How well are customers treating themselves? Shoes, skiing, wine and fancy groceries are in focus with this week's earnings.

By Bill Peters

Earnings Watch: Nike, Carnival, Vail Resorts, Costco report

The tail end of second-quarter earnings-reporting season lies ahead, but the companies reporting results this week will serve as a checkup on a wealthier consumer -- or at least on shoppers' willingness to treat themselves.

At the head of the discretionary-spending pack for the week is Nike Inc., which reports quarterly results on Thursday. The last time the sneaker giant reported results, shares fell after profits missed expectations, as weaker demand was met with price cuts intended to draw customers.

On one hand, analysts say, Nike (NKE) has newer sneakers and the seemingly irreversible shift toward more casual wear working in its favor. On the other, Nike faces plenty of competition, and recently stores that sell sports gear, including Foot Locker Inc. (FL) and Dick's Sporting Goods Inc. (DKS), haven't exactly been upbeat about the months ahead.

"Recent inbound data and our checks show a tough backdrop and anincreasingly competitive environment," TD Cowen analyst John Kernan said in a research note on Friday.

The competition includes longtime rival Adidas (ADDYY) (XE:ADS), as well as newer market entrants, like Swiss running-shoe maker On Holding (ONON). Nike's chief executive, John Donahoe, said during the earnings call in June that competition in the running-shoe business has been "a competitive battlefield lately with more and more brands joining the market." However, he said, Nike had become "more aligned and resourced" to compete.

During that call, Nike pointed to strength in its Jordan and Converse lines, and noted the relaunch of the Kobe brand, but Foot Locker executives observed weaker-than-expected sales through the year and a tepid start to the back-to-school season. Dick's, meanwhile, also said it was "moderating" its full-year profit outlook, while adding that it was still enthusiastic about business trends.

Other analysts said that any commentary on demand trends in China would be a focus for Nike's results as that nation's economy stumbles. And Oppenheimer analysts said athleisure clothing was still popular, and that Nike had managed to thin down its surpluses of apparel and shoes after supply-chain snags and last year's inflation spike, which steered consumers toward basics. And they said that the stock was historically cheap and that management had been sufficiently prudent with its financial forecasts.

News analysis (August 2023): China's economy is suffering, and consumers won't open their wallets -- except to see movies

But even as retailers remain cautious about stocking shelves with new products -- thanks to those higher prices that have left the economy in flux -- Kernan said he expected an increase in sales through Nike's own e-commerce and store channels. And he said he was upbeat on Nike's stock as the market improves overall.

This week in earnings

Eight S&P 500 companies report quarterly results in the week ahead, according to FactSet. RV maker Thor Industries Inc. (THO) reports, amid a continued RV malaise. Employee uniform-rental service Cintas Corp. (CTAS) reports, along with Paychex Inc. (PAYX), CarMax Inc. (KMX) and BlackBerry (BB).

Memory-chip maker Micron Technology (MU) also reports results, amid some analysts' hopes that demand for AI-powered servers can drive a rebound in demand.

The calls to put on your calendar

Smaller companies, bigger spenders? Other results during the week will offer a look at deeper-pocketed customers. While many of those customers remain better-protected from the inflation storm that began last year, companies tend to rely on them for bigger profits. Earnings on Tuesday from United Natural Foods Inc. (UNFI), the primary grocery distributor for Whole Foods, will give some sense of how wealthier shoppers are navigating higher food prices. Elsewhere, results from ski-resort operator Vail Resorts Inc. (MTN), wine maker Duckhorn Portfolio Inc. (NAPA) and cruise operator Carnival Corp. (CCL) are also due.

The number to watch

Costco sales: Elsewhere, the battle with inflation is still very real for much of the nation's not-as-wealthy population, who over the past year have often made fewer shopping trips and spent more on essentials like food and gasoline than less-basic items like clothing and electronics. More detail on where those trends stand will come from warehouse membership chain Costco Wholesale Corp.'s quarterly results on Tuesday.

Data from Placer.ai shows that Costco (COST) brought in a decent amount of foot traffic through the back-to-school season. But that data also raised questions about how much room for growth is left in its biggest markets. And there were other questions about how rising fuel prices might reshape shopper behavior, and whether the chain's prices in stores might head lower amid stiffer competition with Sam's Club. There were also questions about when Costco might raise membership fees, as its customers struggle with higher prices.

From an investment standpoint, UBS analyst Michael Lasser, in a research note on Thursday, said there was still a lot to like about the retailer, as it finds ways to attract customers and boost profits up ahead.

"Given the continued economic strain on consumers, we believe that Costco's executive membership penetration likely remained strong as people looked to maximize their spending power," UBS analyst Michael Lasser said in a research note. "Moving forward, we believe [Costco] can continue to appeal to a cash strapped consumer, and has a potential catalyst in place with a membership fee hike likely next year."

-Bill Peters

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09-25-23 0822ET

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