Is the US consumer 'fatigued' or actually in 'a good place'?

Tue, Mar 5, 2024, 3:05 PM

Telsey Advisory Group Founder and CEO Dana Telsey and UBS US Hardline & Broadline and Food Retail Analyst Michael Lasser offer two different perspectives on the US consumer. While Telsey believes consumers are "in a good place" and riding several economic headwinds, Lasser finds shoppers to be "fatigued" while spending "[becomes] a bit more episodic."

Turning their attention to Target (TGT) — which COO and CFO Michael Fiddelke told Yahoo Finance the chain finds consumers to be "remarkably resilient" — the two analysts weigh in on the retailer's latest earnings figures.For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: With just over 20 minutes left till the closing bell on Wall Street, we're looking at how to navigate the big picture with the Yahoo Finance playbook. Today the consumer is front and center. After fueling the economy's growth for much of 2023, we're looking at how resilient the shopper is faring. And what it means for retailers and beyond, we're joined by Dana Telsey. Telsey Advisory group founder and CEO. And Michael Lasser, UBS, US hard line and broad line, and food retail analyst.

Thanks for being here, both of you, I appreciate it.

MICHAEL LASSER: Thank you very much.

DANA TELSEY: Thank you.

JULIE HYMAN: So I want to start big picture here for both of you. And ask each of you Dana and Michael to set the stage for where the consumer is right now? And where we are in the retail cycle and I know that's a big question. But if you can do it succinctly if you would. Dana I'll start with you.

DANA TELSEY: Great. I think the consumer is in a good place right now. There's always headwinds and tailwinds. But I think there's more tailwinds. When you think about the strong labor market that's out there. When you think about moderating inflation and the potential for lower interest rates, those are all pluses. You have the headwinds whether credit card, delinquencies, lower tax refunds so far, this year than last year. And the geopolitical uncertainty.

But spending power of the consumer is stabilizing to improving and that basically is a benefit.

JULIE HYMAN: And Michael

MICHAEL LASSER: I look at it a little bit different. I think the consumer's getting fatigued and spending is becoming a bit more episodic. For example, we saw a real slowdown in consumer spending prior to the holidays. The holidays were strong, especially around key events like Black Friday and Christmas. And then in January and February, the consumer retrenched. So our picture of what's happening with the consumer.

While the labor market is stable. Some of the excess savings that have been driving disproportionate growth in consumer spending over the last few years has been worked off. So consumer spending is becoming a bit more episodic and volatile in nature.

JOSH LIPTON: Michael while I have you, I want to get your take on target. You covered that name. Listen, they reported clearly investors like what they see. What did you make of that report Michael and as an analyst who has a buy on that name, what are the catalysts ahead that you think moves this stock higher?

MICHAEL LASSER: So so target is clearly getting its footing back. Its traffic was less bad this quarter. And that is a Foray to seeing an improvement as it gets past this current quarter. Plus the margins are very strong. And that's not just because they don't have inventory to discount, the underlying strength in margins are what's really standing out.

We think that target can retrace to historic margin levels within the 6% range and as the market sees evidence of that, that will be a catalyst for this stock to move higher. A couple of other catalysts, the company is going to be at our UBS consumer conference next week where it's going to be in front of a lot of investors.

Further outlining reasons why it can maintain its momentum plus as the alternative data starts to look better in April, may and June, as it laps some of the issues that had last year. That'll be another catalyst. So this is a stock that yes, it's had a move. But you still are going to retrace to peak margins with catalysts on the horizon.

JULIE HYMAN: And Dana, I have a question for you about target as well, which is that historically, you thought of target as being targeting a higher end consumer. We've seen other indications that higher end consumer has held up well, but it hasn't necessarily seemed to benefit target. Is that because they're not connected any longer? Or that they're not attracting that consumer any longer?

DANA TELSEY: I think overall, you're still seeing a positive view to when collaborations and in-store shops are at target, whether it's Kendra Scott that's been successful, whether it's the Ulta that's been successful. But you're looking at the consumer even at the aspirational level having moderated their purchases. So whether they're spending at outlets or whether they're spending it off pricers, there's a lot of choice for brands with a value.

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Is the US consumer 'fatigued' or actually in 'a good place'?

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