What will the return to school reveal to investors?

The following research was conducted by Christine Short, Vice President of Research at Wall Street Horizon.

  • Consumer state is mixed, with some companies reporting declining sales trends while others say spending is solid
  • Back-to-school shopping season is underway and investors eagerly await results and advice from retailers in electronics, apparel and home furnishings
  • National Retail Federation expects new record total sales, though down from robust 2021 total once inflation is taken into account

What is the state of the consumer? There are signs that the wealthiest groups are weathering the current inflationary storm very well, while the bottom quintile of earners is struggling to cope with the rising cost of living. High grocery bills, skyrocketing rents and persistently high prices at the pump are straining Americans’ budgets just as the all-important back-to-school shopping season is in full swing.

Increase in credit card spending

On July 21, shares of AT&T(T) fell after the telecommunications giant said some of its customers were starting to fall behind on their monthly bills.¹ But then we heard an optimistic tone from a host of major credit card companies. Mastercard (MA), Visa (V) and American Express (AXP) said card spending was robust. Mastercard’s CEO said on its earnings call, “Rising inflationary pressures have not yet had a material impact on overall consumer spending, but we will continue to monitor this closely.” It seems like Wall Street lives and dies with every data point and even every corporate anecdote about how spending is holding up.

The story of two consumers

This so-called consumer commentary from Jekyll and Hyde, as coined by analysts at Bank of America, indicates how fragile the landscape is after two quarters of negative GDP growth. Experts wonder if we are in a real recession. The data shows that consumption, while slowing down, is still positive. Additionally, June retail sales data was slightly better than analysts expected, although it is still below the headline inflation rate.² We will know a lot more in the coming weeks. as more sales data arrives both at the macro level and with specific companies.

Record sales expected

Focusing on back to school, the National Retail Federation (NRF) has released its 2022 Back to School Trends Report. The trade association notes considerable spending over the past two years with 25 consecutive months of gains in retail sales. Of course, higher costs amid the economic downturn have consumers turning to cheaper alternatives and looking for coupons, according to the NRF. Back-to-school items are often seen as necessities, so while these sales can be strong, the concern is that they could lead to lower spending in more discretionary categories. Overall, the NRF expects a typical family with elementary through high school kids to spend an average of $864 this season, up from $849 last year. A total of $36.9 billion is expected to be spent on back-to-school. “Back to college” spending is projected to total $73.9 billion from $71.0 billion in 2021. After adjusting for inflation, these totals are negative year over year.

Spending on soft electronics

Investors should watch what companies are reporting over the next few weeks to see how the data holds up. Four key categories are electronics, apparel and accessories, footwear, and dorm and apartment furnishings. Electronics is the most important area – and there is already some uncertainty there. Just take a look at what the CEO of Best Buy (BBY) had to say in a July 27 company update: “As high inflation has continued and consumer sentiment consumer demand has deteriorated, customer demand within the consumer electronics industry has weakened further, leading to second-quarter financial results below the expectations we shared in May.”³ Microsoft (MSFT ) also expressed concern about the retail space in its quarterly report, citing deteriorating PC sales.⁴ And who can forget Walmart’s recent profit warning.⁵

Timeline of retail revenue and events

August kicks off with a pair of key monthly comparable store sales data. This is followed by earnings reports from major retailers as well as the July retail sales advance data point on August 17. The last half of the month and the beginning of September feature quarterly results for electronics, apparel and home furnishings retailers. Let’s dive into some of the key dates and reports traders should keep on their calendars.

On the corporate conference timeline, Wall Street Horizon data shows four consumer-related events:

  • August 31: DNB Nordic Consumer Conference
  • September 6: Barclays Consumer Staples Global Conference
  • September 7: 29th Annual Goldman Sachs Global Retail Conference
  • September 13: Piper Sandler conference on the frontiers of technology and consumer growth

The essential

The second trimester income season has generally been better than expected so far, but we haven’t heard from major retailers yet. There is added anxiety with recent comments from Walmart and Best Buy and the back-to-school shopping season is a real test for the consumer. Traders should watch key dates in the coming weeks to manage macro and micro level risk.

For more information on the data from this report, please email: [email protected]

Wall Street Horizon provides traders and institutional investors with the most accurate and comprehensive forward-looking event data. Covering 9,000 businesses globally, we offer over 40 types of corporate events via a range of delivery options from machine-readable files to API solutions to streaming streams. By keeping clients informed of critical market-influencing events and event revisions, our data enables finance professionals to take advantage of or avoid the volatility that ensues.

christine shorts - horizon wall street

Christine Short, vice president of research at Wall Street Horizon, focuses on publishing research on Wall Street Horizon’s event data covering 9,000 global stocks in the market. Over the past 15 years in the financial data industry, his research has been featured widely in the financial media, including regular appearances on networks such as CNBC and Fox to talk about corporate earnings and the economy.

Twitter: @ChristineLShort

The author may hold positions in the mentioned titles. Any opinions expressed herein are solely those of the author and in no way represent the views or opinions of any other person or entity..

Robert D. Coleman