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Challenges loom as US retailers brace for Black Friday season

Ahead of the start of the real “Black Friday” sales season in the US, the third-quarter reports from some of America’s major retailers have been less than stellar, indicating the need for a significant end-of-year push.

With consumers cutting discretionary spending globally, retailers of all sizes are facing inconsistent demand and sales, with electronics, white goods, cars, and other big-ticket items feeling the pressure.

The economic landscape is unusual, with high US interest rates, new and existing home sales at 13-year lows, but still solid job growth and hourly wages rising at 4% annually (outpacing the 3.2% inflation rate).

While US retail sales data has been mostly solid throughout the year, the third-quarter reports from leading retailers have been mixed, with some notable differences. Department store chain Target impressed, while Walmart did not, with Walmart shares up more than 8% this year and Target shares down nearly 14%.

Clothing retailer The Gap delivered a better-than-expected performance for one key brand, but weak reports from others and a subdued outlook for the Black Friday season added uncertainty. Gap shares are up around 60% this year.

Macy’s reported a 7% decline in sales for the third quarter, but it exceeded market forecasts, leading to positive outcomes as margins improved due to better inventory management. Macy’s shares are down 25% year to date.

Earnings for Macy’s fell by more than 50% to $US43 million for the quarter, but the company raised its full-year forecasts slightly, which provided a boost of retail confidence, even if it amounted to just a million or so dollars over the year.

Kohl’s, a smaller rival, expanded margins, although sales declined by more than 5%, driven by a 13% drop in inventory. Net profit still fell by nearly 40% to just $US59 million.

Home Depot, the leader in the hardware/do-it-yourself sector, performed better than expected, but sales still declined for the quarter, resulting in a 3.3% decrease in Home Depot shares. A similar story played out at its smaller rival, Lowe’s Cos.

Lowe’s revised its full-year sales outlook downward, citing decreased spending on do-it-yourself projects, causing fiscal third-quarter sales to drop nearly 13% year over year. CEO Marvin Ellison attributed this to a “greater-than-expected pullback” by customers on discretionary projects and big-ticket purchases. Lowe’s shares are down 0.8% year to date.

Online sales for Lowe’s fell 4% in the quarter, reflecting pressures on discretionary spending. Online sales have weakened for many retailers, marking a departure from the pandemic-driven boom years.

Best Buy, America’s largest electronics retailer, reported third-quarter revenues down nearly 8% to $US9.8 billion, with comparable store sales decreasing nearly 7%. Weak consumer spending led to a 5% drop in net profit, prompting Best Buy to lower its annual guidance.

CEO Corie Barry noted the unpredictability of consumer demand in the current macroeconomic environment and the need to provide promotions and deals for customers during the upcoming holiday shopping season. Best Buy shares are down 16% year to date.

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