Retail earnings show massive discounts – and holiday shoppers are waiting to pounce: Morning Briefing

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Friday, November 18, 2022

Today’s newsletter by Julie HeymanNews AnchorAnd the and correspondent at Yahoo Finance. Follow Julie on Twitter @tweet. Read this and more market news on the go Yahoo finance app.

So far, Macy’s has been one of the highlights of the retail earnings season. Its shares jumped 15% yesterday after the department store owner reported better-than-estimated earnings and raised its forecast.

Key to the company’s surprising success has been the small build of inventory, which was up just 4% in the fourth quarter from the previous year. Earlier this year, Macy’s (M) began offering shoppers discounts and has continued to do so, helping weed out vintage merchandise while some of its competitors were dealing with an apparel oversupply.

People shop during the Black Friday sales event at Macy’s store in Manhasset, New York, US, November 23, 2018. REUTERS/Shannon Stapleton

An important question for the retail figures was how companies manage this inventory amid changing consumer spending patterns.

After closing on Thursday, Gap (GPS) became the latest example with its numbers, with a smaller increase in inventory (12% compared to a 37% year-over-year increase in the second quarter) amid “higher discounting.”

Walmart (WMT) moved goods by offering value to consumers, particularly in groceries, CFO David Rennie told Yahoo Finance, driving traffic. In contrast, Target found that consumers didn’t want the usual higher-margin areas of strength: Shoppers, owing to inflation, saved to buy necessities instead of clothing, electronics, and home goods.

This means that the target (TGT) must offer items for sale in order to resell them.

Percentage of consumers waiting for deals and the levels they are looking for (Source AlphaWise, Morgan Stanley Research)

Percentage of consumers waiting for deals and the levels they are looking for (Source AlphaWise, Morgan Stanley Research)

“They’re looking for promotions and they’re looking for this great deal. I expect the promotional focus to continue throughout the holiday period,” CEO Brian Cornell said on a call with reporters. Perhaps that’s why the retailer held its “biggest Black Friday sale ever.”

Consumers have spotted those deals, and suspect more are coming. According to a recent Morgan Stanley/AlphaWise survey, “70% of shoppers say they wait for stores to offer discounts before they start holiday shopping” — and they wait to buy until discounts are in the top 20%.

“Higher inventory levels will give stores an extra incentive to offer discounts as they try to clear merchandise from shelves. Firms offering the biggest discounts will be able to capture the largest share of the portfolio but with profit margins,” Morgan Stanley’s Michelle Weaver and Katie Soloveva wrote in a note to investors.

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Discounts may continue even after the holiday season.

“The inventory cleanup in this sector is likely to be done by the middle of next year,” Barclay’s Adrian Yeh told Yahoo Finance. Retail consultant Jean Rogers Kniven disagreed, saying that strong retail sales meant promotions would soon end.

“I’m sure we’ll see the consumer shop later because they think there will be deals, and I’m willing to bet there’s going to be a lot of them disappointed, because we’ll see a slow upgrading environment, unlike what we saw in the first half,” Rogers said.

What are you watching today


  • 10:00 a.m. ET: Existing Home SalesOctober (4.40 million expected, 4.71 million over the previous month)

  • 10:00 a.m. ET: Existing Home Saleson a monthly basis, October (-6.6% expected, -1.5% over the previous month)

  • 10:00 a.m. ET: leading indicatorOctober (-0.4% expected, -0.4% over the previous month)


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