Yahoo Finance

Our top story this morning to retailers, Target and Macy's staying cautious a bit on the consumer, as the consumer remains a strain. Target shares are soaring on better than expected results. It's a welcomed improvement after last quarter's warnings about inflation battered shoppers. You're looking at gains of just about 16% in the pre-market. But once you dig into the numbers, there are some signs that the consumer is showing some cracks. The shoppers are spending, but they're still hunting for value. And then we've got Macy's. It's another quarter of declining sales and that's sending shares lower here this morning. That's off nearly 10%. In the earnings release, CEO Tony Spring calling the results quote, strong in a quote, challenging consumer environment. Here to discuss we have our very own Yahoo Finance executive editor Brian Sozzi along with our senior reporter Brooke De Pamo. And guys, lots to get into here when it comes to these retailers and exactly what it tells us about the consumer. But Soz, we'd love to hear your biggest takeaways on Target.

I'm inflation battered. I paid like through arm and a leg for like air fresheners at Target a couple of weeks ago. We'll take that offline. There's really a lot to unpack there. But anyway, the shares of Target, top ticker on Yahoo Finance this morning, uh, as the team mentioned here, and this quarter did make sense. Uh, let me tick through a couple reasons why or what I saw in this report. I think the consumer was choosy, uh, in these latest results from Target. Sales did improve sequentially. Uh, Target's traffic did increase. The company cut prices or started cut prices in May on 5,000 daily essentials, like meat and bread and milk. Consumer responding to that, CEO Brian Cornell telling me. Uh, and then also number two here, again, like I mentioned, lowering prices and discounts are helping. Now, Cornell did not say if he was going to take those price cuts down even more or expand them in the coming quarters. I put that question to him. TBD, as they would say. And last but not least, this report might be the first indication the holiday season, which of course will come up against right around the presidential election, may not be a disaster. Uh, now Target did not comment or discuss how back to school has started, but we have gotten some indications for some retailers that the back to school shopping season has started off good. We heard that from Walmart. Has it started off gangbusters? No. But I think you'll see some more uppy commentary on the back to school front from the likes of specialty apparel retailers, like an Abercrombie & Fitch, when they report in the next two weeks. And then you can start thinking about the holidays may not be that bad.

All right. And we're also tracking here, of course, as we're watching shares of Target, we're also watching shares of Macy's here this morning. Ticker symbol M. Brooke is looking into this one. What are you seeing there?

A little bit of a different story, but the same trend that we're seeing overall is that consumer discretionary spending is still under pressure. That's what Macy's CFO told Yahoo Finance this morning. We did see softer sales than even Macy's expected in the quarter, was down 4%. And what we're, they're saying is that luxury consumers are not immune to this trend. Their luxury business Bloomingdale's saw same store sales growth, rather, dropped 1.1%. CFO Adrian Mitchell telling us that the reality is that a luxury consumer has the dollars to spend, but they're not immune to being discerning about how they're thinking about spending. And this is a bigger story. Department stores are really struggling to move forward into the future as the rise of, say, Walmart's marketplace and Amazon are really on the table here. We did hear from them that their first 50 stores, where they're really investing in digital, they're investing in tech, checkout technology, they're putting more handbags and purses and shoes, they seem to be doing okay. Same store sales for those first 50 stores where they invested are up 0.8%. The CFO telling us that attraction is very clear, that traffic and conversion in these first 50 stores gives it the confidence to expand the new assortment of handbags and shoes to another additional store, or another 100 additional stores this fall. But on the back, this comes after Macy's decided against a buyout offer of $6.9 billion. They ended terms, or ended talks with Arkhouse Management earlier this summer. They believe that with this bold new chapter strategy they have in place, it will then bring them above the premium value that Arkhouse did offer earlier this year.

And I also wonder, just just in terms of, and it's still early, we still have to hear from a lot of retailers this season, but when it comes to the haves and have nots with the consumer, when it comes to the fact that they are pulling back on spending, I'm wondering if this environment is going to make the gap between the winners and losers even wider. When you talk about those that are working clearly, taking look at Walmart with it at record high levels versus those that have been struggling for so, for so long. Macy's is one of those names and a handful of other department stores that can't really turn it around.

Yeah, I, an easy comparison could be this. And we, we heard from Walmart last week. They had strength in apparel. Target saw a comeback quarter in apparel, strong area. Where could this business be coming from? The likes of a JC Penney, uh, maybe a Macy's. Uh, could you see a strong results out of a TJ Maxx? Because consumers are looking for deals, maybe Ross stores? Yes, absolutely. So that's point number one. Point number two, and really the story of the morning, it goes to Brooke. The story is blowing up on yahoo finance.com right now, the theft. Yeah. Uh, it looks like inventory shrinkage or theft inside of Target stores has now peaked, and that is the Target, Target executives telling us that that trend might get better. That could be a big thing. So we, I think that's something all investors need to watch, because if theft is starting to decline in stores, maybe as prices start to come down, consumers are feeling okay, they don't need to lift a pair, or or just try to leave a store with a free pair of razors, or whatever it is, um, that could be pretty good or profit tailwind to many big retailers.