Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Friday’s key moments. 1. Wall Street was mixed Friday but still heading for solid weekly gains. The 10-year Treasury yield dipped, but the S & P 500 was little changed after the August reading of the Federal Reserve’s favorite inflation gauge came in tame. Headline and core PCE were getting closer to the Fed’s 2% inflation target. Next Friday, investors get the September jobs report, the latest look at the health of the second part of the central bank’s dual mandate: the labor market. The economic data between now and the Fed’s meeting on Nov. 6-7 will be key to how much further interest rates will be cut. 2. Shares of Best Buy rose more than 2% on Friday after JPMorgan added the stock to its analyst focus list. The analysts have had a buy-equivalent rating on the stock since February, which is around when we started buying. Looking back, that was a good call with shares up 30% year to date. JPMorgan sees value because investors are underappreciating the AI-powered personal computer cycle and the potential for TVs and appliances to inflect as housing improves. Other housing plays in our portfolio include Stanley Black & Decker and Home Depot . 3. Wells Fargo shares were slightly lower Friday, one day after popping 5% on an encouraging Bloomberg News report about the Fed-mandated asset cap, which was put in place at the bank in 2018. Bloomberg reported that Wells Fargo submitted a third-party review of its risk and control overhauls to the Fed for sign-off to remove the cap. Despite Thursday’s gains, Wells Fargo shares are having a tough month. The bank delivers quarterly earnings on Oct. 11. Our other financial name, Morgan Stanley , reports Oct. 16. (Jim Cramer’s Charitable Trust is long BBY, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Tag: Retail industry
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The Fed’s interest rate cut is an inflection point for real estate markets: Hines
David Steinbach of Hines discusses the U.S. Federal Reserve’s September interest rate cut and what this means for investor interest in the real estate market.
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Bank stock woes hold back the overall market, but Starbucks’ new CEO is full steam ahead
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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The ‘rent-first’ lifestyle is catching on. From cars to clothes and even caskets, here’s when it makes sense to buy vs. rent
Owning isn’t always what it’s cracked up to be.
For many reasons — including affordability — more Americans are choosing to rent everything from cars and apartments to clothing and furniture these days, according to a report by Intuit Credit Karma.
Far beyond the traditional tuxedo, the rental industry has expanded in recent years to include power tools, musical instruments, designer handbags, baby gear and even funeral caskets.
Now, 28% of adults routinely rent goods and services, Credit Karma found. However, when factoring in housing, that percentage jumps to 47%.
The growing share of renters is largely due to higher prices, although some people simply prefer renting over buying, opting for a “rent-first” lifestyle, according to the survey, which polled more than 2,000 adults in June.
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More Americans are struggling even as inflation coolsAside from affordability concerns, more than half — 58% — of those polled said they find value in renting, because it allows for more flexibility and is a way to avoid overconsumption, which has become an increasing concern among millennial and Gen Z adults.
“Renting is a great option for many people,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. However, it always pays to do the math, she advised.
“Some people do great renting clothes and, for special events, this can be good,” said McClanahan, who also is a member of CNBC’s Advisor Council. “However, if you know you have a lot of special events, a few really good [owned] pieces can last a long time.”
Clothing prices have been hard hit by inflation. Since July 2020, men’s and women’s apparel prices are up 15% and 13.3%, respectively, according to the U.S. Bureau of Labor Statistics’ consumer price index.
Meanwhile, It may not make as much sense to lease a car, McClanahan said, “as that ends up being higher costs long-term.”
Although monthly lease payments tend to be lower than car loan payments, financing a car with a new or used auto loan usually ends up costing less than a lease in the long run, especially for consumers who hold onto vehicles for years.
Additionally, car lease agreements often come with routine service included in the terms, but the downside is there are also mileage limits and potential charges for wear and tear.
More importantly, car buyers will benefit from owning the vehicle outright at the end of a loan term, and have built equity in the asset.
To buy or rent a house in today’s market
Since housing costs are the biggest expense for most people, it may make sense to rent, at least initially.
“Unless you are absolutely sure you are dedicated to being in a home for at least five years, you should definitely rent,” McClanahan said. “Only when you are settled with life, jobs and family is when it probably makes sense to buy a home.”
Because millennials are more likely to postpone marriage and starting a family, they are able to cast a wider net when looking for place to live, or relocate for a job, if necessary, which makes renting more worthwhile.
“This generation is different,” said Dottie Herman, vice chair at Douglas Elliman. “They believe in homeownership but now there is a choice.”
According to Herman, “it’s not quite as important to them to own a house. A lot of them say, ‘I’ll rent, and I’ll think about it.’”
Of course, some Americans, especially young adults, are renting because they must.
Higher mortgage rates and a shortage of houses on the market relative to buyer demand have kept home prices elevated and created an affordability crunch for would-be buyers. Sometimes renting is the only option available.
Close to three-fourths of would-be homeowners said affordability is their greatest obstacle, according to a report by Bankrate. Among younger adults, 50% said homeownership is only achievable for the wealthy, Credit Karma also found.
Even though wealth creation has been concentrated amongst homeowners in recent years, often there is a pressure to buy, when it may not make financial sense, according to Michael Krowe, director of financial planning at Edelman Financial Engines.
“Don’t make a home purchase simply because you think it’s going to surge in value,” he said. “You might think your home is an investment — it’s not. Your home is a place to live.”
“Buy a home because you like the neighborhood, schools and proximity to friends and family,” Krowe said. There may be benefits to renting in this market, he added, particularly if it allows you to avoid stretching beyond your means.
