• Shares of sneaker maker suffered record one-day drop on Friday
  • Household spending is starting to show signs of a slowdown

A dismal week for consumer stocks is raising concern about the financial health of US households just before the second-quarter earnings season begins in earnest next month.

Nike Inc. shares suffered a record one-day drop on Friday after reporting weaker-than-expected quarterly revenue and projecting an unexpected decline in sales this fiscal year. The stock rout wiped out roughly $28 billion of Nike’s market value, and at least seven analysts tracked by Bloomberg have downgraded their ratings on shares in the wake of the update.

The sneaker company’s results were “just the latest downbeat consumer data point in the last 36 hours,” according to Adam Crisafulli, founder of the Vital Knowledge newsletter. Updates from Walgreens Boots Alliance Inc., Levi Strauss & Co., and in Europe, Hennes & Mauritz AB and L’Oreal SA, also flashed warning signals about the resiliency of shoppers. Reports from Pool Corp. and General Mills Inc. earlier this week similarly depicted households under pressure.

“Clearly, the consumer is witnessing mounting headwinds,” Crisafulli said.

Despite persistent inflation and elevated borrowing costs, consumer spending — the main engine of the economy — has largely held up, but cracks are starting to emerge. Wall Street will parse results from Corporate America beginning in mid-July for evidence of further consumer strain, which could shake the investor exuberance that’s powered the S&P 500 Index to record after record this year.

“The brands that aren’t standing out are really struggling,” said Jay Woods, chief global strategist at Freedom Capital Markets. “Now we have a selective consumer, and as an investor you have to watch those trends.”

To be sure, some companies like Nike are grappling with their own unique set of challenges. The world’s largest sportswear company is transitioning its product lineup to reignite consumer interest as competition increases.

In its disappointing annual forecast Nike pointed to “aggressive actions” it’s taking amid weakness in key franchises, as well as increased macroeconomic uncertainty, particularly in greater China, with “uneven consumer trends” continuing in Europe, the Middle East and Africa, and other markets. Foreign-exchange headwinds are also weighing on the outlook, management said.

“Consumers are looking for newness and inspiration but are not just shopping for shopping sake to buy the same old things,” said Jim Duffy, an analyst at Stifel who covers Nike. “Brands delivering on this are seeing success but it is not a rising tide lifts all boats environment. Nike is a great example.”

Pickier Consumers

Walgreens shares suffered their worst day since at least 1980 on Thursday after the drugstore chain slashed its profit forecast for the full year due to a worsening retail environment. The company said its shoppers have become increasingly selective and price-sensitive in their purchases, which has led it to offer promotions that will dent profitability. Walgreens said it would close significantly more stores as its new chief executive officer seeks to turn the business around.

While consumers are getting pickier about where they spend their dollars, it’s clear they’re not cutting out vacations just yet. Carnival Corp. raised its full-year earnings outlook earlier this week, owing the boost to record-setting demand and elevated ticket prices. Shares of the cruise line operator rose 16% this week for their best weekly advance in a year.

A plunge in Levi shares also demonstrated the cost of missing investors’ high expectations. The stock dropped the most in over a year after the denim maker reported quarterly sales that fell just short of estimates. Sales in the Americas were strong, but results in Europe and Asia trailed Wall Street expectations.

Things weren’t much brighter in Europe. On Thursday, H&M shares dropped the most since December 2017 in Stockholm trading after the fast-fashion retailer reported a slump in sales in June, blaming bad weather in key markets that kept shoppers at home. Reaching a key profitability target has also become more challenging, it said.

Meanwhile, L’Oreal shares extended their slide this year after projecting slower growth for the overall beauty market in 2024, as softer trends in China weigh on sales after years of rapid gains.

The week started on a dour note when swimming pool supplies distributor Pool Corp. cut its profit outlook for the year, citing “persistently weak” demand for new pool construction. The company flagged cautious consumer spending on big ticket items like pools and outdoor living projects. Its shares slid the most since July 2022 in the subsequent trading session, and the warning weighed on the likes of home improvement retailers Home Depot Inc. and Lowe’s Cos.

General Mills’ results on Wednesday signaled that consumers are also pulling back on essentials. Shares in the company behind food brands like Cheerios and Pillsbury dropped the most in nearly a year after it reported a sales shortfall and weaker-than-expected annual outlook.

Written by:   — With assistance from Joel Leon and Peyton Forte @Bloomberg

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