Best Buy’s second-quarter numbers reinforce the story that it had previously signaled and that many retailers have been telling: Consumers are tightening their belts.
Although the numbers were a little better than expected, that was only of limited comfort (fundamentally speaking: the stock is up as I write).
From the Wall Street Journal:
Comparable sales, those from stores and digital channels operating for at least 12 months, fell 12.1% in the quarter ended July 30 compared with the same period last year. Sales declined in almost all product categories, with the biggest drops in computing and home theater, the company said.
One twist: Many retailers have been hit by excess inventories. They “overbought” because of fears of supply-chain disruptions and then were hit when consumer demand was weaker than expected. This was not a problem for Best Buy, but its CEO indicated that the company has to face the reality of a marketplace where its competitors are having to shift their excess inventories.
Best Buy faces a glut of discounted inventory from competitors, though its own inventory levels are healthy, Chief Executive Corie Barry said on a conference call Tuesday. Spending on consumer electronics is likely to normalize later in the year, she said, “but I hedge that just because there is so much inventory that’s in the marketplace right now,” and the consumer environment is uneven.
By definition, quarterly numbers are backwards looking, but the company does not expect things to change much in the third quarter.
The retailer, which was one of several major chains to warn over the summer of a pullback by consumers, said Tuesday that comparable sales and operating profits would drop at similar rates in the fall quarter.
Part of the weakness in consumer demand can be attributed to people’s spending on experiences (travel and so on, after a couple of years under Covid house arrest), rather than on discretionary purchases, but that that doesn’t account for all these shortfalls. There’s little doubt that many consumers are hurting.
Then again (via Reuters):
U.S. consumer confidence rebounded more than expected in August after three straight monthly declines, with vacation intentions rising to an eight-month high, a potential positive signal for consumer spending.
The Conference Board said on Tuesday its consumer confidence index rose to 103.2 this month from 95.3 in July. Economists polled by Reuters had forecast the index climbing to 97.7.
The survey’s present situation index, based on consumers’ assessment of current business and labor market conditions, climbed to 145.4 from 139.7 in July. Its expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, increased to 75.1 from 65.6 last month.
Surveys should always (IMO) be taken with a pinch or two of salt, but some have suggested that falling gas prices might help explain consumers’ greater cheer. That’s plausible enough, and the political implications of that might be worth noting. The Conference Board’s Lynn Franco is not, however, ready to pop the champagne:
“August’s improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term.” (My emphasis added.)
Feeling gloomy again? Check out job openings.
US job openings rose unexpectedly in July after a sizable upward revision to the previous month, underscoring persistent tightness in the labor market as employers compete for a limited supply of workers.
The number of available positions edged up to 11.2 million in the month — topping all estimates — from a revised 11 million in June, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Tuesday.
There were about two jobs for every unemployed person in July, up from 1.9 in June. Some of the largest increases in vacancies were in retail trade, and transportation, warehousing and utilities. Arts, entertainment and recreation also posted more openings from the prior month…
The JOLTS data precede Friday’s monthly jobs report, which is currently forecast to show the US added about 300,000 payrolls in August. Economists are expecting the unemployment rate to hold at 3.5% — matching a 50-year low — and for average hourly earnings to post another firm advance.
This will, I reckon, increase the chances that Powell goes for a 75-bp hike next time around (which is already my guess carefully considered prediction), even if employment tends to be a lagging indicator.
But we are in strange territory. Look at the labor-force participation rate, still below pre-pandemic rates, something hard to square with talk of a tight labor market. Where have those workers gone?
Maybe Best Buy’s CEO summed it up best:
The company withdrew longer-term guidance laid out in March for full year fiscal 2025 as sales declined this year more than expected, executives said. “The current macro backdrop has changed in ways that we and many others were not expecting,” Ms. Barry said. The company plans to share further financial expectations once the operating environment stabilizes, executives added.
Translation: No one really knows what is going on.