Latest / Bloomberg Intelligence / Craig Johson: Consumer Is a Lot Worse Than Experts Think(Audio)

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Craig Johson: Consumer Is a Lot Worse Than Experts Think(Audio) · Bloomberg Intelligence

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  Speaker 1: Charlie Peloton. That's a Bloomberg business flash. You're listening to
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  Speaker 1: taking stock with Kathleen Hayes and pin Box on Bloomberg Radio.
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  Speaker 1: Is the US consumer really running out of gas? Or
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  Speaker 1: are some of the nation's biggest retailers just not appropriately
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  Speaker 1: reading what it is they want to buy. Craig Johnson
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  Speaker 1: joins is now president of Customer Growth Partners, to talk
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  Speaker 1: about some of today's big earning support target having a
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  Speaker 1: tough time. Ernie's coming in above consensus, but the forecast
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  Speaker 1: not so great, while Lowe's Home Improvement they seem pretty
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  Speaker 1: strong across the board. Craig, welcome back to taking Stock. Hi, Kathleen,
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  Speaker 1: how are you so in a nutshell? What is going
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  Speaker 1: on with retail? Well, what we're seeing is a couple
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  Speaker 1: of factors. One, overall retail is soft. It's about a
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  Speaker 1: year of year. Year to date, it's up about three,
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  Speaker 1: which is kind of mediocre. But if you take out
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  Speaker 1: the tail when we've had from the lower game slean
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  Speaker 1: prices tow me up about two. So that's pretty that's
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  Speaker 1: pretty thin gruel. Now within that there are some winners.
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  Speaker 1: So you know, the off price sectors going great, as
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  Speaker 1: you saw from t j's uh t j X A
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  Speaker 1: day show going. We'll see from from Ross later in
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  Speaker 1: the week. Um, and then the Home improvement continues to
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  Speaker 1: be on a rebound. You know, they were operating with
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  Speaker 1: a kind of a lost decade for a while, and
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  Speaker 1: then the last couple of years they've been with a
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  Speaker 1: housing rebound, they've been really quite solid, and then home
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  Speaker 1: depots as well as well as very but very strong growth. Craig,
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  Speaker 1: let's talk about Target if you don't mind the shares
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  Speaker 1: are down more than seven percent today. Tell us about
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  Speaker 1: the chief executive, Brian Cornell, and what he's trying to
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  Speaker 1: do and whether the transformation is succeeding according to plan. Well,
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  Speaker 1: Brian's a very capable retail executive, but as I'm sure
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  Speaker 1: you know, he inherited a challenged company a going on
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  Speaker 1: a couple of years ago now. And uh, but the
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  Speaker 1: results we saw that which which were which we saw frankly,
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  Speaker 1: um uh, they largely reflect the fact that the consumer,
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  Speaker 1: we believe is much worse than a lot of the
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  Speaker 1: experts think. And so there is uh overall a you know,
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  Speaker 1: week spending environment. I said, essentially that retails up about
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  Speaker 1: you know, about two on a total total sales basis.
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  Speaker 1: That's about what what Target was when you x out
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  Speaker 1: the CBS sales portion of the sales, because you know,
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  Speaker 1: they all the pharma operations to CBS UM at the
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  Speaker 1: turn of the year. Um. So this this is a
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  Speaker 1: company that is clearly your work in progress. Uh, they've
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  Speaker 1: had great uh progress on the signature categories that they've
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  Speaker 1: talked about. Is the company going to be in better
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  Speaker 1: safe fifty two weeks from now, Lily, We very much
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  Speaker 1: think so. With the get caveat on. That is what
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  Speaker 1: happens to the consumer and retail spending in general. If
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  Speaker 1: retail spending continues its softness, um, they may not be
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  Speaker 1: quite you know, is so healthy And that's why I think,
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  Speaker 1: you know, the kind of soft guidance that they issued
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  Speaker 1: uh was apparent and um, so we can't divine you know,
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  Speaker 1: we know it's going out a distance into the future,
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  Speaker 1: but not a full year now because Craig, Uh, what
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  Speaker 1: are you looking at to say the consumers in bad shape?
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  Speaker 1: We've just gotten the minutes from the feds April meeting.
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  Speaker 1: The consensus seems to be that the FED is making
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  Speaker 1: sure we all realize, you know, we could raise rates
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  Speaker 1: in June. Is the FED doing the right thing if
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  Speaker 1: the consumer is not that healthy? What's the number one
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  Speaker 1: thing you're looking at to say, hey, this is this
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  Speaker 1: is a kind of a sick consumer and would the
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  Speaker 1: FED be mistaken to make a move. Now, well, first
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  Speaker 1: we don't comment on the FED. That's that's about that's
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  Speaker 1: above my pair enough. But but at any rate, but
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  Speaker 1: what we we we we look at in terms of
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  Speaker 1: consumer is what they have available to spend their discretionary income.
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  Speaker 1: And so real disposable income is basically flat line. If
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  Speaker 1: you're in the top quintile, not just the top one,
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  Speaker 1: present the top quintile. And when income above say a
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  Speaker 1: hundred twenty dollars household, uh, you're doing fine incomes of
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  Speaker 1: growing up. If you're in the second quintile, you're about flat.
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  Speaker 1: But if you're in the lower three quintile, you're real
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  Speaker 1: disposed income is flat, actually down a point or two
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  Speaker 1: UH in recent years. That's not a healthy environment. And
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  Speaker 1: so um, it's disposable income that really drives the UH
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  Speaker 1: drives the train in terms of real spending. And then
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  Speaker 1: at the same time, we're having competing non discretionary demands
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  Speaker 1: for that that's spent. And that's whether that's healthcare, whether
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  Speaker 1: it's insurance, whether it's student debt, whether it's housing. All
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  Speaker 1: those prices are up more so than we believe that
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  Speaker 1: the FED or the other government experts out there. Look
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  Speaker 1: at the average Joe blow main Street, not Wall Street,
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  Speaker 1: but Joe Joe main Street is not doing that well
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  Speaker 1: because of all these other competing demands, which are taking
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  Speaker 1: an extra four out of household income than a decade
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  Speaker 1: or so ago. That's hurting people badly. Thank you very
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  Speaker 1: much for spending time with us. Craig Johnson is president
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  Speaker 1: of Customer Growth Partners. Shares of Target are down more
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  Speaker 1: than a seven and a half percent right now, they're
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  Speaker 1: trading at a new fifty two week low. You're listening
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