Retail earnings: 3 key lessons about the US consumer

Several large retail chains reported earnings this week, including Macy's (M) — whose new CEO Tony Spring plans to close 150 stores by 2026 — and TJX Companies (TJX). Yahoo Finance Live anchors Seana Smith and Brad Smith translate what retailers' performances are indicating within the US consumer, the strength of department store locations, and luxury spending patterns.

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: The latest earnings results from retailers giving us that inside look into the state of the consumer. So let's break down some key takeaways starting with the state of department stores. So we heard from Macy's earlier this week. This is one of our big takeaways that we have been tracking throughout this earnings season, especially with retailers.

And Macy's, particularly, came to mind here because of some of the weakness. Morningstar equity analyst David Swartz joined us this week. And he said, at this point, it's hard to have a lot of confidence at all on Macy's turnaround plan. And it's a massive turnaround plan, layoffs, restructuring plan, and then additionally closing 150 stores, this just the start of Tony Spring's tenure over at Macy's.

SEANA SMITH: It certainly is. And I think it highlights some of the struggles that we're seeing play out beyond Macy's into other parts within the sector. We've talked for a long time about Nordstrom the fact that that company is struggling, when you take a look at Kohl's. So many of these larger players within the department store space they're trying to right size the ship right now, trying to adjust their business for what the consumer wants and needs at this point.

A lot of that means more heavily investing in online. When you take a look at rivals, obviously, Walmart and Amazon, that was one of the strategic moves laid out from Macy's new CEO Tony Spring just in terms of some of the investment there and what they plan to do in fulfillment centers. So until that transition takes place, you can expect some of these department store names to remain under pressure.

The second trend that we want to point out here when it comes to the consumer and really giving us a good look as to how shoppers are feeling right now is the rise and popularity of the private label products. Now, this is a trend that we have been talking about now over the last couple of quarters, and it is continuing here into this quarter.

Even just earlier this week, Target coming out announcing a brand new private label line that most of their products are going to be in the range of $1 to $10. And why we're pointing this out is because yes, inflationary pressures have eased just a bit, but still clearly shoppers are feeling the pain of higher prices, and they're forced to make some of these adjustments as a result.

BRAD SMITH: And that's all part of the value consciousness that a lot of shoppers are deploying right now. And when you think about some of those private label brands and the broader kind of play into that trade down type of mindset that's exactly where companies like TJ-- well, [INAUDIBLE] I should say, or Target, and then additionally Walmart where we've heard them continue to lean into some of those brands that are home grown.

Finally here, though, we got to talk about a little bit of luxury. It's a little luxury, though. Just very little. And it comes out in a couple of different formats here, particularly in that beauty category, the cosmetics category as well. And I'll hearken back to Macy's just once again because that was one of the bright spots actually of their report.

Bluemercury, one bright spot in the Macy's earnings this week, poised for acceleration, the CEO said. Over the next three years as well they're anticipating about 30 Bluemercury store openings-- remodel roughly 30 others as well. And then you think about where else this has played out within the little luxuries landscape.

It's E-L-F, e.l.f., everyone, and that ticker symbol has been rocketing. Over the past year up 170%. 44% higher year to date. They reported earnings. They raised guidance. They also have three consecutive periods of doing so here. So that's another name that's been on the minds of a lot of analysts out there.

SEANA SMITH: Yeah, and TJX was one of the companies that was out before the bell this morning. And they are seeing spending on some of the cosmetics. Those types of purchases that really have outperformed over the last couple of quarters, and you've got a lot of people asking whether or not the beauty industry is relatively recession proof when you compare it to some of the spending trends that we've seen more broadly within this sector.