Investors Are Cautious Ahead of Retail Earnings for Q2 as They Wait to Gauge Demand, Recovery

In the next two weeks, Skechers, Steve Madden, VF Corporation, Deckers, Under Armour, Crocs and Adidas will report earnings for their most recent quarters.

According to analysts, macro-effects in the current economic environment such as inflation, lack of stimulus funds and recession fears will likely weigh on the results. Plus, with the back-to-school and upcoming holiday shopping period still ahead, visibility is still murky for the time being, analysts noted.

“While there are reasons to be involved in a number of stocks going into upcoming earnings, there is little to no reason to back up the truck for at least a month, when consumer demand becomes evident during back-to-school,” wrote Williams Trading analyst Sam Poser in a note investors, advising them to “remain patient” when it comes to making major stock decision.

Poser called out Boot Barn, Steve Madden, Deckers and Skechers as his top picks for the upcoming season.

One of the big problems facing retailers this season is higher than usual inventories. Executives from Walmart, Target, Foot Locker, Macy’s and more said last quarter that they expect to see a surge in discounts as they look to correct their large levels of inventory.

“We expect inventory dollars on balance sheets to expand further relative to the previous quarter,” wrote Cowen analysts in a recent note to investors. The analysts highlighted Deckers, Ralph Lauren, VF and Puma as most likely to “point to solid trends and reiterate guidance.”

As prices continue to rise, lower-priced brands could see benefits as consumers “trade down” to shop more affordable options. 

Skechers is one example of a label that could benefit from this trend, analysts from Jane Hali & Associates (JHA) LLC pointed out.

“Skechers caters to a lower-end consumer and its distribution includes Walmart, Target, DSW, Kohl’s, Macy’s and off-price,” JHA analysts wrote in a note to clients. “These consumers are affected by inflation and the threat of recession, which has forced them to prioritize groceries and fuel over apparel and footwear However, on the flip side, Skechers could benefit from a trade down scenario.”

When it comes to footwear and apparel generally, Morgan Stanley analysts found that consumers could potentially “trade down” to cheaper stores such as TJ Maxx, Ross Stores and Burlington if high prices continue to surge. However, the analysts added that discretionary categories like footwear and apparel have thus far “proven resilient,” throughout the current economic environment, though this is subject to change.

“As inflation continues to squeeze lower income households, our economics team expects there may be further shifts in consumer spending patterns,” Morgan Stanley Economist Sarah Wolfe wrote in a recent report.

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