Macy's stock falls after guidance slash, Dollar General shares slide

Macy's and Dollar General are feeling the pinch of U.S. consumers reining in spending amid elevated inflation and higher interest rates. Yahoo Finance Live breaks down the two retailers' earnings reports to find out what they tell us about spending.

Video transcript

- Again, to one other retailer really quickly. You had Dollar General out with its results. And there was weakness there as well. We pretty much got an indicator of that coming into this, when you had Dollar Tree's results last week. So Dollar General down in the pre-market, down more than 10%. Coming in below analysts' expectations.

Just again, signaling just a cautious consumer, the consumer being hit by this sticky inflation that we've been talking about and just the challenges on that front. Again, I had thought that the discount retailers would perform better because you did have Walmart actually performed better. So you thought that the Dollar General, the Dollar Tree would follow that.

Dollar General coming in at 234 share in terms of earnings. Revenue topping 9 billion. But again, missing estimates also cutting its sales and profit forecasts for the year. So just showing the consumer tightening the wallet.

- And I mean, I've been hard-pressed to find any of my friends that do their grocery shopping at Dollar General to the same extent that many of them do their grocery shopping at Walmart. So for Walmart, they do have that benefit of how much foot traffic they bring in on a day in, day out basis. And that can overflow into some of their other categories. Or to the same extent, they can still see some of that categorical weakness or mix shifts among consumers that they have to also account for.

Let's bring back in Lindsey Piegza as well who is the Stifel chief economist, still with us here. Lindsey, you think about some of the overarching trends that we've heard about from companies over the course of this earnings season, especially within retail. What does that tell to you about the consumer?

LINDSEY PIEGZA: Well, the consumer has proven to be surprisingly resilient. The consumer supported the economy in the first quarter and will likely be the primary support as we await the Q2 GDP numbers. However, that being said, it's very clear that some of these temporary factors that were supporting spending, a drawdown in savings, a last sputtering of state and local stimulus and, of course, consumers increasingly turning to credit cards, these are temporary.

And as a result, we have seen consumers slow. We have seen consumers pull back on purchases. And now, to some consumers, this means pulling back on the quantity of what they're purchasing. For other consumers, this means pulling back on the quality of what they're purchasing. So maybe instead of brand name purchases, now we're moving to Walmart brand shampoo.

And for other consumers, particularly the younger generation, what this has meant, in some cases, is a pullback to the bare minimum for one, two, or maybe even three months in order to buy a larger, more expensive ticket item in month 4. But regardless of the form that it's taking, what we're seeing is that consumers are dramatically shifting the goods and services in their basket. Something that they do-- something we do as consumers when we're increasingly concerned about our financial footing.

So this plays right into some of those lower expectations for earnings going forward as we hear from many major retailers that consumers are, in fact, becoming more choosy against the backdrop of elevated prices, still high inflation. And in economy, that does appear poised to slow going forward.

- Lindsey, to your point about consumers, us, making those trades, personally, and I know this is just anecdotal, I've made trades to Walmart because of just the sticky inflation that we've all been dealing with. What does it say to you, though?

There's something that I want to pull out a little bit more about consumers turning to credit cards more. During the pandemic, we saw consumers paying down credit cards. We saw those delinquency rates changing and improving. And now, though, we've seen a rise in that. So what does that tell you? What's the risk that we see there to the economy?

LINDSEY PIEGZA: So typically, when we see the consumer turn to credit cards to the degree that they have, this can be a red flag for the fragility of the consumer and the lack of sustainability that the consumer will have going forward. But in this case, we have to put it in perspective of the starting point.

And as you mentioned, during the pandemic, consumers weren't just buying Peloton's. They were also paying down credit card debt. And so when we look at the household balance sheet relative to disposable income, the household balance sheet in terms of debt payments relative to disposable income, we're actually starting from a multi-decade low.

Now, that certainly doesn't mean that I'm advocating for consumers to take on new amounts of credit card debt. But what this tells us is there is certainly a good amount of runway for the consumer to continue to take on new amounts of credit card debt to supplement spending at least in the near term.

So again, this does support the thesis that the consumer will remain resilient, albeit at lower levels than we saw in Q1, throughout the second quarter and into the early parts of the second half of the year. Staving off, I think, for many economists, the idea of the recession setting in perhaps by the end of the year or pushing that out to the first part of 2024.

- Lindsey, even as we think through to some of the private payrolls data that had come out this morning and showing the rate of private payrolls, wage increases, one area that, of course, continues to jump out is leisure and hospitality that led the pack up by about 8.4%. But you saw increases across both job stayers and job changers. Job changers saw an increase of about 12.1%.

Why do I bring all this up? Well, it comes back to the disposable income, of course, that many of the consumers right now are still trying to evaluate how much of that they put to work. Have you seen a material shift there from your perspective?

LINDSEY PIEGZA: I don't think we have quite yet. Remember, earnings were trending negative for the better part of the last two years as inflation ate into that nominal increase. Only recently have we seen that tick up minimally into positive territory. So when we talk about the strength of the consumer from a real income perspective, there's still a very modest support from that perspective.

Now again, I think there are a number of temporary factors that will continue to support the consumer. As I mentioned, a drawdown in savings, the consumer had accumulated trillions in terms of a wealth cushion during the pandemic of which we're still drawing that down. And of course, as I mentioned, there's still a sputtering of state and local stimulus that's arriving to consumers.

But when we talk about the long-term sustainability of the consumer, that has to come from organic income growth. And right now, the minimal levels that we're seeing in terms of real growth in disposable income, that doesn't suggest a sustainable consumer at this point.