00:00I am joined by Sharon Martis, Director of Consumer Research at LSEG. Sharon, great to have you.
00:05Good to be here, Caroline.
00:06So we're talking retail sales. They largely came in better than expected. Fill us in on the key takeaway.
00:12June definitely came in stronger than expected as the summer hit and families are out and about eating at restaurants.
00:19Still, when you dissect into those numbers, you can see that there's some negative around consumer electronics, appliances, and home furnishing.
00:27Most of those which are imported and therefore underline that there's still some tariff-related stress.
00:34And when you look at the overall graph for retail sales for this year, you can see that there's a lot of volatility.
00:39It's been a very dramatic year in terms of retail sales, ups and downs, which are very much tied so with how consumers are feeling about the economy.
00:48In fact, when you look at our LSEG data for consumer sentiment, you see that it's been a very turbulent year for consumers.
00:54When it comes to how they feel about the current economic situation and the investment climate, there we've seen some improvements.
01:02However, their perceptions about future economic conditions, those continue to deteriorate.
01:07Consumers are very much worried about what are going to be the prices that they're going to be paying, and so are retailers.
01:12One thing that we've talked about, and I think we've talked about it often, though, is that there's a difference between how consumers feel and what they do.
01:21They might feel down, but they might still spend.
01:24So how would you rate the strength of the consumer right now?
01:27The consumers being, they're only searching for value-oriented deals.
01:33And this is mainly because they are dealing with very high inflationary prices.
01:39As you saw, the inflation data this week shows that prices, they're still dealing with high electronics, electricity, medical care, and things of that nature.
01:49And therefore, when they go out shopping, they are actually looking for a discount or promotion deals in order to shop.
01:55Still, what's very heavy on their mind is, like, what's going to happen in the future?
02:01Right now, because they're spending, like you said, there's a dichotomy, and that's mainly because they are currently employed.
02:07The employment market continues to be very strong.
02:09So as long as the consumer is gainfully employed and the unemployment number doesn't continue to rise, then they're going to continue to spend freely.
02:16But if that number deteriorates, that's when we're going to see them put their hands in their pockets and hold back on spending.
02:22And one thing I think that's important to note is that the retail sales data isn't adjusted for inflation.
02:28Right.
02:28So it's not just that consumers are buying more.
02:31They might just be spending more, too.
02:34Right.
02:34So the data that we've seen could also be inflated because of those inflationary prices,
02:39and not so much so because of the volume of what consumers are actually spending.
02:45That is correct.
02:46You mentioned in the CPI report that we started to see some higher prices in certain areas,
02:50also in things like furniture and clothing.
02:53What is the consensus?
02:54How many retailers have actually pushed those higher prices from tariffs onto the consumer?
02:58How many are expected to?
03:00So far, we've been tracking it in a collaboration with Centric Market Intelligence,
03:05and actually up until the month of June, the prices in apparel have been down,
03:10which actually does explain why we saw a splurge in apparel sales in the month of June.
03:17Because as long as those prices continue to be down, we're going to continue to see the consumer spend in that area.
03:22However, going into July and August, that could be a different picture,
03:26mainly because that's when a lot of those other tariffs will be hitting.
03:30But yes, when it comes to the expenditure right now,
03:35we're saying that the biggest winners, even for the rest of the year, are going to be the discounters,
03:39because consumers will be looking for those value-oriented prices.
03:41Because TJX, off-price retailers, are expected to do very well during the back-to-school season as kids go back to school.
03:48That makes sense.
03:49As I started to look at some of the biggest winners and losers so far in 2025 in terms of stock performers,
03:56I did see Dollar Tree, Dollar General, Five Below at the top of my retail watch list,
04:00but also included Canada Goose, Levi, Urban Outfitters, different price point.
04:05And then at the bottom of the list were names like Lululemon, RH, Decker's Outdoor.
04:11So what is separating the winners from the losers aside from just cost?
04:17In addition to Canada Goose, you're seeing Ralph Lauren, Aritzia.
04:22Those are companies that are also expected to do well.
04:25And that's because they have a loyal customer following.
04:28And on top of that, they've been able to provide newness in terms of fashion to the consumer.
04:33So the consumer feels that they are getting something different than everybody else, you know.
04:38And there also is a loyalty there with those brands.
04:41So we're seeing that those brands also tend to do well,
04:44especially when it comes to the upper-middle class, high-end consumer.
04:47Whereas in general, we're seeing that companies like Costco and Walmart
04:51continue to gain more market share of those high-end consumers looking for value.
04:56What's one trend in the retail industry that you think that the market might not be paying enough attention to?
05:02We saw that the internet online sales continue to accelerate.
05:07And our predictions for LSEC is that that number will continue to grow into the second half of the year.
05:12In addition to that, I would also say that the miscellaneous sales today did very well in the month of June,
05:18June retail sales.
05:20And those are companies, retailers like second-hand store, mom-and-pop vintage antique stores, or specialty stores.
05:28So what we're seeing is that maybe that's also a trend that was very strong during the pandemic.
05:32So consumers might be gravitating again towards trying to find unique items
05:37or trying to find second-hand items, again, just to try to save some money in this economic climate.
05:42I think that's also big with the younger generation, too.
05:45They like second-hand.
05:46Yes, because it's sustainable and it's good for the ecosystem.
05:52And therefore, we're saying that that might be still a portion, like you said,
05:55a sector that has not been overcaptured so far.
05:59So many important insights from you.
06:01But bottom line, what's the takeaway about the consumer right now?
06:05The consumer is watching and is very careful about what is going to happen with the economy.
06:10They are very worried about how much their pricing power is going to be,
06:14what the value is going to be in terms of, like, are the prices going to continue to rise, inflation,
06:20what this means for my cost of living, and therefore they're being more discerning
06:23and more cautious about where they're spending.
06:25So as we see the trade wars continue to progress and see more of the numbers coming in in August,
06:32then we're going to see how things will moderate with the consumer.
06:35So far, the LSEC estimate predicts low earnings growth rates for the second half of the year,
06:42which is a big change from the previous two years where we saw double-digit growth in earnings.
06:48So we're seeing a deceleration.
06:50And for the very first time, we're seeing a negative growth for the second quarter,
06:54the first negative showing since the pandemic.
06:56So retailers are also being very cautious.
06:59So retailers don't typically report until later in the season.
07:02It sounds like we have to prepare for some kind of downbeat news.
07:05Yes, they've already been warning us not to expect too much from them.
07:08In fact, when we look at our guidance, we have received more negative guidance
07:11in terms of earnings, expectations, outlook, and also revenue outlook,
07:16more so than we have in previous quarters.
07:18And therefore, analysts pulled by LSEC correspondently have been lowering their earnings estimates forecast,
07:25especially for the second quarter, which is expected to be down 1.7%,
07:29the first negative showing since the pandemic.
07:31And then we're expected to see low single-digit growth for the second half of the year.
07:37Underlining, again, that the consumer is very much concerned about what's going to happen with pricing
