Earnings this week will look at the shoppers hit hardest by inflation

By Bill Peters

Earnings Watch: Dollar General and Dollar Tree report results. Also: Results from Dick's Sporting Goods, Adobe, Oracle

Over the past two years, lower-income shoppers have suffered disproportionately amid a surge in prices for groceries and a rollback in government aid. Results from dollar stores Dollar Tree Inc. and Dollar General Corp. this week will offer some sense of whether buying the basics has gotten any easier.

Dollar Tree (DLTR) reports results on Wednesday, and Dollar General (DG) on Thursday. Those results will arrive after discount retailer Ross Stores Inc. (ROST) last week warned that "housing, food, and gasoline costs remain elevated and continue to pressure our low- to moderate-income customers' discretionary spend." The retailer said it was taking a "conservative approach" to its outlook this year.

Like Walmart Inc. (WMT), more wealthier customers, looking for a bargain, have started to drop by the dollar stores. But in November, Dollar Tree (DLTR) Chief Executive Rick Dreiling said during the company's earnings conference call that "accumulating pressures of inflation, reduced government benefits, and depleted savings have negatively affected lower-income consumers."

He later said that in particular, cuts to SNAP benefits - or the U.S. Supplemental Nutrition Assistance Program, which helps low-income families buy food - have hurt its customers. Extra SNAP benefits provided during the pandemic ended last year, and a debt-ceiling bill last year placed other restrictions on access. Some Republican lawmakers have sought steeper cuts to the program.

"Although our low prices enable us to operate from a position of strength in consumables, our lower-income customers at Family Dollar have been especially pressured by reductions in government SNAP benefits," Dreiling said in November.

"Nationwide, third quarter SNAP benefits were down 23% on a year-over-year basis, which was much more than the 5% reduction in quarter one or the 16% reduction in quarter two," he continued.

Both chains will also report after the U.S. economy in February added more jobs than expected. However, wage growth slowed over that time, and unemployment ticked higher.

"The labor market continues to cool, but has a long way to go," BofA analysts said in a note on Friday.

"Although labor market conditions are softening, the labor market remains tight overall with current readings in line with prior cycle highs," they added.

But according to a FactSet report released on Friday, corporate America's recession anxieties have faded further. During fourth-quarter earnings season, the number of S&P 500 companies talking about a recession during earnings calls was at its lowest number since the end of 2021.

This week in earnings

Elsewhere, beauty-products chain Ulta Beauty Inc. (ULTA) reports results, after executives late last year called out "healthy but moderating" trends in demand. Results are also forthcoming from Kohl's Corp. (KSS), homebuilder Lennar Corp. (LEN) and shoe maker Allbirds Inc. (BIRD)

The call to put on your calendar

Adobe: Late last year, design-software and analytics firm Adobe Inc. bailed on its plans to get a lot bigger, via a $20 billion acquisition of Figma, saying there was "no clear path" to a green light from regulators in Europe. When the Photoshop maker reports results on Thursday, investors could get more detail on the company's path forward on its own.

The U.S. Justice Department said the decision to walk away from the deal "ensures that designers, creators, and consumers continue to get the benefit of the rivalry between the two companies going forward." Going forward, Adobe (ADBE), like every other tech company, will resort to a lot more AI to stay competitive, particularly through its Firefly AI-backed design tools that can create images and other graphics.

But Adobe is competing against tech giants and the companies they're backing, like OpenAI, whose new program Sora can create short videos based on text commands. Shares of Adobe have fallen since Sora was last month. But some analysts think Adobe's footing is still solid.

"We think the increasing noise over competitive concerns will graduallyrecede for Adobe," Oppenheimer analysts said in a research note on Thursday.

They predicted a smoother road ahead "as more comprehensive and compliant AI products and models, including text to video, and deeper design tools, collaboration, workflows, and integrations across all the Digital Media and Digital Experience products come to market this year, and the business generates steady upside to estimates in FY24."

Oracle Corp. (ORCL) also reports on Monday.

The numbers to watch

Dick's Sporting Goods sales: When Nike Inc. (NKE) reported results in December, shares fell hard, on questions about demand for sneakers and whether its efforts to push new ones were working as higher-priced necessities make shoppers more selective about everything else. When Foot Locker Inc. (FL) reported this month, shares fell hard, after it pushed back profit-margin targets.

Now, it's Dick's Sporting Goods' turn. The retailer reports Thursday, as Wall Street looks for a break in the bad news from the sneaker and athletic-gear industries. The company's earnings call will offer more detail on what's resonating with customers, and how it's adjusting to Nike's broader plans to rely less on retailers for sales.

-Bill Peters

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03-10-24 1001ET

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