JPMorgan's Chris Horvers on Retail Earnings, Tariffs, and Consumer Spending

Retail Earnings Setup and Inflation

• 💡 Retailers reporting thus far have faced a recurring theme, with some, like ELF, raising prices due to tariffs.
• ⚠️ The National Retail Federation warns that tariffs will lead to higher prices and reduced capital expenditures.
• 📈 Despite price increases, general merchandise has seen low elasticity and low single-digit inflation, which is expected to rise to mid-single digits by back-to-school.
• 🧠 Consumers have absorbed these price hikes due to strong wage growth, but caution is advised regarding extrapolating July's consumer spending strength.

Inflationary Pressures by Category

• 🏠 The home furnishings category has experienced the most price inflation, largely due to sourcing from Asia.
• 💻 Computing and appliances have also seen price increases, with companies like Best Buy implementing hikes in mid-May.
• 👟 Apparel and footwear are expected to follow, with significant price increases anticipated for discretionary products during the back-to-school and Christmas seasons (August, September, October).

Company Favorites and Market Share

• 🛒 In the defensive sector, Walmart and Costco are favored, with price targets suggesting significant upside.
• 🎯 Costco is noted for its consistent market share gains regardless of economic conditions, further boosted by the recent addition of services for executive members.
• 🛠️ AutoZone is also recommended on the defensive side.
• 💄 In the discretionary space, Ulta Cosmetics is highlighted due to category improvement and the retailer's expected market share gains after losing ground to competitors like Amazon and Sephora.
• 🚀 Retailers poised for market share gains are seen as having strong potential for earnings revisions and multiple expansions.