Retail Earnings Provided Clear Customer Behavior Insights That Benefited Discount Retailers And Left High-End Retailers In The Dark

Like TJX Corporation TJX, Ross Stores Inc ROSS thrived as consumers drifted away from high-end retailers. Ross Stores topped quarterly estimates and improved its outlook, with its shares rising about 6% on Thursday upon Thursday's report during extended trading. Premium cosmetics giant, The Estee Lauder Companies EL, issued a weak guidance and slow recovery of its business in Asia. Farfetch Limited FTCH stock tanked after the luxury fashion e-commerce retailer posted a big revenue miss and weaker than expected guidance. These latest reports continue the trend that Target Corporation TGT and Walmart Inc WMT portrayed earlier which is that high-end and premium ‘wants’ retailers are on the losing side of this macroeconomic chapter, while necessities and off-price retailers are on the winning one, with customers still being willing to splurge and find bargainsf for discounted premium goods.

Ross Stores jumped nearly 5% a day upon its report. Like TJX who reported steady sales of its discount apparel and accessories and a stronger than expected demand for home decor goods, the discount retailer topped both sales and earnings estimates for its second quarter.  Net sales grew 7.7% to $4.93 billion, topping the expected $4.75 billion with earnings per share amounting to $1.32, surpassing Refinitiv’s consensus estimate of $1.16. While Ross Stores previously expected its 2023 same-store sales be stay relatively flat, it now expects them to expand between 2% and 3%. The off-price retailer also lifted its annual profit per share guidance from the previous range of $4.77 to $4.99 to a newly projected range of $5.15 to $5.26.

As for the e-commerce fashion platform, Farfetch made a big revenue miss as it reported it generated $572 million in the second quarter, which is a far cry from Refinitiv’s consensus estimate of $649 million. Its shares tanked 41% in early morning trading upon results as the e-commerce luxury fashion retailer provided a weaker-than-expected full year guidance as well as trimmed its gross merchandise value outlook. With a second quarter report riddled with disappointing figures and debt, Farfetch suffered on the side of losing high-end retailers.

Estee Lauder, who was once the star of challenging times thanks to “the lipstick index” its chairman coined, didn’t get to be a winner in these post-pandemic recessionary times. As skincare replacing lipsticks when COVID-19 started its relentless march across the globe, now the beauty brand reported declining sales for its fiscal fourth quarter. Still, it succeeded to top fourth quarter earnings and revenue estimates. Adjusted earnings per share of 7 cents surpassed the loss of 4 cents per share that Refinitiv’s survey of analysts expected, while revenue of $3.61 billion topped Refinitiv’s consensus estimate of $3.48 billion. For the undergoing first fiscal quarter, Estee Lauder is expecting an EPS loss in the range between 31 and 21 cents per share, while Fact Set’s survey of analysts earnings per share of 98 cents. Its shares tanked 4% as the cosmetics giant lowered its full-year outlook. 

Consumer Behavior Brought Darkness To High End Retailers And Dawn To Discounted Retailers

TJX and Ross Stores inflation-hit customers shopped for its discounted clothing and shoes and looking for bargains on premium apparel brands. Despite tightened household spending, consumers looked for cheaper deals on both essentials and non-essentials. While high-end retailers struggled with bloated inventories, they were ‘rescued’ by discounting retailers who got to offer a wider assortment as a result of offloading their inventories. Therefore, consumers are not willing to give up on splurges despite tightened budgets but are approaching them in a cost-conscious way, leaving high-end retailers in the dark while boosting revenue of discount retailers such as TJX and Ross Stores. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

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