2020 no more. 

Closer to reality – if you’re comfortable financially, you’re spending and saving robustly and concurrently. If you’re not operating from a position of personal financial strength, you’ve blown through your stimulus and any pandemic-accumulated savings. And, thanks largely to high inflation, you’re stretching to make ends meet, making necessities your spending priority. 

What Happens When You Raid Your Savings? 

You start turning to debt. 

We’ve been hitting that theme hard here at The Juice. Buy Now, Pay Later schemes continue to grow in popularity and credit card debt appears set to possibly spiral into a danger zone, if not out of control. 

It all ties together – from what we’re seeing at the discount retailers to the savings and debt trajectories. 

 

The Bottom Line: From an investment perspective, the uncertain environment across the board presents myriad opportunities. We highlight beaten down stocks regularly in The Juice. However, it can sometimes make sense to buy on strength during down markets. 

This makes relative outperformers Dollar Tree and Dollar General potentially attractive to long-term investors, particularly as a subset of consumers shift spending to these less expensive retailers. If you’re one of those consumers, stay the course. Aim to transition spending to less costly alternatives rather than take on credit card debt to maintain a previously financially healthy status quo.

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