Investors feel the pinch of thriftier consumers on company profits
By Danilo Masoni
MILAN, Aug 8 (Reuters) -Investors in large consumer-goods companies are having to up their stock-picking game, as a post-pandemic spending splurge dries up and increasingly price-sensitive shoppers start to erode corporate pricing power.
Profit warnings in sectors ranging from luxury to food and airlines have fed into worries about a slowdown in the United States and other major economies.
These growth concerns were one of the factors behind a selloff that stripped around $4.8 trillion off global equities .dMIWD00000NUS in just three days this month.
Stock pickers now need to identify those businesses that won't suffer from a normalisation of spending patterns, let alone from an economic recession.
"Consumers have been able to absorb price increases thanks also to the exceptionally high level of savings accumulated (during the pandemic). It seems that now this is coming to an end," Chiara Robba, head of LDI equity at Generali Asset Management in Paris, said.
"The second-quarter reporting season is showing some signs of consumer slowdown with consequent attempt from companies to reduce prices to boost consumption," she said.
S&P Global's business activity surveys in July suggested firms in the United States and the euro zone weren't able to pass on higher costs quite as easily as before.
There's now a long list of company earnings that point to a softening of pricing power or weakness in consumer spending.
Notable examples include Nestle NESN.S and Ryanair RYA.I in Europe and McDonald's MCD.N in the U.S., along with payment firms such as Visa V.N and Worldline WLN.PA. In many cases, share prices have tumbled.
Forty companies have cut guidance so far this season in Europe, BofA said on Tuesday, the most in over a year, with a majority citing weak demand, including, surprisingly, in the U.S..
"Signs of consumer weakness have caused concern," it said.
SOBERING-UP LUXURY SPENDING
The high-margin luxury industry hasn't escaped and while companies point to the long downturn in China, investors are also paying close attention to spending patterns elsewhere.
Kering's PRTP.PA Saint Laurent cut prices of its Loulou bag in France, the UK, U.S. and China by 10-15% in May in a "very rare" move for the sector which Barclays said could reflect the brand acknowledging its earlier price hikes had been too aggressive.
Following three years of above-average increases, luxury price inflation is showing signs of returning to its long-term range of 5-7%, or below, said Luca Solca, an analyst at Bernstein in London.
"Weak brands that had been jumping on the bandwagon and increased prices materially are forced now to correct through discounts and promotions," he said. "This is happening because middle-class consumers in the West are sobering up from the post-pandemic euphoria."
Burberry BRBY.L, which sacked its CEO and warned on profit in July, has been cited as one example. Its shares erased almost one fifth of their value on earnings day.
Swatch UHR.S and Hugo Boss BOSSn.DE have become the two most shorted stocks on the pan-Europe STOXX 600 .STOXX index following disappointing numbers, data from Mediobanca shows.
Even sector leader LVMH LVMH.PA, Europe's second-largest listed company behind Danish drugmaker Novo Nordisk NOVOb.CO, isn't immune.
"There is certainly a sense of consumer resistance to higher prices, given the ongoing cost of living crisis," Sanjiv Tumkur, head of equities at Rathbones Investment Management, said.
"This appears to be felt across all income segments – for example the luxury goods companies are seeing more challenging and volatile consumer conditions in many geographies, notably China, in all but the top end of the market."
CONSUMER POLARISATION
Gillian Diesen, senior client portfolio manager at Pictet Asset Management, believes the latest earnings releases point more to consumer polarisation than a generalised loss of pricing power.
"At the highest end, most premium brands... are raising pricing again this year, although at more normalised levels," she said, adding that the trend extended beyond the luxury sector.
Carmaker Ferrari RACE.MI beat expectations thanks to sales of its pricier models, even though consumer demand in the auto sector has been variable.
Differentiation is a big factor too - sectors with low levels of differentiation, such as personal care and food and beverages, could be most at risk, said Generali's Robba.
In sporting goods, Diesen said higher-end innovative brands like On ONON.N and Deckers' DECK.N Hoka continue to benefit from pricing and sales growth, in contrast to mainstream names like Nike NKE.N and Puma PUMG.DE, which cut its profit outlook on Wednesday, sinking its shares to a six-year low.
In airlines, Rathbones' Tumkur cautioned against extrapolating Ryanair's warning to the rest of the industry, citing better demand at rivals Easyjet EZJ.L and Jet2 JET2.L.
"Ryanair is also more of a pure low-cost carrier, whereas its rivals have more exposure to package holidays, which seems to be currently prioritised more highly by customers," he said. "As ever stock selection will be key."
Additional reporting by Jonathan Cable in London; Editing by Amanda Cooper and Kirsten Donovan
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دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
