"Buffett's New Darling" and "Yoga Pants King" with dismal performance, is the trend of "consumer downgrading" in the United States becoming more prominent?

"Buffett's New Darling" Ulta Struggles, Lululemon Products Stuck, Are Americans Downgrading Their Consumption?

On the 29th, Lululemon's second-quarter financial performance fell short of analysts' expectations; ULTA, the beauty retailer newly favored by Buffett, also disappointed in its financial report yesterday, with second-quarter performance falling well below expectations.

With persistent high inflation and interest rate hikes, American consumers seem to be entering a new consumption phase. They are starting to reassess their spending habits, shifting more expenses to necessities while reducing purchases of luxury and non-essential items to cope with the increasingly challenging economic situation.

Bleak Performance of "Buffett's New Darling" and "Yoga Pants King"

On the 29th, Lululemon announced its second-quarter financial performance. The data shows that the company's revenue fell short of analysts' expectations.

• Net income was $2.37 billion, below the expected $2.41 billion.
• Total sales increased by 3%, lower than the expected 5.63% growth.
• Earnings per share were $3.15, higher than the expected $2.95.

The company also lowered its full-year performance expectations.

• It is expected that net income will be $10.38 billion to $10.48 billion, significantly lower than the previous $10.7 billion to $10.8 billion, and below the market's expected $10.62 billion.
• Earnings per share are expected to be $13.95 to $14.15, also lower than the previous $14.27 to $14.47, but higher than the market's expected $14.00.

Due to shoppers having to deal with ongoing inflation, higher interest rates, and a cooling job market, Lululemon's sales growth in North America is slowing, with comparable sales in the U.S. declining by 3% while comparable sales in China surged by 21%.

Lululemon's stock price fell to $259 after the earnings report, although it reversed the decline and rose by 4.2% after hours, the company's stock price has still dropped nearly 50% so far this year.

Emarketer analyst Sky Canaves said, "For Lululemon, this is a rare misstep, reflecting product strategy and execution errors in the face of unstable consumer spending trends and higher risks in the U.S."

Signs of weak consumption are not only appearing in Lululemon. ULTA, the beauty retailer newly favored by Buffett, reported unfavorable financial results yesterday, with second-quarter performance falling well below expectations.

ULTA CEO Dave Kimbell stated:

While many positive indicators in our business are encouraging, second-quarter performance fell short of our expectations, primarily due to a decline in comparable store salesWe are clear about which factors have adversely affected the performance of our stores, and we are taking action to address these trends.

Furthermore, the performance of the largest discount retailer in the United States, Dollar General, has plummeted, with senior management stating that its core customers "are feeling financial pressure."

The sales decline of large retail enterprises such as Lululemon and Ulta to some extent reflects weakened consumer confidence, indicating soft consumer demand and intensified competition in the high-end retail industry.

Have American consumers "downgraded" their consumption?

Against the backdrop of high prices and increasing inflationary pressures, American consumers are reevaluating their consumption habits. High-end restaurants and luxury brands are gradually giving way to more affordable options. Leveraging its low-price advantage, Walmart has successfully captured this consumption trend, with its strong performance in the second quarter serving as the best proof.

While Walmart's performance growth reflects that consumer purchasing power remains strong, it is more a choice made by consumers "out of necessity" under economic pressure. American consumers are choosing to cut expenses and turn to more competitively priced mid-to-low-end large retailers.

Goldman Sachs analyst Chris Hussey pointed out that Walmart's better-than-expected performance is seen as a signal of good consumer conditions, but in reality, consumers are reducing spending under economic pressure and opting for the more affordable Walmart.

Analyst Michael Baker from DA Davidson stated that now people only shop at Amazon, Walmart, and Costco. This reflects an overall decline in consumer spending, and the trend of consumer downgrading cannot be ignored.

Walmart has done well in terms of consumer value, where value has become more important. Structurally, they are well prepared.

It seems that American consumption has finally encountered a bottleneck, and a further decline may be just around the corner