00:00We did see a pretty decisive beat in the earlier today when it comes to retail sales.
00:04Does this change your outlook when it comes to retail stocks or do you think that investors are
00:08mispricing something? Well, the bigger question about what's happening in the market is a different
00:16one from what's happening in retail. The issues in retail are that there is still very much a
00:23K-shaped economy. And what we are seeing is the increases in things that may be discretionary
00:31purchases but then declines in essential goods with the exception of gasoline prices. That's really
00:38probably the biggest story. So retail sales with the marts numbers today were really, really positive.
00:45Year-over-year growth is higher than inflation. And that means that retail overall is at like a
00:5330-year high. That does not suggest a recession in any way, shape, or form. However, when you dig
01:00into the data, the places where we're seeing the highest increase are in gasoline prices. So gasoline
01:07on a year-over-year basis is up 15, 1.5 percent. That is a very, very large number. And
01:14that affects
01:15consumers who are the lowest income. And what we are essentially also seeing part and parcel with that
01:22is essentially flatlining to declines in mass merchandise and grocery, which also is going to
01:29be a reflection of struggles of the lower-income consumer. So even though retail numbers are high,
01:35it's really a divergence in who's spending, what they're spending on, and what it signals about the
01:41economy, which is that when you dig deeper, the story is more nuanced and more complicated than
01:47than how it may seem upon initial inspection.
01:50So, Charita, you mentioned that bifurcation between discretionary and spending on staples.
01:56I'd like you to take that a little bit further. How do retail's position? I mean, ahead of holiday
01:59season, you just saw what looks to be a pretty solid back-to-school season. What's the product mix look
02:06like? So what we expect from a holiday standpoint are that the big players will likely continue to get
02:17bigger. So we've seen strength from Walmart, even year-over-year positive sales from Costco.
02:25Amazon will do pretty well because it has such a vast array of goods, and it tends to
02:33do well from a pricing standpoint. Even Target is recovering. The kinds of companies that I
02:40expect to be challenged are those companies in the middle, regional grocers, smaller department
02:47stores, mass merchandise department stores, whether it's companies like Kohl's or even Macy's.
02:54Kohl's has been in a turnaround for a number of years. I don't expect this holiday season to change
03:00its fortunes. And when you have so much of the consumer share of wallet of the average shopper
03:06being consumed by gasoline prices, that's going to really, really hurt those middle-income
03:11merchants. On the other hand, the positives are that we are seeing growth in apparel,
03:17and we are seeing growth in sectors that are sort of those miscellaneous merchants like sporting goods,
03:23novelty items. So to some degree, there is some opportunity to offset some of the essential
03:32goods challenges that those retailers are likely to be facing.
03:36And as we head into the holiday season, what is the biggest risk to retail stocks that investors
03:41do you think aren't still pricing in?
03:45I think that with respect to retail, there's a lot that still remains to be seen with respect to
03:53the economy. I think investors have been waiting for the cycle to turn to a recession for some time.
04:02We essentially haven't had a recession since 2008. And the market is extremely hot still.
04:09There's a little bit of a correction right now, not even a correction, but a little bit of a downturn
04:14with the Dow right now. NASDAQ is still pretty strong. So it remains to be seen what's going to
04:21happen. I, you know, kind of with respect to retail, many of these stocks are experiencing,
04:27we see Costco's numbers down today. But overall, Costco is one of those retailers that's actually
04:35gaining share relative to others. So there's, I think, a lot that remains to be seen with respect
04:42to the market. If so much of the retail sector is being strengthened and supported by higher income
04:49consumers, what happens to the market is really going to determine whether or not those higher
04:54income consumers continue to spend.
Comments