2023 Holiday Retail Outlook: Best Buy, Abercrombie & Dick’s Beat Earnings Estimates Amid Economic Uncertainty

As the 2023 holiday shopping season unfolds, leading U.S. retailers such as Best Buy, Abercrombie & Fitch, and Dick’s Sporting Goods have surpassed quarterly earnings expectations, signaling resilience amid economic uncertainties.

Shares of Best Buy (BBY), Dick's Sporting Goods (DKS), Abercrombie & Fitch (ANF), and Burlington Stores (BURL) reached multi-month highs this November after reporting robust earnings, highlighting steady consumer spending despite inflationary pressures.

Conversely, Nordstrom (JWN) faced stock declines following a year-over-year sales drop in Q3, with CEO Erik Nordstrom emphasizing significant impacts on lower-income shoppers. Similarly, Dollar Tree (DLTR) experienced a share decrease as customers prioritized essential purchases. Target (TGT) saw a notable 13% single-day stock fall last week amid signs of slowing consumer spending. The Dow Jones U.S. Retail Index has fallen 28% in 2023, underperforming the S&P 500’s 16% decline.

This mixed performance paints a complex picture of the U.S. economy, as concerns about a potential recession grow alongside Federal Reserve interest rate hikes aimed at curbing inflation. The upcoming holiday season will be pivotal in determining whether consumers maintain their spending momentum or retreat due to rising prices.

Key Highlights

• Best Buy, Dick’s Sporting Goods, and Abercrombie & Fitch exceeded profit forecasts, driving stock rallies on November 22.
• Retail executives report stabilized spending this month, although inflation continues to challenge lower-income consumers.
• Dick’s, Abercrombie, and Dollar Tree posted year-over-year sales growth, while Best Buy and Nordstrom experienced declines.
• Burlington Stores anticipates easing inflation and economic slowdown in 2024, potentially boosting off-price retail traffic.

Despite waning consumer confidence and reduced household expenditures, some retailers benefit from operational efficiencies, including cost reductions, lower shipping expenses, and improved inventory management. Supply chain disruptions have largely been resolved, although a potential nationwide freight railroad strike in December poses a new risk.

Best Buy’s shares surged 12% to a three-month peak after beating profit estimates and raising its annual outlook, despite a 10.5% year-over-year decline in comparable quarterly sales ending October 29. CEO Corie Barry acknowledged the challenging retail environment and forecasted a 10% drop in comparable sales for Q4. Cost-cutting measures, including layoffs accounting for $26 million in termination benefits, contributed to the earnings surprise.

Barry commented, "As we approach the holidays and 2024, the economic backdrop remains uneven. While the job market is robust and consumer spending persists with easing inflation, savings are dwindling. Consumer confidence is low, the housing market is cooling, and inflation on essentials like food, fuel, and lodging continues to impact spending significantly."

Abercrombie & Fitch shares soared 21% to a six-month high after surpassing estimates and upgrading its annual earnings and comparable sales outlook, supported by a 3% increase in U.S. sales year-over-year. CEO Fran Horowitz expressed cautious optimism for the holiday season, noting improved sales trends from Q2 to Q3 and steady sales in the current quarter.

Dick’s Sporting Goods reported a 6.5% rise in comparable sales for Q3, building on a 12.8% gain the previous year, fueled by increased consumer spending on sports and outdoor activities post-pandemic. The company raised its annual sales and profit guidance, though fiscal year comparable sales ending January 2024 are still expected to decline slightly. Shares climbed 10% to a two-month high. CEO Lauren Hobart stated, "We are confident about our momentum and cautiously optimistic about Q4 despite macroeconomic uncertainties affecting consumers."

Burlington Stores’ shares jumped 20% to a six-month peak despite missing earnings estimates. CEO Michael O’Sullivan remains optimistic about 2024, anticipating that a slowing economy will drive bargain-seeking traffic to off-price stores. He noted that lower-income shoppers have been most affected by inflation but expects these headwinds to moderate if inflation continues to ease.

In contrast, Dollar Tree’s shares fell 7.8% despite beating expectations and raising its sales outlook. CFO Jeff Davis highlighted that economic pressures on middle- and low-income customers are shifting purchases toward necessities, which may negatively affect gross margins.

Overall, the 2023 holiday retail season is shaping up as a critical test for U.S. retailers amid a complex economic environment marked by inflation, cautious consumer behavior, and ongoing supply chain considerations.

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