What Will Back-To-School Season Reveal? Key Events to Monitor

 | Aug 04, 2022 01:23PM ET

  • The state of the consumer is mixed, with some companies reporting declining sales trends while others say spending is solid
  • Back-to-school shopping season is underway, and investors anxiously await results and guidance from retailers in the electronics, clothing, and furnishing areas
  • The National Retail Federation expects a new record in total sales, though down from 2021's robust total once inflation is considered

    • What is the state of the consumer? 

    High grocery bills, soaring rents, and still elevated prices at the pump strain Americans' budgets just as the all-important back-to-school shopping season gets in full swing. There are signs that wealthier groups are weathering the current inflationary storm just fine while the bottom quintile of income-earners struggle to meet the rising cost of living.

    h2 Increased Credit Card Spending/h2

    Back on July 21, shares of AT&T Inc (NYSE:T) tumbled after the telecom giant said some of its customers were beginning to fall behind on their monthly bills. But then we heard a sanguine tone from a host of major credit card companies. Mastercard (NYSE:MA), Visa (NYSE:V), and American Express Company (NYSE:AXP) commented that card spending was robust.

    Mastercard's CEO said on its earnings call:

    "Increasing inflationary pressures have yet to impact overall consumer spending significantly, but we will continue to monitor this closely."

    It seems Wall Street is living and dying by each data point and even corporate anecdotes about how spending is holding up.

    h2 A Tale Of Two Consumers/h2

    Pundits argue whether we are in a true recession. This so-called Jekyll and Hyde consumer commentary, as coined by Bank of America (NYSE:BAC) analysts, indicates how fragile the landscape is following two quarters of negative GDP growth. The data show consumption, while slowing, is still positive. Moreover, June's Advance Retail Sales data was slightly better than analysts expected, though still below the headline inflation rate. We will know much more over the next few weeks as more sales data arrive at the macro level and with specific companies.

    h2 Record Sales Expected/h2
    Get The News You Want
    Read market moving news with a personalized feed of stocks you care about.
    Get The App

    Homing in on the back-to-school season, the National Retail Federation (NRF) released its 2022 Back-to-School Trends report. The trade association notes profound spending over the last two years with 25 straight months of retail sales gains. Of course, higher costs amid the economic slowdown cause consumers to switch to cheaper alternatives and hunt down coupons, according to the NRF. Back-to-school items are often seen as necessities, so while these sales may be strong, the concern is that it may result in lower spending in more discretionary categories. Overall, the NRF expects the typical family with children from elementary through high school to spend $864, on average, this season, up from $849 last year. In total, $36.9 billion is expected to be spent on back-to-school items. "Back-to-college" spending should sum to $73.9 billion vs. $71.0 billion in 2021. After inflation is considered, those totals are negative year-on-year.

    h2 Soft Electronics Spending/h2

    Investors must look to what companies report over the coming weeks to see how the data verifies. Four key categories are electronics, clothing & accessories, shoes, and dorm & apartment furnishings. Electronics is the most important area—and there is already some uncertainty there. Just take a look at what Best Buy's (NYSE:BBY) CEO had to say in a company update on July 27:

    "As high inflation has continued, and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further, leading to Q2 financial results below the expectations we shared in May."

    Microsoft (NASDAQ:MSFT) also worried about the retail space in its quarterly report, citing worsening PC sales. And who can forget Walmart's recent bombshell profit warning.