Retail Winners Emerge as Consumers Spend Carefully

SPEAKER_1 (0:01)

We're back on Morning Trade Live and checking in on some retail stocks this morning. Target, Walmart, Costco, Home Depot, all with up arrows against their names. We've got Costco that is underperforming against the rest of the bunch, but still with a quarter of 1% of the game this morning. Target, Walmart, Home Depot, all up over 1% right now. So obviously we have seen a bit of that rotation, particularly into consumer staples. We've had, of course, a number of these earnings out. Let's focus on the retail space and the consumer with Jan Rogers Kniffen, who's the CEO of J. Rogers Kniffen Worldwide. Jan, always nice to see you.

Let's talk about this consumer, because obviously we've had a number of earnings reports that's told us a bit, I mean, they still have money, but it seems like, and I don't like this word, but for lack of a better phrase, they're being very choiceful about their spending right now. Is that the takeaway that you're getting?

Jan Kniffen (0:52)

Yeah, I don't like that word either. That's exactly what they're doing.

They've got the money, they're spending the money, but they're being very careful about where they decide to spend it. You make a mistake, they don't buy from you. Your price is a little too high, they don't buy from you. But they're spending the money, that's the good news. The bad news is you better have the right product, the right price, talking the right story to them, or you're gonna have a problem. Levi's just showed us what happens, right? They advertised the wrong jeans, so they had a very poor performance in their online group, and it hurt their stock price a lot. They didn't move much on their forecast for the future. They had a good report as far as the current earnings, but that little miss said to the street, that consumer backed away from you a little bit.

I think Levi's will be fine, but I think they had a micro mistake when the macro is turning a little bit against you, right? When that consumer's saying just a little bit of mistake, I'm not gonna play your game. So we just saw that.

SPEAKER_1 (1:56)

Yeah, I mean, you've got to be very careful in this environment. I mean, even the slightest mistake can really cost you. But I've been looking at these charts. I raised this earlier in the week, Home Depot, Lowe's, Mickey D's, Pepsi, Walmart. I mean, these have all been down straight for weeks on end.

Looking at obviously the stock performance here, who's getting it right? Right now, do you think?

Jan Kniffen (2:20)

Well, I still think even though you just mentioned Costco, I think Walmart, Costco, Home Depot, Dick's Sporting Goods, and TJX are still the five best retailers in the country. They're getting it right. But I also think Ross, Amazon, of course, five below, Eritrea, Levi's, despite what we just saw, Contour, Tractor Supply, Casey's, Boot Barn, Urban Outfitters, Root Dynamite, William Sonoma, Ulta, they're all getting it right. They're all with that little higher end consumer almost.

When you get down below that, that consumer is struggling. But when you're in the middle and to the up, as long as you're getting it right, you can capture that consumer right now because they still have a job, and they still think right now they're going to keep their job. Until recently, they thought if they lost their job, they could get one paying just as much or more. Now, I'm starting to worry about that little last piece, and that's why I'm a little yellow instead of green on employment right now, because I think it's weakened a little bit. But if you look at wages and income, they're still really supportive of spending. If you look at the spending itself, it's been surprisingly strong.

Yes, they're complaining about inflation, so it's problematic again or maybe still. But in general, their household balance sheets are good, and the overall consumer is pretty resilient right now. So other than employment, I'm feeling pretty good, and as long as employment holds in, we'll be fine. But we hadn't seen any cracks till recently. It's a little bit of uptick in unemployment, and we saw low job creation. Those two things make it a little dicier, but I'm still predicting a good holiday, because I still think we have a strong shot at a 5 percent holiday.

SPEAKER_1 (4:09)

Okay, I mean, look, at the end of the day, consumers being choiceful, but they've got to eat, they've got to buy clothes, obviously, they've got to buy stationary for their kids to go to school.

There are things that are not negotiable. Obviously, you mentioned a couple of yellow lights, obviously, inflation being one of those, credit being another one too. I'm asked a couple of guesses questions. I've been looking at that heat showing up in some of the PMI readings, you know, just as far as input prices. Are you worried at all about demand destruction or margin destruction if those companies are unwilling to pass it on to the consumer or both going into the holiday season?