KB Securities Report
[Asia Economy Reporter Myunghwan Lee] Amid varying performances among retail stocks listed on the U.S. stock market, securities industry analysis points to income class polarization as the underlying factor. Accordingly, experts advise establishing retail stock investment strategies by closely examining the conditions of each income group.
On the 28th, KB Securities analyzed, "The U.S. retail earnings announced this week were better than those of Walmart and Target." They explained that middle-income consumers who left Walmart and Target shifted to retail chains with higher dependence on low-income consumer sales, while high-income consumer spending remained solid.
Earlier, on the 17th (local time), Walmart lowered its earnings forecast and saw its stock drop 11.4%, marking the largest decline since 1987. Target also fell more than 24% after reporting first-quarter earnings below expectations.
Companies whose main customers are low-income groups benefited as middle-income consumers flowed in. Dollar General and Dollar Tree, which sell low-priced products at uniform prices, posted better-than-expected first-quarter results. Dollar General attributed its strong performance to middle-income consumers coming to purchase cheaper products than those offered by Walmart and Target.
Companies heavily reliant on middle- and high-income consumer sales focused more on high-income groups. Department store chain Macy's, which mainly sells mid- to high-priced products, saw increased consumption of suits and shoes as economic activities resumed. Sales of expensive clothing for weddings and parties also rose, with forecasts suggesting that this year will be the best wedding season in the U.S. since 1984. In the upcoming second quarter, Macy's plans to reduce inventory of casual wear, where demand is slowing, by concentrating on products with steady sales to offset the decline in middle-income demand.
Meanwhile, high-income consumer spending remained steady. Luxury department store chain Nordstrom revised its annual sales and net profit forecasts upward, as high-income consumers' spending is unaffected by inflation. Ralph Lauren also presented sales and profit margin forecasts exceeding market expectations, evaluating its customer base as stable. High-end brands such as Chanel and Burberry reported minimal demand decline despite price increases.
U.S. airlines are also focusing more on consumer segments with spending power while preparing for potential demand slowdowns. Delta Air Lines announced it will reduce daily flights by about 100 from July 1 to August 7, the peak summer season. Other airlines like JetBlue and Spirit Airlines also cut summer peak season flights citing weather and staffing shortages. Reducing flight numbers leads to demand exceeding supply, allowing airlines, which control airfare pricing, to maintain their dominance. By concentrating on high-income consumers with greater spending capacity, airlines are choosing to reduce flights to prepare for possible demand declines.
KB Securities researcher Ilhyuk Kim advised, "Even if total consumption does not continue to grow strongly, retail stock investment strategies should be formulated by carefully considering the circumstances of each income group."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
