Between the storm clouds of consumerism, some rays of hope emerged on Thursday.
Walmart Inc.’s sales rose 4.7 percent in the second quarter, adding another $7.4 billion to its already huge revenue. And the Census Bureau reported that retail and restaurant sales rose a seasonally adjusted 1 percent in July from June — a gain that is more than three times the 0.3 percent economists had forecast, according to FactSet.
This, combined with inflation that has fallen back to more tolerable levels and the expectation that the US Federal Reserve will begin cutting interest rates in the fall, seems to create room for a little more optimism.
In any case, investors were in a good mood and pushed the Dow Jones Industrial Average up by 1.4 percent or 554.67 points to 40,563.06.
But the overall picture is still mixed.
According to Census Bureau calculations, specialty clothing and accessories stores saw a 2.5 percent increase over the previous year, while department stores fared even worse, declining 0.3 percent.
And with unemployment currently rising, the geopolitical world still in turmoil, and an election looming in the U.S., retailers and brands have found a new favorite word to describe consumers: “choosy.”
Walmart CFO John David Rainey told analysts: “Customers continue to be discerning and picky, looking for value to make the most of their budget, while also showing interest in seasonal holidays. Sales pace remained largely consistent month-to-month during the quarter.”
Also, Joanne Crevoiserat, CEO of Tapestry Inc., which reported better-than-expected quarterly results, said: “When we look at the consumer, we see a continuity to what we’ve seen in recent quarters, and that is a consumer who is picky. What we’re seeing in the market is that innovation and emotion continue to win, and that gives increased importance to brand execution and brand excitement.”
While the text remained cautious, investors interpreted it as having a more optimistic undertone and jumped into retail despite ongoing concerns about the second half of the year.
Stock gainers included Ulta Beauty Inc., up 11.2 percent to $365.80 after Berkshire Hathaway announced it had acquired a stake in the cosmetics retailer; Victoria’s Secret & Co., up 9.8 percent to $24.37; Lululemon Athletica Inc., up 6.7 percent to $256.55; Gap Inc., up 6.7 percent to $24.22; Walmart Inc., up 6.6 percent to $73.18; Abercrombie & Fitch Co., up 5.9 percent to $162.05 and Tapestry Inc., up 3.2 percent to $39.20.
Outside Wall Street, the lesson for retail seems to be that there is an opportunity for companies that achieve their goal to get enough right and win.
At Tapestry, Coach has gained ground over the past year and is now trying to buy Capri Holdings to further grow in the affordable luxury segment. And at Walmart, the mass-market giant has continually looked at its business from a new perspective.
“Today’s Walmart is different. We are led by people and powered by technology,” said Doug McMillon, Walmart’s CEO. “Our customers and members around the world continue to want four things: They want value, they want a wide assortment of items and services, they want a convenient and enjoyable shopping experience, and they want to do business with a company they trust. Those four things are constant, but the way we deliver them is changing, and changing fast. The results we’re delivering are due to real progress on those dimensions.”
Fashion has been part of this evolution, as the company has beefed up its presentation and offering, revamped No Boundaries and other brands, while also adding third-party online sellers to its ranks.
Walmart said sales of fashion, toys, consumer goods and home goods on its digital marketplace all rose more than 20 percent in the second quarter.
Overall, Walmart’s revenues rose 4.8 percent to $169.3 billion in the second quarter. Comparable sales at the U.S. business of the same name rose 4.2 percent, after an increase of 6.4 percent in the previous year.
According to Yahoo Finance, adjusted earnings rose 9.8 percent to 67 cents per share, 2 cents above analysts’ forecast of 65 cents.
And the company is looking to the coming year with increasing confidence.
Annual sales are now expected to increase by 3.8 to 4.8 percent, compared to the originally forecast increase of 3 to 4 percent.
While Walmart is moving forward, not all retailers are doing so smoothly.
Dillard’s Inc., another Arkansas company, reported a 4.9 percent decline in second-quarter sales from $1.6 billion to $1.5 billion, while net income fell 43.3 percent from $131.5 million to $74.5 million.
“We are disappointed with our weak second quarter performance,” said CEO William T. Dillard 2nd. “While the consumer environment continued to be difficult, our expenses increased, impacting our profitability. We are working to resolve this issue.”
We will no doubt hear similar sentiments when other retailers report their quarterly results this month.
But Dillard’s has something that most major retailers don’t.
Although the company is publicly traded, it is controlled by the Dillard family, which has ensured that the retailer retains its real estate holdings (Dillard owns 246 of its 273 stores) and has built a strong balance sheet.
“We ended the quarter with over $1 billion in cash and short-term investments,” Dillard’s said.
This gives Dillard’s a little more leeway to adjust expenses to sales.
