Consumer Discretionary Spending: Impact on Earnings Surprises

Macroeconomic Conditions Influencing Spending

Unfavorable macroeconomic conditions, including inflation, high interest rates, and geopolitical uncertainties, are significantly impacting consumer discretionary spending. Companies like McDonald's, Walmart, Apple, Amazon, and Home Depot report adverse effects on their financial results and customer transactions due to these economic pressures.

"MACROECONOMIC AND MARKET CONDITIONS Unfavorable general economic conditions could adversely affect our business and financial results." --- (MCD, sec filing, 2024/Q1)

"Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence." --- (WMT, sec filing, 2025/Q1)

"Macroeconomic Conditions Macroeconomic conditions, including inflation, interest rates and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition." --- (AAPL, sec filing, 2024/Q2)

"Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, and the various factors detailed below." --- (AMZN, press release, 2024/04/30)

"The decrease in comparable customer transactions reflects the impact of macroeconomic factors, including the continued shift in consumer consumption trends away from goods and towards services and the impact of a high interest rate environment, pressuring home improvement demand." --- (HD, sec filing, 2024/Q1)

Consumer Sentiment and Confidence Levels

Consumer sentiment remains weak due to persistent inflation (LOW), with a notable dip in confidence despite a strong job market (TGT). A cautious consumer and deteriorating economic outlook are impacting customer traffic (SBUX). However, confidence in brand strength and consumer connections remains high (NKE).

"And the segment And the sentiment for the DIY consumer remains a bit weak, influenced by things like persistent inflation." --- (LOW, conference, 2024/06/26)

"In fact, consumer confidence took a meaningful dip in April despite a strong job market and normalizing inflation." --- (TGT, earning call, 2025/Q1)

"in a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customer and a deteriorating economic outlook has weighed on customer traffic and impact felt broadly across the industry." --- (SBUX, earning call, 2024/Q2)

"Right? And that, during your first tenure, the flywheel was perfect. Can you talk a bit about your confidence level of what's upcoming theatrically and how you feel about the 24, 25 outlook and potential kind of reengineer, you know, restarting the flywheel that works so well?" --- (DIS, conference, 2024/05/15)

"We continue to be confident in our brand strength and deep consumer connections." --- (NKE, sec filing, 2024/Q3)

Current Trends in Discretionary Spending

Current trends in discretionary spending show global challenges due to inflation, geopolitical events, and economic uncertainty, particularly affecting low-to-moderate income consumers. However, there is a notable increase in younger customer engagement, indicating shifting spending patterns.

"a little bit. It remains challenging globally for discretionary spending, just given the backdrop." --- (EBAY, conference, 2024/05/21)

"While overall sales were respectable in the first quarter, there remains uncertainty in the external environment, including prolonged inflation, that continue to pressure discretionary spending from our low to moderate income customers." --- (ROST, earning call, 2025/Q1)

"Ernie Herrman: So that has been a pretty much a steady increase over the last handful of years, attracting a larger percent of our new customers in the lower age in the younger age demographic." --- (TJX, earning call, 2025/Q1)

"The increase in net revenues was partially offset by a reduction in traffic in most markets resulting from geopolitical events, inflationary pressure, foreign exchange rate volatility, elevated interest rates and lower consumer confidence, which negatively impacted discretionary consumer spending during the three months ended March 31, 2024 compared to the same period in 2023." --- (EBAY, sec filing, 2024/Q1)

"There remains ongoing uncertainty in the current macroeconomic and geopolitical environments, and prolonged inflationary pressures continue to negatively impact the purchasing power of our low-to-moderate income customers." --- (ROST, sec filing, 2024/Q1)

Sector-Specific Performance Analysis

Sector-specific performance in the consumer discretionary sector shows varied results. Ford and GM report strong performance driven by vehicle returns, sales, and stable pricing. Lowe's anticipates consistent performance with improved comparisons. Lululemon sees growth across merchandise categories, while Home Depot adjusts merchandising strategies to align with customer habits.

"For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation. Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold." --- (F, sec filing, 2024/Q1)

"We don't have any macro improvement sort of embedded in. So from an absolute standpoint across these categories, we're expecting similar performance as we move through the year, but the comps should improve significantly in these categories just again based on what we're cycling and when we started to see the downturn in the second half of last year." --- (LOW, earning call, 2025/Q1)

"Paul Jacobson: Thank you, Mary, and I appreciate you all joining us this morning. Our second quarter results were driven by ongoing strong performance from our ICE business and stable pricing across the portfolio that once again outperformed our guidance assumptions for the quarter." --- (GM, earning call, 2024/Q2)

"By merchandise category, women's increased 10%, men's increased 15%, and accessories remains positive and up 2%, which is impressive given the exceptionally strong performance last year." --- (LULU, earning call, 2024/Q1)

"Before providing commentary on our comp performance, it's important to note that we made some merchandising department changes to more closely reflect how our customers shop our categories and better align with our merchandising growth efforts." --- (HD, earning call, 2024/Q1)

Company Strategies and Adaptations

McDonald's leverages its brand and agility to adapt to uncertain environments, Nike focuses on innovation and consumer connections, Starbucks streamlines operations for financial benefits, Walmart uses dynamic technology to connect stakeholders, and Disney emphasizes cost rationalization and strategic business decisions.

