Americans are expected to spend less this holiday season and seek discounts, according to a new CNBC survey of retail logistics managers. This desire to save money at a time when most people have to shop would favor discount brands from TJX Companies (TJX) and bargain prices from Costco (COST). According to the latest CNBC Supply Chain Survey, released on Friday, 71% of respondents indicated they are concerned that consumers will reduce their vacation spending in response to inflation. Meanwhile, about two-thirds of those surveyed by CNBC expect consumers to look for discounts. Along with an already cost-conscious consumer, the value shoppers can get at TJX-owned TJ Maxx, Marshalls and HomeGoods, as well as Costco, plays squarely into our investment thesis in both stocks in these challenging times. economic uncertainty due to the insistence of the Federal Reserve. that the problematic inflation has not yet been defeated. The Fed on Wednesday halted its series of interest rate hikes, but signaled that two more are likely to come this year. Currently, inflation remains high, although the trend in recent months has been for smaller increases. The weaker demand recently for discretionary purchases reflects consumer concerns about higher prices as they try to prioritize essentials. For example, Home Depot (HD) expects overall sales and same-store sales to each decline 2-5% in fiscal 2023. It also forecast diluted earnings per share (EPS) to decline. for the full year between 7% and 13% as DIY buyers withdraw from home improvement projects. Home Depot, which last month reported its biggest quarterly revenue loss in about 20 years, stuck to its previous annual guidance at its Investor Day last week. Similarly, Club Foot Locker (FL) holding company has also seen a slowdown in consumer spending elevated inventory levels, prompting it to report lower guidance for the rest of the year. Management updated its fiscal 2023 sales guidance to a 6.5% to 8% drop from its previous guidance of a 3.5% to 5.5% drop as “consumers are forced to have more choices about how they spend their money,” Chief Executive Officer Mary Dillon said during the company’s post-earnings call last month. Consumers certainly spent more than expected in May, as government retail sales results earlier this week rose 0.3% on the month. That’s higher than the 0.1% estimate. Tuesday’s Consumer Price Index showed a 4% year-on-year increase in May, down from 4.9% in April and a large decline from the Covid pandemic peak of 9.1% in June 2022. Although With cooling inflation appearing to have taken some of the weight off Americans’ last month, retailers are still bracing for a cautious shopper ahead. To accommodate the pressured consumer, Wall Street believes that having the right inventory will set successful retailers apart from the rest of the pack. COST YTD Mountain Costco Performance YTD Cowen named Costco the Best Idea for 2023, citing steady traffic trends, record renewal rates, and strong revenue from membership fees. Importantly, analysts also point to Costco’s prudent inventory management as a “catalyst for strong execution going forward,” in a recent research note. The wholesale retailer, analysts explain, plans to increase the variety of food products to balance out slower discretionary sales. The firm said “gross margin tailwinds” are coming for Costco as supply chain costs come down. These “additional gross profit dollars could be invested in stronger price gaps and could generate [higher] mid to single digit traffic growth.” We think the possibility of a membership fee increase and special dividend at some point in the future would be a nice icing on the cake and keep us as long-term owners of the shares. asked us about membership pricing In last month’s post-earnings call, CFO Richard Galanti once again gave no indication that a fee increase was imminent, though he acknowledged it would happen “at some point.” TJX is best positioned to capture consumer demand on the downside.The discount retailer’s 46-year track record of offering value “resonates with consumers in a number of economic environments,” analysts said.They also like the ” TJX’s consistent execution” in both inflationary and recessionary periods, “given TJX’s 1,200 shoppers sourcing good/better/better merchandise that appeals to a broad income base and age demographic.” % to 3%. Management said it sees no deterioration in demand as it offers best-in-class value and a treasure-hunting experience consumers love. In particular, the company sees a clearer path to improve profitability to pre-pandemic margins. Bottom Line In a tough retail environment where consumers are expected to spend less and seek discounts, we’re left with retailers that offer quality merchandise at affordable prices, and that’s always been TJX and Costco. “We have the two best retailers at the moment,” Jim Cramer said during the Investing Club’s June monthly meeting on Wednesday. “TJX because there’s a lot of excess inventory in the system and TJX can pick and choose from a lot of department stores and Costco because they offer the cheapest merchandise,” he explained. We are encouraged that TJX has been a value-add for stressed consumers in an inflationary environment and that it has strong execution in a slower economy. This gives us more confidence that the outlook for the discount retailer looks positive towards the second half of the year and the best way to play in the current retail environment. We continue to view Costco as a best-in-class operator and remain big fans of the club’s membership model, value proposition, and high customer loyalty. During inflationary periods, Costco is able to keep prices low and attract new members. We recently sold COST shares to make some profit. That sale took place on Wednesday after Costco shares posted a solid 9% advance following its latest earnings report in May. (Jim Cramer’s Charitable Trust is long TJX, COST. See here for a full list of shares.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR WAIVER. NO LIABILITY OR FIDUCIARY DUTY SHALL EXIST OR BE CREATED BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR BENEFIT IS GUARANTEED.
Shoppers come and go from the TJ Maxx store in the Mall at Prince George’s on August 17, 2022 in Hyattsville, Maryland.
Chip Somodevilla | fake images
Americans are expected to spend less this holiday season and seek discounts, according to a new CNBC survey of retail logistics managers. This desire to save money at a time when most people have to go shopping would favor TJX Enterprises‘ (TJX) discount marks and costco‘s (COST) bargain prices.
