Some global consumers are showing signs of cracking, as shoppers stressed by record inflation stick to buying basics like food, bleach and cheap burgers, while those with bigger bank accounts are snapping up $3,000 Louis Vuitton handbags.
Investors are closely watching corporate results for signs economies are headed toward recession. But so far consumers are sending mixed signals. There is weakness seen in those that have been hit hardest by record fuel and food prices. Meanwhile, credit card and other data shows some are still spending on travel and other high-end pursuits.
Walmart sounded a warning shot on Monday, issuing a rare profit warning. Its U.S. customers, who tend to come from lower-income households, are buying food and other essentials, while skipping aisles filled with clothes and sporting goods.
“The results overnight indicate that U.S. consumer is now much more focused on the staples element of shopping where we’ve got double-digit food inflation coming through in some of these retailers,” says Nicola Morgan-Brownsell, fund manager at Legal & General Investment Management.
U.S. consumer confidence fell for a third straight month in July amid persistent worries about higher inflation and rising interest rates.
Sales at luxury group LVMH Moet Hennessy Louis Vuitton SE climbed 19 per cent, slightly lower than earlier this year. Handbag and high-end liquor sales in Europe and the United States helped offset slowdowns stemming from COVID-19 lockdowns in China.
Consumer giants Coca Cola Co. and McDonald’s Corp. and Unilever Plc all said on Tuesday that their products are still selling, even at higher prices.
Unilever, which has 400 brands including Hellmann’s mayonnaise, Knorr stock cubes and Domestos bleach, raised its full-year sales guidance after beating first-half underlying sales forecasts as its hiked prices.
How long can it last?
So far consumers are buying, but there is a question around how long that can last.
“We see price increases when we go out to do a weekly shop. The question is: how much more accepting can the consumer be on those price increases?” said Ashish Sinha, portfolio manager at Unilever and Reckitt shareholder Gabelli.
McDonald’s which operates nearly 40,000 restaurants, said its global same-store sales jumped almost 10 per cent, much better than the expectation for an increase of 6.5 per cent.
WATCH | Consumers on edge as inflation running at 40-year high:
Consumers, businesses on edge as inflation hits 40-year high
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With inflation reaching a high not seen since 1983, Canadians are looking for ways to earn more and spend less, while businesses are trying to manage rising costs.
Even so, the Chicago-based company said it is considering whether to add more discounted menu options because soaring inflation — particularly in Europe — is leading some lower-income consumers to “trade down” to cheaper items and to buy fewer big combination meals, chief financial officer Kevin Ozan said during a call with investors.
Coke’s global sales volumes rose 8 per cent in the second quarter, the company said, powered by growth in both developed and emerging markets, while average selling prices increased about 12 per cent.
“Coke’s results are testament to its brand value because consumers are unwilling to trade down to other colas, despite increasing prices,” CFRA analyst Garrett Nelson said.
Germany-based footwear maker Adidas AG cut its earnings target for the year due to a slow recovery for its business in China.
General Motors Co. on Tuesday reaffirmed its full-year profit outlook on an expected surge in demand and said it was curbing spending and hiring ahead of a potential economic slowdown, but a 40 per cent drop in its quarterly net income disappointed, sending shares lower.
The Detroit automaker’s net income fell 40 per cent in the second quarter from a year earlier due to supply chain snarls, including a global semiconductor chip shortage that hit hardest in June.
Nevertheless, GM sees a lot of pent-up demand.
Shoppers carrying Louis Vuitton branded bags on the Champs Elysees in Paris earlier this month. Sales at the luxury brand are holding up well amid high inflation, but not all retailers are faring so well. (Cyril Marcilhacy/Bloomberg)
GM Chief Financial Officer Paul Jacobson said Tuesday that despite the hit from the global chip shortage in June which continued in July, GM still sees strong pricing and demand for its vehicles. The automaker reaffirmed its profit outlook for the year, as Jacobson said the company sees demand in the second half making up for any shortfalls in the second quarter.
A GM pickup truck starts around $31,500 US for a base Chevrolet model, while fully loaded version can easily top $100,000 US, and most cost between $50,000 and $70,000 US.
“We feel good about making up all that (lost) volume in the back half of the year,” he said.
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
