What Best Buy, Kohl's And Petco Sales Mean For Consumer Spending

It's the height of earnings season for retailers, and observers have been waiting nervously for insight into how Middle America is weathering economic uncertainty.

Kohl's has been struggling with challenges ranging from new leadership to inventory woes, providing unexpected good news with results that exceeded expectations. Net sales declined 3.3% to $3.4 billion, and comparable sales dropped 4.3%. The retailer posted a profit of $14 million, flat when compared to the prior year.

It says shoppers are snapping up beauty products at its Sephora unit.

"While there is still work to be done and the macroeconomic environment remains challenging, we are affirming our 2023 guidance and continue to have conviction in longer- term opportunity," said Tom Kingsbury, Kohl's chief executive officer, in its announcement.



Mark Altschwager, an analyst who follows Kohl's for Baird, called the first-quarter results a "steady start." He writes that Kohl's ability to beat sales and profit expectations, despite a softening macroeconomic environment, "should provide investors with some incremental comfort that new management has planned prudently as it embarks on an agenda to reinvigorate performance."

Best Buy offered less to be cheerful about. Revenue fell there, too, slipping to $9.47 billion from $10.65 billion in the same period last year. Comparable sales fell 10.1%. Net earnings declined to $244 million from $341 million in the year-ago period.

While those results align with Best Buy's forecasts, the softer sales indicate that cash-strapped consumers can live without gadgets.

"In this environment, customers are feeling cautious and making tradeoff decisions as they continue to deal with high inflation and low consumer confidence," says Corie Barry, Best Buy's CEO, in its announcement.

Some are hopeful that recent changes to its Totaltech membership will boost results in the months ahead.

"We have a very positive view of the firm's decision to tweak its Totaltech membership program, which should result in 'lower cost to serve' members," writes Sean Dunlop, an analyst who follows Best Buy for Morningstar.

Cutbacks are even eating into sales at Petco, which just posted its 18th consecutive quarter of sales gains. Overall revenues rose 5.4% to $1.56 billion, driven mainly by improvements in the consumables business, where sales climbed 11.2%. But sales in its supplies and companion animal business slipped by 7.6%. And it posted a loss of $1.9 million, compared to net income of $23.8 million in the same period last year.

While Petco stuck by its forecast for the full year, there are indications that it is losing market share "among lower-end customers who are seeking value," writes Seth Basham, an analyst who follows Petco for Wedbush Securities. Still, he continues to expect the company to outperform competitors. "While the near-term picture is not pretty, we note that the company should grow sales and see limited profit pressure in 2023, which is much better than many hardlines retailers this year. Moreover, we see continued progress with the company's long-term holistic pet care strategy, with solid trends in its vet care and grooming businesses."

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