Has The Consumer Finally Hit The Wall?

WHAT IS IN STORE FOR BACK-TO-SCHOOL, THE HOLIDAY SEASON AND BEYOND AND HOW RETAILERS CAN WEATHER THE STORM.

As retailers head into the back half of 2023 and start to build inventory for back-to-school and the holiday season, the erosion of consumer purchasing power is finally starting to have a major effect on revenue and gross margin. This will accelerate the operating margin compression, with a profit structure that is already challenged by over two years of product, cost and labor inflation.

These headwinds became evident during first quarter earnings announcements for many publicly traded retailers and the subsequent downward revisions to both revenue and EPS estimates by sell side analysts. Based on our analysis, year-end 2023 revenue estimates declined by 2.8%, on average, versus the previous guidance provided in February. This revenue decline translated into a 26% average decline in EPS estimates due to cost increases and operational deleverage.