It seems like U.S. consumers are increasingly worried about the economy. That's not a statement that comes from a statistical analysis, but from a view of what's going on at stores that cater to cost-conscious customers. Basically, it's a read from what consumers are doing with their actual dollars.
Walmart(NYSE: WMT), Burlington Stores(NYSE: BURL), Ross Stores(NASDAQ: ROST), and TJX Companies(NYSE: TJX) have all been performing well for basically the same reason -- consumers are trying to stretch their spending dollars.
Ross Stores' good quarter was all from traffic
What would a consumer do if they felt they needed to save money? The easy answer is to start shopping at stores that offer more for less, which is exactly what discount retailer Ross Stores does. In the third quarter, same-store sales rose 5%. That's a pretty strong number, but according to the company, the main driver of that growth was store traffic.
To put that another way, more customers decided to shop at Ross stores in the third quarter than in the same quarter a year ago. And at the same time, sales at some full-price retailers like the ones that Capri Holdings(NYSE: CPRI) owns have been weak. Overall, this luxury retailer's sales fell 8.6% year over year in its fiscal 2024 second quarter (ended Sept. 30), with declines at all three of its brands -- Versace, Michael Kors, and Jimmy Choo.
That's an interesting dichotomy. Expensive stores struggled while discount ones thrived. (Note that Capri is in the process of selling itself to Tapestry.)
Burlington benefits from higher-priced items
Ross Stores isn't alone. Burlington also had strong same-store sales, which were up 6%. But there was an interesting little twist here. Burlington specifically noted during its third-quarter earnings call that it was able to bring in higher-priced items from "recognizable" brands and, here's the important part: They sold quite well. That's essentially trade-down traffic as consumers try to buy what they know and like, but pay less for it.
TJX also witnessed this in its third-quarter results, with this retailer posting a same-store sales jump of 6%. And that uptick was, according to management, entirely driven by an increase in traffic. Although the company was a bit coy about where those new customers came from, it is highly likely that it was customers trading down from full-price stores.
There was also another little niggle in TJX's performance. The amount each customer bought was lower (called ticket size), so the story for TJX was more people but each of them spending just a little bit less than they did last year. That sounds a bit like more consumers are pulling in their spending.
Walmart seals the deal on a troubled consumer
Then there's Walmart, which is one of the largest retailers in the world and specifically known for its low prices. During the company's third-quarter earnings call, management noted that: "Constant currency sales increased 4.4% or nearly $7 billion. Importantly, we saw traffic growth across both in-store and digital channels." Same-store sales for Walmart in the U.S. market were up 4.9% with a 3.8% increase at Sam's Club.
But here's the more important takeaway. Walmart is not just pleased by the increased traffic it is seeing, but it expects the current trend to continue into the fourth quarter. And that's led management to increase its 2023 sales guidance by a full percentage point on the top and bottom end, taking it from 4% to 4.5% up to 5% to 5.5%. While all of this is good for Walmart, it suggests that consumers continue to pull back and that could be bad news for 2024.
Consumers vote with their feet (or really their wallets, but you get the idea). And right now consumers appear to be looking for bargains in an effort to stretch their hard-earned dollars. It is a clear statement that consumers are worried about the future. As an investor, you might want to worry, too.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Tapestry and Tjx Companies. The Motley Fool has a disclosure policy.
