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S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
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Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Railway workers in Austria to strike Monday in pay standoff
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
THE BEST BLACK FRIDAY DEAL YET (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Railway workers in Austria to strike Monday in pay standoff
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
THE BEST BLACK FRIDAY DEAL YET (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Railway workers in Austria to strike Monday in pay standoff
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
THE BEST BLACK FRIDAY DEAL YET (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Railway workers in Austria to strike Monday in pay standoff

Inflation Doesn’t Differentiate, But it’s Impact Does

Inflation Doesn’t Differentiate, But it’s Impact Does We’ve all heard the headlines of inflation hitting four-decade highs and its negative effect on operating margins and consumer spending. Inflationary pressures have caused raw materials prices to skyrocket made worse rising logistics costs and supply chain disruptions. Soaring grocery and gas prices have soured consumer sentiment and spending habits. To combat inflation, the Federal Reserve has made a full 180 degree hawkish turn from a year ago when they were overusing the term “transient” (temporary) in reference to inflation. They’ve accelerated to 75 basis point rate hikes to slow the rapid pace of inflation, which hit a 40 year high of 9.1% for June 2022. Inflation hits everyone, but not everyone is affected the same. This has caused a negative correlation within consumer spending that is also causing divergence within industries and among peers.

Rates Rise, Spending Falls

Wages are not rising at the pace of inflation, and this is causing consumers to adjust their spending habits. While they turn their spending more towards the necessities, they are also taking a hit on disposable income from the higher interest rates for credit card, loan, and mortgage payments. The Fed rate hikes have slammed the U.S. equity markets down (-14%) on the year stoking a material change in consumer sentiment. Consumer discretionary items like apparel are being passed over for consumer staples like eggs and vegetables. People reach for the necessities when time get tough. However, the impacts are affecting lower income households more than higher-income households. Even higher income households are searching for bargains. This differentiation can also be found in the stock market.


The Haves

High-income and wealthier consumers are less affected by the impacts of inflation. This is illustrated by premium brand companies feeling less pain since its customers can weather inflation better. Premium athleisure apparel maker Lululemon (NASDAQ: LULU) smoked its Q2 2022 earnings with 25% same store sales growth as direct-to-consumer (DTC) growth of 42%. Revenues grew 28.8% YoY as they beat analyst estimates by $0.34 per share. They raised their full-year EPS guidance to come in between $9.75 to $9.90 versus $9.44 analyst estimates on surging revenues between $7.865 billion to $7.94 billion versus $7.69 billion consensus analyst estimates. Luxury retailer Capri Holdings (NASDAQ: CPRI) owns premium brands Versace, Michael Kors, and Jimmy Choo. They saw revenues climb 8.5% YoY and raised its fiscal 2023 EPS to $6.85 versus $6.74 consensus estimates. They expects revenues to grow to $5.85 billion to $5.95 billion versus $5.84 billion consensus estimates.

Big and Little Box Retailers

In a recession, it would be logical for discount retailers to benefit as consumers flock to cheaper prices. Warehouse club giant Costco (NASDAQ: COST) is seeing gangbuster business as it saw July 2022 comparable same store sales spike 10% with net sales up 10.8% to $16.85 billion. Costco sells both consumer staples (groceries) and consumer discretionary items, but its scale enables them to pass on volume discounts to its members. Grocery stores are the epitome of consumer staples, and they do benefit from inflation. For example, Kroger’s (NYSE: KR) is scoring big from food inflation and robust at-home consumption trends as they grew earnings by 12.5% and revenues by 9.3% to $34.64 billion in its Q2 2022. It’s worth noting that its private label (generic and cheaper but higher margin) brands saw accelerated growth of 10.2% in same store sales.

The Have Nots

Inflation impacts lower-income households the hardest, as even the discount consumer discretionary retailers can’t avoid the impact. Kohl’s (NASDAQ: KSS) felt the pain as their lower-income household demographic customers pulled back discretionary spending. This was evidenced by its Q2 2022 earnings miss as revenues fell (-8.1%) YoY. The Company slashed its full-year EPS estimates to $2.80 to $3.20 versus $4.19 consensus analyst estimates. They guided full-year revenue expectations to fall (-5%) to (-6%). The department store sells mostly consumer discretionary items like clothes, toy, and home products but not necessities like groceries like Target (NYSE: TGT) and Walmart (NYSE: WMT). Discount retailer Five Below (NASDAQ: FIVE) sells items priced $1 to $5 to mostly a teen demographic. They sell mostly candy, toys, novelty items, games, and cosmetics which explains why their same store sales tanked (-5.8%) in its Q2 2022 earnings. They had to lower their full-year comps to fall (-5%) to (-2%). They are hoping their Five Beyond (above $5) store-within-a-store prototype will help drive growth. Videogames are a discretionary spend and gamers are getting more frugal. This was evidenced by Roblox (NASDAQ: RBLX) seeing its engagements rise as average daily users grew 21% YoY to 52.2 million spending 11.3 billion hours on its platform, up 16.6% YoY. However, this didn’t result in more spending as its bookings actually dropped (-3.8%) YoY in its Q2 2022.

Should you invest $1,000 in Lululemon Athletica right now?

Before you consider Lululemon Athletica, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Lululemon Athletica wasn't on the list.

While Lululemon Athletica currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
lululemon athletica (LLL)
0 of 5 stars
C$0.00flatN/AN/AN/A
Lululemon Athletica (LULU)
2.307 of 5 stars
$361.16+0.2%N/A42.29Moderate Buy$400.74
Capri (CPRI)
2.6417 of 5 stars
$53.30-0.2%N/A9.38Moderate Buy$68.25
Kroger (KR)
2.4832 of 5 stars
$49.04+2.5%2.12%14.91Hold$51.74
Kohl's (KSS)
2.0919 of 5 stars
$31.93-1.8%6.26%7.53Hold$31.27
Target (TGT)
2.8698 of 5 stars
$163.380.0%2.64%22.38Moderate Buy$185.07
Walmart (WMT)
2.5294 of 5 stars
$153.07+0.4%1.46%47.24Moderate Buy$160.14
Five Below (FIVE)
2.2125 of 5 stars
$161.63+0.2%N/A38.03Moderate Buy$171.21
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Jea Yu

About Jea Yu

Contributing Author: Trading Strategies

With over 20 years of active participation and analysis of the US equities, options and futures markets, Mr. Yu brings fresh insights into the workings of the financial markets. He has published four books by esteemed publishers McGraw-Hill, John Wiley & Sons, Marketplace Books and Bloomberg Press. His brainchild, the Underground Trader, was voted Forbes Best of the Web for four consecutive years under the active trader category. He has been a featured speaker all over the country at various expos and seminars who enjoys a standing-room-only reception in the largest convention halls from New York to Las Vegas. He has been quoted and featured in USA Today, Wall Street Journal, Traders Magazine and the Financial Times and various trade publications like Stocks & Commodities, Active Trader and Online Investor. Mr. Yu has a B.A. in Liberal Arts and minor in Business Administration from the University of Maryland.
Contact Jea Yu via email at JeaYu21@gmail.com.