AI stocks have captured all the headlines lately, and for good reason—they’ve been delivering stellar returns. But let’s not overlook another promising area of the market: consumer stocks. Right now, these often-overlooked stocks are showing signs of life, and the latest earnings reports suggest that the consumer is still spending, setting the stage for a potential rally.
Recent earnings from Nordstrom (JWN), Abercrombie & Fitch (ANF), Foot Locker (FL), and Chewy (CHWY) all tell a similar story—positive sales growth and improving trends.
But before closer look at what’s driving these companies and why consumer stocks deserve your attention, I wanted to share free resources and 3 secrets that have been game-changers for my investing strategy—tips that I believe could help you too.
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These resources and secrets have made a big difference in my investing journey, and I wanted to share them because I believe they can help you too. Now, let’s dive into this week’s recap and catch up on the moves that could impact your financial future!
Here’s a closer look at what’s driving these companies and why consumer stocks deserve your attention.
Breaking Down the Latest Results: Consumer Spending Still Has Legs
#1. Nordstrom (JWN):
Current Price: $22.34 as of August 30 2024, with a 52-week range between $12.88 and $24.03, showing a recent recovery from its lows.
Nordstrom reported better-than-expected Q2 2024 earnings with net sales of $3.77 billion.
This was a modest 2.9% decline year-over-year but still surpassed analyst expectations.
Digital sales grew by 6%, boosted by strong consumer demand during its Anniversary Sale event.
The company's focus on inventory management and cost-cutting measures has helped improve margins.
These strategies have made Nordstrom more resilient amid the current economic uncertainty.
#2. Abercrombie & Fitch (ANF):
Current Price: $147.57 as of August 30 2024. 52-Week Range: The stock has traded between $49.24 and $196.99, reflecting a strong upward trend over the past year.
Abercrombie delivered an impressive 16% year-over-year revenue growth in its latest quarter, reaching $935 million.
Comparable sales increased by 10%, driven by strong demand in both North America and Europe.
Adjusted operating income rose to $85 million, far exceeding market expectations.
The growth reflects the company’s successful brand transformation and strategic product mix.
#3. Foot Locker (FL):
Current Price: $31.14 as of August 30 2024. 52-Week Range: The stock has traded between $16.68 and $35.60, indicating some recovery but still below its historical highs.
Foot Locker reported Q2 2024 revenue of $1.86 billion, a 9.9% decrease year-over-year but above consensus estimates.
Comparable sales declined by 9.4%, prompting the company to restructure and improve profitability.
Foot Locker is closing underperforming stores and enhancing its e-commerce efforts.
Gross margin improved by 40 basis points to 28.2%, driven by better promotions and reduced markdowns.
#4. Chewy (CHWY):
Current Price: $28.55 as of August 30 2024. 52-Week Range: The stock has traded between $14.69 and $39.10, showing volatility but some recovery from its lows.
Chewy posted net sales of $2.78 billion for Q2 2024, marking a 14.3% increase year-over-year.
The active customer base grew to 20.4 million, with average revenue per customer rising to $530 annually.
This reflects increased spending per household as the pet industry remains strong.
Chewy’s adjusted EBITDA margin improved to 5.8%, thanks to operational efficiencies and lower freight costs.
Why Consumer Stocks Are Lagging AI—But Not for Long
While consumer stocks have been delivering solid performance, they’ve lagged behind the explosive gains seen in AI stocks. The Global X Artificial Intelligence & Technology ETF (AIQ) has surged over 100% from its 2022 lows, while the SPDR S&P Retail ETF (XRT) has climbed just 40%. The main reason? Rising interest rates.
The Federal Reserve’s aggressive rate hikes have driven borrowing costs to their highest levels in over two decades. Current credit card interest rates average around 24.45%, and mortgage rates are hovering near 7%, both putting pressure on consumer spending.
The Turning Point: Falling Rates Could Ignite Consumer Spending
The good news? Fed Chair Jerome Powell has signaled that rate cuts could be on the horizon, with markets pricing in potential cuts as soon as this September. Lower rates could significantly reduce borrowing costs, revitalize consumer confidence, and unleash a fresh wave of spending. With inflation easing—recent CPI data shows a year-over-year increase of just 3.2%, down from a peak of 9.1% in 2022—the economic environment is becoming more favorable for consumer stocks.
Fed Chair Powell says September rate cut 'on the table' if inflation data continues to cool
Why Now Is the Time to Watch Consumer Stocks
Consumer spending has slowed over the past two years, with retail sales growth dropping from over 5% in 2022 to about 2.5% so far in 2024. However, with rate cuts on the horizon, we expect this trend to reverse, with sales growth potentially exceeding 3% in 2025 and over 4% by 2026. Earnings in the S&P 500 Consumer Discretionary sector are projected to rise nearly 30% over the next two years, driven by a combination of renewed spending and operating efficiencies.
At current valuations, consumer stocks look cheap. They’re trading at an average multiple of 26X earnings—below their historical average of 33X—offering significant room for growth as economic conditions improve.
The Bottom Line
With the combination of earnings growth, valuation expansion, and improving economic conditions, consumer stocks could realistically rally by over 50% in the next two years. The top performers in the sector have the potential to do even better, making this an opportune moment to diversify your portfolio beyond AI and consider high-quality consumer stocks.
Check out the top consumer stocks on our radar and take advantage of the potential rebound in this promising sector.
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Thank you for joining us on this journey. Remember, the best investment you can make is in yourself. Happy investing!
Together, BuildWealthWise
ChuWei
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