Retailers Report Luxury Booms, Middle Class Struggles, U.S. Stocks Inch Higher

Barry Adams
25 Aug, 2022
New York City

Stocks extended gains for the second day in a row but the popular indexes are set to decline for the week. 

Investors are keenly awaiting Fed Chairman comments on Friday hoping to find more clues on the future interest rate path. 

The latest batch of earnings posted a weakening and diverging consumer demand after Dollar Tree and Abercrombie & Fitch lowered annual outlook but Autodesk and Dollar General provided positive updates. 

The diverging customer behaviors were in sharp contrast after Nordstrom reported its high-end customers are looking for more upscale goods but the retailer it is struggling to attract customers at its discount chain Nordstrom Rack. 

Moreover, Toll Brothers sold homes at the highest average price of $920,000 in its latest quarter. 

In addition, Advance Auto Parts said the do-it-yourself business is struggling but its enterprise business is steady. 

Brinker's International, the parent of Chili's and Maggiano's, offered another confirmation to the diverging consumption trends. 

Same store sales are struggling at its lower priced Chili's chain but sales are still rising above 30% for its higher priced chain Maggiano's, 

On the economic front, the government offered a mixed picture on the broader economy and labor market. 

U.S. GDP growth in the second quarter was revised to a smaller decline than initially estimated, according to a report released by the BEA on Thursday. 

Second quarter GDP contraction was revised to a slower 0.6% from the previous estimate of 0.9% released last month by the Bureau of Economic Analysis. 

However, the smaller contraction data was also accompanied by higher inflation in the quarter. The price index for gross domestic purchase increased to 8.4% from the previous estimate of 8.2%. 

In a separate report, jobless claims held nearly steady near multi-decade low.  

Initial claims of jobless benefits were 243,000 for the week ended Aug 20, a decline of 2,000 from the previous, the Labor Department reported Thursday. 

U.S. labor market may have been stronger than previously estimated, the Department of Labor's statistics agency said today. 

The U.S. economy added 462,000 more jobs in the 12 months to March than previously estimated, according to the preliminary data released by the Bureau of Labor Statistics Wednesday. 

The bureau conducts a periodic review of monthly payroll data with the broader set of data provided by the unemployment insurance tax records. 

The government agency will offer its final assessment of the labor market in February when it releases its employment situation report for January.  

The S&P 500 index increased 1,4% to 4,199.12 and the Nasdaq Composite index added 1.7% to 12,639.27.  

Futures of crude oil decreased $1.92 to $92.97 a barrel and natural gas increased 4 cents to $9.37 a thermal unit. 

The yield on 10-year Treasury notes held stable at 3.02% and 2-year notes were nearly unchanged at 3.32%. 

Peloton Interactive plunged 18.3% to $11.01 after the fitness equipment maker reported a larger-than-expected quarterly loss and said business is likely to remain challenging in 2023. 

The newly appointed CEO Barry McCarthy is fighting on several fronts including cash outflow stemming, repositioning the company as a fitness service provider and expanding the user base through its digital app. 

Dollar General Corp fell 0.5% to $246.08 after the deep discount retailer reported stronger quarterly results and said it will continue expanding its store count and reach more inflation-challenged customers in more locations. 

Revenues in the second quarter fiscal year 2022 ending in July increased 9.0% to $9.4 billion on a comparable same store sales rise of 4.6%. 

Net income in the second quarter increased 6.4% to $678 million from $637 million a year ago. Diluted earnings per share rose to $2.98 from $2.69 a year ago. 

Total merchandise inventories rose 25.1% to $6.9 billion compared to $5.3 billion as of July 30, 2021.

Abercrombie & Fitch declined 6.3% to $17.44 after the apparel retailer posted an unexpected quarterly loss. 

The apparel retailer said second quarter revenues declined 7% to $805 million and gross margin rate declined 730 basis points to 57.9%, driven by higher product costs and commodity inflation partially offset by higher average unit retail at Abercrombie.

In the second quarter, the retailer swung to a loss of $14.7 million or 33 cents a diluted earnings per share from a profit of $110.5 million or $1.33 a share a year ago. 

Abercrombie & Fitch lowered its net sales outlook to be down mid-single-digits from $3.7 billion in 2021 compared to previous outlook of flat to up 2%. 

Victoria's Secret & Company increased 1.9% to $37.62 after the intimate apparel retailer said second quarter sales declined 5.7% to $1.5 billion from $1.61 billion a year ago.  

Second quarter net income declined to $70 million or $0.83 a diluted share compared to $151 million or $1.71 a share a year ago.  

Same store sales in the second quarter declined 7% compared to an increase of 16% in the quarter a year ago.