"The Company believes the Strategy builds on its inherent strengths by harnessing its competitive advantages while leveraging its size, scale, agility and the power of the McDonald's brand to adapt and adjust to an uncertain macroenvironment to meet customer demands." --- (MCD, sec filing, 2024/Q1)

"Our strategy is to achieve long-term revenue growth by creating innovative, "must-have" products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail." --- (NKE, sec filing, 2024/Q3)

"of revenue, partially driven by supply chain savings. We believe our strategies related to reinvention are working, creating more streamlined operations and tangible financial benefits across our business with more opportunity to come." --- (SBUX, earning call, 2024/Q2)

"And what we continue to learn are the best ways that we can connect sellers, suppliers and customer groups. A lot of this will be driven by what Suresh talked about with dynamic technology that can help sellers and suppliers have the very best tools in the process to be able to reach people who are interested in buying." --- (WMT, event transcript, 2024/06/07)

"Our execution for business plans, including the content we create and the IP we invest in, our pricing decisions, our cost structure, and our management and other personnel decisions, our ability to quickly execute on cost rationalization while preserving revenue, the discovery of additional information or other business decisions, as well as developments beyond the company's control." --- (DIS, conference, 2024/05/15)

Technological Advancements Impacting Spending

Technological advancements, particularly in AI and gaming, are driving more efficient ad spending, higher customer engagement, and enhanced consumer experiences, thereby influencing discretionary spending patterns. Companies like Amazon, Apple, Tesla, and Google are leveraging these innovations to boost consumer interest and spending in their respective sectors.

"This advancement leads to more efficient ad spending and higher customer engagement levels, transforming how ads are crafted and delivered." --- (AMZN, press release, 2024/06/13)

"Intricately detailed scenes like this are possible, thanks to our next generation Anvil engine supporting the latest advancements in metal, enabling us to leverage the full power of Apple Silicon with a gaming experience that delivers blistering frame rates and high resolutions." --- (AAPL, event transcript, 2024/06/10)

"They're great partners, and they've done great development work with us and a lot of the advancements in technologies and chemistry we found 4680, they're also putting into their cells." --- (TSLA, earning call, 2024/Q1)

"From our foundation of research leadership and technical advances, including multi modality and long context, to our global product footprint that gives us opportunities to bring helpful AI to people everywhere, to our world class infrastructure that makes it all possible. Through all of these efforts, we are constantly listening to feedback, making improvements, learning and in trading." --- (GOOG, event transcript, 2024/06/07)

"The article continued: Seeing the extraordinary speed of AI's advancements and impacts, combined with surging private- and public-sector demand, is causing regulators in the USA and EU to issue legislation calling for action." --- (AAPL, press release, 2024/05/08)

Regulatory and Policy Impacts

Evolving regulatory landscapes and compliance risks significantly impact consumer discretionary companies' earnings. Alphabet and Amazon face heightened regulatory and litigation risks, while Disney acknowledges legal developments as key factors. Amazon emphasizes customer experience but recognizes that regulatory changes will take time to materialize.

"As the regulatory landscape continues to evolve globally, failure to comply with relevant regulation may lead to significant risk to the company." --- (GOOG, event transcript, 2024/06/07)

"If Amazon does not report emissions from all products sold, our company risks falling into regulatory noncompliance in these global markets." --- (AMZN, event transcript, 2024/05/22)

"These factors include, among others, economic or industry conditions, competition and execution risks, including in connection with our business plans, potential strategic transactions and our content, cost savings, the market for advertising, our future financial performance and legal and regulatory developments." --- (DIS, earning call, 2024/Q2)

"While the societal risks seem clear, the risks to investors are also profound. Alphabet has been subject to heightened regulatory and litigation risk in recent years." --- (GOOG, event transcript, 2024/06/07)

"And we spent a lot of time making sure that as a team and as individual teams, the majority of our energy, the vast majority of our energy and attention goes towards trying to provide the best possible customer experience that we can deliver for customers. I think that the all the machinations around what will happen in the regulatory world will take a long time." --- (AMZN, event transcript, 2024/05/22)

Future Outlook for Discretionary Spending

Companies like Disney, Home Depot, and Nike are taking measures to ensure liquidity and reinvest in consumer-facing activities, despite current weaknesses in discretionary projects. Disney expects future growth in streaming, while Home Depot remains optimistic about store readiness and product assortment, indicating a cautious but hopeful outlook for discretionary spending.

"In addition, the Company could undertake other measures to ensure sufficient liquidity, such as raising additional financing, reducing or not declaring future dividends; reducing or stopping share repurchases; reducing capital spending; reducing film and episodic content investments; or implementing furloughs or reductions in force." --- (DIS, sec filing, 2024/Q2)

"Please proceed with your question. Steven Forbes: Good morning everyone. I was hoping maybe to just expand on the weakness in certain discretionary projects such as kitchen and bath, any way to help us better understand if there's line of sight to stabilization in the project size headwind this year and/or pressure rolling off, meaning is it cycling compares still?" --- (HD, earning call, 2024/Q1)

"These changes will result in a net reduction of our global workforce. We expect a majority of the future annual wage savings from these actions will be reinvested in consumer facing activities to drive greater impact for our consumers, sports dimensions and the total marketplace." --- (NKE, sec filing, 2024/Q3)

"While we are expecting softer Entertainment DTC results in Q3 to be driven by Disney+ Hotstar, we continue to expect our combined streaming businesses to be profitable in the fourth quarter, and to be a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025." --- (DIS, press release, 2024/05/07)

"And while the quarter was impacted by a delayed start to spring and continued softness in certain larger discretionary projects, we feel great about our store readiness, our product assortment in stores and online, and our associate engagement." --- (HD, press release, 2024/05/14)