The Scoreboard
Commentary
- Last week, we learned that… Walmart may be – and probably should be – the new EF Hutton. Those of us of a certain age remember the investment firm EF Hutton’s commercials featuring the tagline, “When EF Hutton talks, people listen…” Last week, Walmart reported strong Q4 results, with same-store sales up 4.6%, topping expectations. However, the company also talked about a delicate environment in which tariffs and other potential inflationary factors could slow sales, limit profitability, or both. Wall Street listened and didn’t like what it heard, with analysts citing Walmart’s report as a factor in a late-week rout for equity markets. The Washington Post noted (emphasis mine):
- [Walmart] understands that consumers feel the pressure of persistent inflation and high debt levels, which is weighing on their spending, said Neil Saunders, a global director at retail analytics firm GlobalData. “There are also uncertainties around what tariffs might do to prices,” he wrote in an email to The Washington Post. “Walmart’s core shoppers are very price sensitive, so these kinds of things can have a big impact on how much people spend at the chain.” A new report from consulting company Bain and Dynata Consumer Health Indexes found that consumers are showing signs of returning to pre-pandemic spending habits, meaning they intend to spend less and save more. “This shift may pose challenges if business are basing their expectations for future consumer behaviors on the boom years of the pandemic recovery, when consumers deviated from these norms toward outsized spending,” Brian Stobie, senior director in Bain’s macro trends group, said in a Thursday news release.
- Some commentators said Walmart often issues cautious guidance going into a new year, dismissing concerns. Perhaps. But we think it’s wise to listen to Walmart. When Walmart executives in 2023 talked about GLP-1 drugs beginning to make a difference in consumer behavior, it was time to pay attention. When the company noted that it was gaining share with higher-income families last year, we saw reason to remain concerned about the impacts of lingering inflation. I’m inclined to put Walmart’s stance on the list of reasons not to expect robust consumer spending and any associated lift in food demand over the next several months. At least.
For the week ahead, we’ll have to wait until Friday before we see consequential data. The US Bureau of Economic Analysis will publish the January Personal Income and Outlays report. Analysts expect the PCE Price Index to rise 0.4% month over month, ahead of the +0.3% pace between November and December.
Consumer sentiment is getting worse, not better. The final February reading of the University of Michigan Consumer Sentiment Survey landed at 64.7, down from 67.8 earlier in the month and expectations for 68.0. That’s the lowest print since November 2023. The culprit? Concerns about inflation. According to Fox Business (emphasis mine):
Inflation expectations also rose to 4.3% over the next year – the highest level since November 2023 and a sharp uptick from 3.3% last month. Surveys of Consumers Director Joanne Hsu said that the current reading of inflation expectations is “now well above the 2.3-3.0% range seen in the two years prior to the pandemic.”Over the next five years, households said they expect inflation to run at 3.5%, which was the highest since 1995 and an increase from 3.2% in January. Hsu noted that was the largest month-over-month increase in the metric since May 2021.”For both short- and long-run inflation expectations, this month’s increases were widespread and seen across income and age groups…”
Why is Walmart a little worried? Why are restaurant traffic figures flagging? Downbeat consumers make for a fragile environment.
Restaurant sales seem to be downshifting in February. Data from Placer.ai shows foot traffic at restaurants down by about 4% year-over-year, the worst showing since January 2024. That’s not good and may explain whispers in our circles that demand has been softening. While the data will go back to Q4, we’ll be interested this week to see what Domino’s and Papa John’s say about their sales at the end of last year, with their reports due out today (DPZ) and Thursday (PZZA).
Retail dairy and meat sales advanced during the week ending February 16. Butter volume sales increased about 9%, with natural cheese gaining 4%. Natural cheese volume sales increased by about 4%. Beef sales jumped nearly 12%, with pork and chicken up 2% and 4%, respectively. Beef prices advanced by 41 cents per pound to $7.01, tying an all-time high set in late 2024 and topping 2023 levels by 7%.
Fluid milk sales landed in positive territory in 2024, breaking a 13-year losing streak. December sales volume gained 2.5% year-over-year, bringing the full-year total to 42.4 billion pounds, up 0.6% versus 2023. Organic sales helped put things over the top, with volume up 7.2% year-over-year. Whole milk sales increased 2.0% while reduced fat (-4.1%), low fat (-1.1%) and skim (-10.3%) all lost ground. Fluid plants kept milk away from manufacturing facilities, with the year-over-year volume increase totaling 242 million pounds, enough to make 11 cars of cheese or 12 cars of nonfat dry milk each week. Can we count on the sector’s revival to continue in 2025? Focus on protein and the industry’s efforts to develop and market lactose-free offerings argue for some strength. The fact that cereal sales remain poor could be a problem.
Butter and cheese promotional activity picks up this week but remains below what we saw a year ago. USDA reports that 9,281 outlets are featuring butter, up 62% on the week but down 34% year-over-year. Average price: $4.61 per pound, down a penny on the week and down 1% year-over-year. A total of 10,288 stores have deals on six-to-eight-ounce shredded cheese, up 24% on the week but down 16% year-over-year. The average price of $2.22 per package will be down 11 cents weekly and 6% year-over-year to the lowest since July.
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