Sharpen your pencils as back-to-school season is already upon us. Investors know that just as kids across the country return to the classroom, volatility can often kick up in the stock market.
We’ve already seen a bout or two of it in the last couple of weeks. Is there more to come? Maybe not if economic data and corporate earnings keep showing Goldilocks trends.
Online Spending Strong, Credit Card Execs Generally Upbeat
There was good news on the consumer front late last week. Amazon (AMZN) reported an earnings beat, and while much of the focus was on its strong AWS business and expectations for continued investments into AI, the mega-cap tech/retail company issued strong overall results.
The report suggests the US consumer remains resilient. CFO Brian T. Olsavsky said as much on the firm’s Q2 conference call, highlighting that consumer behavior is about on par with what was seen this time last year.
That positive tone was backed up by Mastercard’s (MA) CEO who cited “resilient” spending by families, but with particular strength in services over goods. Ryan McInerney, Chief Executive at Visa, used the very same word to describe the state of the US consumer after his company’s earnings release in late July.
A Healthy Hiring Situation Helps, Too
Zooming out, Friday’s July jobs report included better-than-expected wage gains both on a monthly basis and compared to year-ago levels. With inflation ebbing, households are finally experiencing robust real wage gains – that trend helps to offset dwindling excess savings built up from the pandemic.
Most economic gauges point to a soft landing or even none at all. One by one, Wall Street strategists have been lifting their recession calls as S&P 500 year-end price targets have been on the rise. Is it an all-clear out there? We can’t go so far as to make that call just yet.
Record School Spending Forecasted
The back-to-school period might have something to say about where the economy is headed over the second half. According to the National Retail Federation, this year’s back-to-school season is expected to feature record spending across all channels.
Back-to-school retail sales are forecast to total $41.5 billion, easily surpassing last year’s $36.9 billion figure and the all-time high-water mark of $37.1 billion notched in 2021 – when families were flush with cash. Back-to-college spending, meanwhile, is seen as touching $94 billion, a stunning $20 billion above last year’s sum.¹
Ring the Bell: High Hopes for School Spending this Season
Source: NRF
Computers, Tablets, and New Wardrobes
Among the various categories, electronics are forecast to see the largest sequential percentage jump while the clothing & accessories and shoes areas might actually drop compared to year-ago figures.
Both the need for supply replenishment and style upgrades were echoed in the NRF’s survey, while inflation is another contributing factor to the spending surge. And maybe Barbenheimer will spark extra splurges on toys, too.
So, expectations are lofty – even more so when you consider that US Retail Sales have done a whole lot of nothing over the past several quarters. According to the Census Bureau, Advance Retail Sales have been hovering around $600 billion on a seasonally adjusted basis since early 2022. Account for a rising CPI, and real retail sales have been trending lower.
US Consumer Spending Flatlines Since April 2022, Goods Expenditures Lower, Services Spending Rising
Source: St. Louis Federal Reserve
Back-to-School: The Most Important Few Weeks for Retailers on the Calendar
Many investors don’t give the back-to-school season its due. More money is doled out during this period than in any other annual consumer spending occasion, even surpassing the winter holiday rush.
So, this is a critical several weeks for retail companies. For investors, it can pay off to carefully analyze key data points and corporate events now through mid-September.
As the Q2 earnings season rolls on, a host of companies from the Consumer Discretionary and Consumer Staples sectors have confirmed earnings dates:
August 16: Target (TGT), TJX Companies (TJX)August 17: Walmart (WMT), Ross Stores (ROST)August 22: Urban Outfitters (URBN)August 23: Abercrombie & Fitch (ANF)August 24: Nordstrom (JWN), Ulta Beauty (ULTA), Dollar Tree (DLTR)August 29: Best Buy (BBY)August 31: Lululemon (LULU) (unconfirmed), Dollar General (DG)
Other corporate events and key conferences hit in the weeks ahead that may bring about volatility in the retail space, too:
August 10: Wayfair (W) Investor DayAugust 18: Rite Aid (RAD) Shareholder MeetingAugust 29: Under Armour (UA) Shareholder MeetingAugust 30: Costco (COST) Same-Store Sales ReportSeptember 1: Tilly’s (TLYS) Sales ReportSeptember 5: Barclays Global Consumer Staples ConferenceSeptember 11: Adidas AG (OTCQX:ADDYY) Adidas Boston Roadshow 2023September 12: Goldman Sachs 30th Annual Global Retail ConferenceSeptember 12: Nike (NKE) Shareholder MeetingSeptember 20: Wells Fargo 6th Annual Consumer Conference
The Bottom Line
People have jobs, inflation has cooled to a degree, and execs at Amazon, Mastercard, and Visa (V) are not waving any caution flags on near-term spending trends.
All eyes are now on moms and dads – will there be a school shopping spree? Or will consumers be a bit more cautious with their discretionary dollars? Spotting trends from a series of major retail events that are on tap will be crucial.
¹ Back to School – Retail Holiday and Seasonal Trends, National Retail Federation
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