More Signs Point to Bifurcated Consumer Spending
Selective spending continues, and we’re positioned for that.
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While we have a bit of a lull before the current earnings season pivots in a more meaningful way, there were a few such reports this week that confirm the consumer continues to spend, but is doing so in a selective manner. Measured against those revised expectations, we continue to favor shares of Costco COST, especially after the company’s July revenue report that showed an accelerated pace of consumer spending at the membership warehouse company.
We suspect the July Retail Sales report out on August 15 will bring even more confirmation for that line of thinking. It should also give us some larger context for Amazon’s AMZN 2025 Prime Day event as well as other competing efforts.
That should also help set the stage for quarterly results from TJX Companies TJX on August 20, the same day as Target TGT reports and the day before Walmart WMT. Sifting through the various line items in those reports will give us another view into the consumer as we exit the Back-to-School shopping season and get ready for October-December holiday spending. It will also be a data point to watch for our shares of American Express AXP.
In preparation for that period, we’ll be looking for Halloween and holiday spending forecasts from the National Retail Federation and other third parties, like Deloitte, Adobe, and others.
What They're Saying
Now let’s turn to what Ralph Lauren RL, Sweetgreen SG, and Expedia EXPE had to say:
Ralph Lauren remains cautious on the second half of the year due to “the potential impact of tariffs and related industry-wide price increases in the U.S.” During the earnings call, RL management explained that in its view, “The big unknown sitting here today is the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer is. And that's what we're watching very closely as we head into the second half.”
Shares of Sweetgreen are under pressure Friday following the company’s updated outlook for this year that calls for same-store sales growth of -4% to -6%, compared to its prior forecast for 0% and the consensus estimate of -1.5%. Perhaps $13-$17 salads are not finding as much favor with consumers.
When Cava CAVA reports next week, we’ll look through its store growth and focus on comp-store revenue growth and restaurant-level profit figures. Inside Dutch Bros BROS June-quarter results, its systemwide same-store sales rose 6.1% year over year, while company-operated shop gross profit rose 60 basis points year over year.
After besting top and bottom-line expectations for its June quarter, Expedia shared an uptick in U.S. travel during July and lifted its annual guidance with gross bookings rising 5%-7% for the current quarter compared to 5% in the June quarter. That supports our view of the higher-end consumer continuing to spend on travel, a positive for our shares of Amex.
Next week, in addition to Cava, we’ll break down consumer spending comments and expectations from Birkenstock (BIRK) and Tapestry TPR.
At the time of publication, TheStreet Pro Portfolio was long COST, AMZN, TJX, AXP and BROS.
