Retail earnings point to struggling lower-income consumers

Discount retail giants, such as Dollar Tree (DLTR) and Five Below (FIVE), have recently released their earnings reports. As these retail giants grapple with the pressures of inflation, their financial performance raises questions about the current state of the consumer.

Yahoo Finance's Madison Mills breaks down the details.

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This post was written by Angel Smith

Video Transcript

Well as earnings season rolls along the retail sector is in the spotlight with reports from five below dollar tree.

Even Campbell Soup giving us a possible insight into the minds of consumers.

For more on this, we've got our very own Madison Mills here with the breakdown.

Ok.

So Mattie, what is the, the through line that we can draw from some of these earnings?

So what's really interesting is that a company like got Starbucks, for example, right?

When they come out with their earnings and they blame it on the macro, you can look at their peers and say, well, their peers aren't necessarily blaming their bad sales on things like weather or the macro environment with some of the names that you just ran through the brad five below dollar tree.

Uh Campbell's, all of them coming together to paint a broader picture about the struggling lower income consumer.

And that is something you can start to see an accumulation of data that could point to a problem, right?

So five below several analysts telling me that they were surprised by the degree of the headwinds this quarter, they hadn't anticipated that this is a discount retailer that stock is down over 12%.

Right now.

This retailer warning that low income shoppers are facing an outsized impact from quote years of inflationary pressures here and then you have a dollar tree.

Right.

They're looking to sell off family dollar.

What does that tell us?

Well, family dollar is utilized by those even lower income consumers.

It's got things like your paper goods, those staples that you really rely on that consumer base, even struggling to keep up with some of those basic purchases.

They're looking to sell off a name that they've only had for under a decade.

That's indicative that they're not seeing a lot of growth opportunity in that particular income group.

Yeah.

You know, it's interesting, especially as we think about what you were starting off this conversation with Starbucks being very different.

I mean, anybody that's selling a $9 latte or drink, at least that's the drink order for one of our producers.

Um, anybody that's selling something that tier, it becomes a luxury after a while in an environment where people are just trying to make sure that they can afford the staples right now too.

It's such a great point, Brad and points to kind of what we're talking about.

I mean, even if you take a look at a Campbell's right, you're seeing that their snack sales were down 1% their meal category was up by 1%.

That idea reminds me of, I mean, think back to childhood.

Right.

The parents suddenly giving you canned soup for dinner.

You know that something is wrong.

That's exactly what we're seeing play out in the Campbell's earnings here.

And it really, when you look at the totality of the earnings, you can see this higher income consumer that to your point can put up with a $9 latte and then a consumer that can't even afford the Campbells snacks.

When my question, of course, when I look at it from a macro perspective, when does that become a problem?

The Federal Reserve for the broader economy?

Just because the lower income consumer may not be seen in the macro data.

We're seeing it in the earnings and that could be an issue moving forward.

So you're telling me to ship some spaghettios to Jay Powell's house and have him give it a shot.

Just say, hey, we need these cuts.

A lot of people are having to subsist off spaghettios, consider that in your next fed rate decision.

They were pretty darn good growing up though.

I will say that right.

It's not necessarily a bad night at the house.

I shouldn't be so dramatic.

Thanks so much.

Appreciate it.