From burgers to bleach, and Walmart to Adidas – consumers are starting to take advantage of high inflation
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 who have larger bank accounts buy $3,000 Louis Vuitton handbags.
Investors are watching corporate results closely for signs that economies are heading into recession. But so far, consumers are sending mixed signals. There is weakness among those who have been hardest hit by record fuel and food prices. Meanwhile, credit cards and other data show some are still spending on travel and other high-end activities.
Walmart fired a warning shot on Monday, issuing a rare profit warning. Its American customers, who are typically from low-income households, shop for food and other necessities, while skipping aisles filled with clothing and sporting goods.
“The overnight results indicate that the American consumer is now much more focused on the basic element of shopping where we have double-digit food inflation at some of these retailers,” says fund manager Nicola Morgan-Brownsell. at Legal & General Investment Management.
US consumer confidence fell for a third consecutive month in July amid lingering concerns about rising inflation and rising interest rates.
Sales at luxury group LVMH Moet Hennessy Louis Vuitton SE climbed 19%, slightly lower than at the start of the year. Sales of handbags and high-end liquor in Europe and the United States helped offset slowdowns resulting from COVID-19-related lockdowns in China.
Consumer giants Coca Cola Co., McDonald’s Corp. and Unilever Plc all said on Tuesday that their products were still selling, even at higher prices.
Unilever, which has 400 brands including Hellmann’s mayonnaise, Knorr bouillon cubes and Domestos bleach, raised its full-year sales forecast after beating underlying first-half sales guidance so his prices were rising.
How long can it last?
So far, consumers are buying, but one wonders how long this can last.
“We see price increases when we go out for weekly groceries. The question is, how much more can the consumer accept these price increases?” said Ashish Sinha, portfolio manager at Unilever and shareholder of Reckitt, Gabelli.
McDonald’s, which operates nearly 40,000 restaurants, said its global same-store sales jumped nearly 10%, much better than expectations for a 6.5% increase.
Even so, the Chicago-based company said it is considering adding more discounted menu options as soaring inflation – especially in Europe – leads some lower-income consumers to “trade in” toward cheaper items and buying fewer large combo meals, Chief Financial Officer Kevin Ozan said on a call with investors.
Coke’s global sales volumes rose 8% in the second quarter, the company said, driven by growth in both developed and emerging markets, while average selling prices rose about 12%.
“Coke’s results are a testament to the value of its brand as consumers are unwilling to give up other colas, despite price increases,” said CFRA analyst Garrett Nelson.
Germany-based shoemaker Adidas AG cut its profit target for the year due to a slow recovery in its China business.
General Motors Co. on Tuesday reaffirmed its full-year profit outlook on an expected increase in demand and said it was restraining spending and hiring ahead of a potential economic slowdown, but a 40% drop in its quarterly net income disappointed, dragging stocks lower. .
The Detroit automaker’s net profit fell 40% in the second quarter from a year earlier due to supply chain issues, including a global shortage of semiconductor chips that hit the hardest in June.
Nonetheless, GM is seeing a lot of pent-up demand.
GM Chief Financial Officer Paul Jacobson said Tuesday that despite the hit from the global chip shortage in June that continued into July, GM still sees high prices and demand for its vehicles. The automaker reaffirmed its profit outlook for the year, as Jacobson said the company saw demand in the second half making up for any shortfall in the second quarter.
A GM pickup costs around US$31,500 for a base Chevrolet model, while the fully-equipped version can easily exceed US$100,000, and most cost between US$50,000 and US$70,000.
“We feel good to catch up on all that (lost) volume in the second half of the year,” he said.