Inflation is still weighing on the consumer: Retail expert

Retailers such as Target (TGT) and Foot Locker (FL) are set to report their quarterly results this week. Storch Advisors CEO Jerry Storch joins Yahoo Finance Live to discuss the current state of the consumer.

Storch, the former CEO of Toys "R" Us and Hudson's Bay, says so far "the consumer has held up pretty well." Despite this resilience, he notes that "inflation is still real" and other pressures remain, so investors will be watching retail results "with a very sharp eye." Retail earnings reported so far, he says, have been a "mixed bag" with "no real breakout."

He points out that retailers focused on value "have done well," while others in apparel and discretionary categories have "struggled." This divergence highlights the consumer's current emphasis on essentials and stretching their budgets.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

[AUDIO LOGO]

JOSH LIPTON: A slew of retailers expected to report their latest quarterly results this week. The financial reports will provide a clearer view on consumers as they prove to be more resilient than many had expected. Here with how the retailers are measuring up to the shifting retail landscape, we have Storch Advisors CEO Jerry Storch.

Jerry, it is always good to have you on the show. So we got some big retail names on deck, Jerry. I'm just curious, what you expect to hear from these companies? Viewers who are watching right now, they may have some money committed to these retail names, Jerry. What do you think they're going to hear?

JERRY STORCH: Well, look, so far, the consumer has held up pretty well better than most people expected, including me. However, the stresses are still there. The reason that they're spending less on discretionary purchases, it's still there. Inflation is still real.

The stress on the balance sheet is still real. So we're all watching these results with a very sharp eye. So far, a number of retailers have reported last week especially. And what we've seen is kind of a mixed pattern. Those that had negative same-store sales in the third quarter were still negative in the fourth quarter. It's not like they flipped into suddenly being positive. They were a little better, but not much.

And those that were positive in the third quarter were still positive in the fourth quarter, but a little less positive. So some like a Walmart, for example, still good numbers not quite as good as a third quarter. TJX, similar. You know, nice numbers, but not quite as good as the third quarter.

So what we haven't seen is a real breakout here. Nobody, not one major retailer has flipped from having negative comp sales in the third quarter to positive in the fourth or the other way around. The patterns have been holding very true to form. So I would expect more of the same. Target, for example, biggest retailer coming out tomorrow. It was negative in the third quarter, they'll be negative single digits again in this quarter if the pattern holds. We're all watching to see is a little better than that a little worse than that, that'll tell us a lot.

JULIE HYMAN: And is-- Jerry, it's Julie here. Is there any sort of rhyme or reason? In other words, are we seeing that value continues to do a little bit better here? We've certainly seen on the very opposite side of that, luxury is held up a little bit better than some had expected. So what kind of themes are you seeing on that level?

JERRY STORCH: Well value is definitely a dominant theme. As I mentioned, Walmart has done well. TJX has done well. These are value players. Costco continues to outperform. It's just a stellar, stellar retailer and does well apparently in all times, but especially when it's a little bit tough out there.

Meanwhile, apparel retailers, those with building supplies, that kind of discretionary purchase for your home, we've seen those struggle. Interest-sensitive categories, those have struggled as well. So products that you don't have to buy that you can put off, so-called discretionary spending, has not been strong. People have been buying necessities, buying a lot of food. And for that little affordable fun, it's cosmetics. And so cosmetics companies have done great through the holidays. And I think that's what we're going to see in these numbers.

I don't really expect many surprises. But we'll see what happens here.