Walmart’s Earnings Just Forecasted a Warning to Investors About This Sector

Are apparel retailers doomed? We’re breaking down this retail segment to understand if this is just a Walmart problem…

Walmart Inc. (WMT) tipped its not-so-great hand that there are some issues in retail right now.

It lowered its profit outlook for Q2 and Fiscal Year 2023.

The cause is from the comparable sales mix shifting more heavily in favor of goods and consumables. (We noted this shift on the July MegaTrends report).

The bad news is that the rising prices on food are impacting the ability of consumers to purchase other general merchandise items… specifically apparel. That has resulted in markdowns to control inventory, leading to lower profit margins across the board.

So, is Walmart’s warning a canary in the coal mine for weakness across the apparel sector?

Demand for Apparel Shows YoY Weakness Across the Board

To understand sector demand, we aggregated purchase intent mentions for all companies flagged as sellers of apparel and tallied up the total change.

And it is very telling.

You can see the performance for multiple sectors below:

While consumers spend more on experiences and essentials, they’re spending LESS in other areas: apparel and home improvement.

Overall, apparel demand fell 4% on a YoY basis (and is continuing lower in the current quarter).

But are all apparel sellers created equally?

Not necessarily.

And this is where LikeFolio data can help investors gain a serious edge.

Spotting the Outliers in Apparel

Now that we have an industry-wide goal post, we can use this to gauge company-specific performance.

Just to give scale for the breadth of this analysis, take a look at the outlier grid below featuring major players in this space.

Clearly, the performance gap is WIDE. And there is ample opportunity to spot winners and losers.

For example, we’re recording strength from brands like Levi Strauss & Co. (LEVI), Lululemon Athletica Inc. (LULU), and Aritzia Inc. (ATZAF) that cater to higher-earning consumers seeking high-quality products.

In contrast, we’re recording noted weakness in the fast-casual segment from brands like Boohoo Group (BHOOY) and Nasty Gal, Asos (ASOMY), and even Shein, suggesting stress on the average consumer.

We’ll be tracking this very closely in the coming weeks to spot additional outliers — for better or for worse – as well as sector-wide performance.

For now, it doesn’t appear that the apparel sector is doomed, but that consumers ARE becoming more selective in their spend.

As always, when we see big opportunities emerging in this space, LikeFolio members will be the first to know!