The consumer is 'stable,' but not very strong: Analyst

Despite strong July retail sales indicating consumer resilience, many companies have pointed to choosier customers trading down when they can. CFRA analyst Zachary Warring joins Morning Brief to weigh in on the mixed picture of the consumer and discuss the retailers performing best in this environment.

"We think the consumer's just being pickier. It's a stable consumer, but we wouldn't say they're strong by any means," Warring tells Yahoo Finance.

As consumers increasingly prioritize value, Warring notes that off-price retailers are among the companies best positioned to benefit. He points to TJ Maxx (TJX) and Ross Stores (ROST) as examples, explaining that they continue to see share price appreciation as well as earnings and store growth.

However, he notes that there are opportunities outside of value retailers, highlighting Abercrombie & Fitch (ANF) as an example as its most recent earnings report demonstrated its ability to grow revenue and expand margins.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video Transcript

Retail sector, painting a mixed picture of the consumer.

Over the last few weeks, strong July retail sales pointed to consumer resilience amid sticky inflation.

But some companies have pointed to a choose your customer trading down when they can as a result of higher prices.

Yahoo Finance spoke with a number of people that reflected the mixed picture.

The consumer is still hanging in there.

I think the consumer is doing fine.

There's a lot of strength there that the consumer is showing.

We see a consumer that is willing and able to spend but they may or may not.

Um And that's really manifesting in a choppy environment.

The consumer is still definitely feeling inflation.

I think it's the right tone to be cautious in the context of where the consumers are navigating.

I don't think that I'm as optimistic about the future of the retail economy and the consumer um attitudes as maybe the market seems to suggest the consumer is really, really softening here to weigh.

And we've got CFR A analyst, Zachary Warren Zachary, thank you so much for joining us.

So obviously, you could hear from so many of the executives and analysts who come on our program, not a lot of agreeance when it comes to their headline on the strength of the consumer, help us find some clarity.

What do you think?

Yeah.

Thanks for having me.

So, you know, we think the consumer just being picky here.

Um, it's, it's a stable consumer but we wouldn't say they're strong.

Um, by any means, you know, I think over the last 12 months it's continued to trend down slowly.

But you know, we think that's just a picky consumer right now.

Ok. And so one common thread seems to be the consumer right now focusing on value.

And we were discussing this earlier in our show and you know, I just want to play this quick clip for you here and get your reaction on the other side.

The real key to success in retail is value consumers want a deal.

They look for promotions.

Consumers are extremely value oriented.

They are shopping at the discounters off price retailers, the consumer as they migrate a little bit more towards value, they're being choiceful, they're being discerning, they're looking for value.

So if there is one retailer that is doing well and outperforming others on delivering value, who from your purview is it right now?

Yeah.

So you know, we think that there is the the the off price retailers and value retailers are definitely doing well.

So you've got TJ Maxx and Raw stores who you know, they continue to, you know, share price appreciation, um you know, and earnings and, and store growth.

So we think they're really well positioned.

Um outside of that, I think there are brands within apparel and footwear that are, are showing that they're able to grow.

So you had Abercrombie this morning.

Um we actually just upgraded the shares.

Um you know, they continue to show that they're, they're able to grow, um not only revenues but their margins are expanding pretty rapidly.

So, um we do think there are definitely, you know, apparel brands that, that have been able to grow through this, this macro backdrop.