Consumer Confidence and Caution: A Tale of Two Retail Giants - Target Triumphs While Macy's Stumbles Amid Economic Uncertainty

Let's talk about the recent financial reports of two consumer stocks today. Target and Macy's. Do they further prove the optimistic expectations for the economy?

Target's financial report shows that the quarterly revenue was $25.45 billion, up 2.7% year-on-year, higher than the expected $25.21 billion, with earnings per share at $2.57, significantly higher than the expected $2.18. Among them, the same-store sales that investors are concerned about, increased by 2%, higher than the expected 1.1%.

If we break it down, the number of transactions increased by 3%, but the amount per transaction decreased by 0.9%, reflecting that consumers are coming more frequently but buying less. This is a typical behavior of cautious consumers. Frequent visits indicate that Americans still have a strong desire to consume, but buying less indicates a more meticulous budgeting.

However, the management has seen some optimistic signs. The company stated that there has been a significant improvement in non-essential consumption, especially in clothing and beauty products. For instance, clothing sales increased by 3% year-on-year this quarter. This is partly due to the company's previous price reduction strategy but also reflects that American consumers remain resilient. Target's stock price soared by 10% today.

On the other side, Macy's stock price plummeted by 13% today, with guidance being lowered. The financial report shows that the company's revenue was $4.94 billion, down 3.8% year-on-year, lower than the expected $5.12 billion, with earnings per share at 53 cents, higher than the expected 30 cents. Among them, the Macy's brand continued to be the worst-performing brand in the company, with same-store sales falling by 3.6%, while the high-end brand Bloomingdale's fell by 1.4% year-on-year, and the beauty brand Bluemercury increased by 2%.

The company's CEO stated that we have seen obvious weakness, caution, and delay in consumption. People are still buying what they want, and they also respond to new things, but even relatively wealthy consumers are not spending money like they did a year ago. However, he did not think that the future environment will worsen, but instead said that consumers are cautious because there is too much noise outside, which interferes with consumers. This noise includes high interest rates, turbulent weather, and various dazzling news.

These two financial reports fully demonstrate the "lipstick effect." This refers to the phenomenon where consumers reduce the consumption of large items during economic downturns or uncertain times but are still willing to buy relatively cheap, small luxury goods that can bring immediate satisfaction, such as cosmetics and skincare products. Overall, whether it is from the performance analysis of the two companies or from the statements of the management, the macro environment is more uncertain rather than further deteriorating.

Usually, if there are signs of further decline, the management will not only lower the guidance but also very likely give a warning. However, companies like Target have raised their full-year earnings guidance, which means that the company believes that there will not be significant changes in the future macro environment, and there is still a certain opportunity for improvement. Consumers are to some extent suppressed by the high interest rates of the Federal Reserve, and if the interest rates relax in the future, it will help to stimulate consumption again.