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JD.com shares climb after announcing $5 billion share buyback, outperforming decline in Hang Seng
JD.com set up an Innovative Retail division that houses its grocery business 7Fresh.
Bloomberg | Bloomberg | Getty Images
Hong Kong-listed shares of Chinese online retailer JD.com climbed 1.2% on Wednesday, outperforming the decline on the Hang Seng index after the firm announced a $5 billion buyback late Tuesday.
U.S. listed shares of the firm rose 2.24% on Tuesday after the announcement. Both JD.com’s Hong Kong and U.S. shares have dropped about 20% year to date.
In comparison, Hong Kong’s benchmark Hang Seng index was down about 0.82% Wednesday, but is up about 4% for the year so far.
The announcement is JD.com’s second buyback this year, after announcing a $3 billion buyback in March.
In response to the move, Chelsey Tam, senior equity analyst at Morningstar, said that the decision to announce the share buyback is “not surprising.” She explained, “It is a common theme in China when share prices and growth are low.”
Tam also pointed to Vipshop, another Chinese e-commerce player that has increased its own share buyback program last week.
China’s e-commerce sector has been dogged by a slow domestic economy.
Earlier this month, Alibaba’s second-quarter results missed expectations on both the top and bottom lines. On Monday, Temu-owner Pinduoduo saw its worst ever session after its second-quarter results missed both revenue and earnings per share expectations.
Back in February, Alibaba announced a $25 billion share buyback after it missed revenue targets for the fourth quarter of 2023.
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Dollar General, Dollar Tree and Kroger customers pay over $90 million a year in cash-back fees, federal agency finds
A Dollar General store in Germantown, New York, on Nov. 30, 2023.
Angus Mordant/Bloomberg via Getty Images
Three of the nation’s largest retailers — Dollar General, Dollar Tree and Kroger — charge fees to customers who ask for “cash back” at check-out, amounting to more than $90 million a year, according to the Consumer Financial Protection Bureau.
Many retailers offer a cash-back option to consumers who pay for purchases with a debit or pre-paid card.
But levying a fee for the service may be “exploiting” certain customers, especially those who live in so-called banking deserts without easy access to a bank branch or free cash withdrawals, according to a CFPB analysis issued Tuesday.
That dynamic tends to disproportionately impact rural communities, lower earners and people of color, CFPB said.
Not all retailers charge cash-back fees, which can range from $0.50 to upwards of $3 per transaction, according to the agency, which has cracked down on financial institutions in recent years for charging so-called “junk fees.”
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Why remote work has staying powerFive of the eight companies that the CFPB sampled offer cash back for free.
They include Albertsons, a grocer; the drugstore chains CVS and Walgreens; and discount retailers Target and Walmart. (Kroger proposed a $25 billion merger with Albertsons in 2022, but that deal is pending in court.)
“Fees to get cash back are just one more nickel and dime that all starts to add up,” said Adam Rust, director of financial services at the Consumer Federation of America, an advocacy group.
“It just makes it harder and harder to get by,” he said. “It’s thousands of little cuts at a time.”
Luis Alvarez | Digitalvision | Getty Images
A spokesperson for Dollar General said cash back can help save customers money relative to “alternative, non-retail options” like check cashing or ATM fees.
“While not a financial institution, Dollar General provides cashback options at our more than 20,000 stores across the country as a service to customers who may not have convenient access to their primary financial institution,” the spokesperson said.
Spokespeople for Kroger and Dollar Tree (which operates Family Dollar and Dollar Tree stores) didn’t respond to requests for comment from CNBC.
Kroger, Dollar General and Dollar Tree were respectively the No. 4, 17 and 19 largest U.S. retailers by sales in 2023, according to the National Retail Federation, a trade group.
Cash back is popular
The practice of charging for cash back is relatively new, Rust explained.
For example, in 2019, Kroger Co. rolled out a $0.50 fee on cash back of $100 or less and $3.50 for amounts between $100 and $300, according to CFPB.
This applied across brands like Kroger, Fred Meyers, Ralph’s, QFC and Pick ‘N Save, among others.
However, Kroger Co. began charging for cash back at its Harris Teeter brand in January 2024: $0.75 for amounts of $100 or less and $3 for larger amounts up to $200, CFPB said.
Cash withdrawals from retail locations is the second most popular way to access cash, representing 17% of transactions over 2017-22, according to a CFPB analysis of the Diary and Survey of Consumer Payment Choice.
ATMs were the most popular, at 61%.
But there are some key differences between retail and ATM withdrawals, according to CFPB and consumer advocates.
For instance, relatively low caps on cash-back amounts make it challenging to limit the impact of fees by spreading them over larger withdrawals, they said.
The average retail cash withdrawal was $34 from 2017-22, while it was $126 at ATMs, CFPB said.
Banking deserts are growing
However, retailers may be the only reasonable way to get cash for consumers who live in banking deserts, experts say.
More than 12 million people — about 3.8% of the U.S. population — lived in a banking desert in 2023, according to the Federal Reserve Bank of Philadelphia.
That figure is up from 11.5 million, or 3.5% of the population, in 2019, it found.
Generally speaking, a banking desert constitutes any geographic area without a local bank branch. Such people don’t live within 10 miles of a physical bank branch. The rise of digital banking, accelerated by the Covid-19 pandemic, has led many banks to close their brick-and-mortar store fronts, according to Lali Shaffer, a payments risk expert at the Federal Reserve Bank of Atlanta.
These deserts “may hurt vulnerable populations” who are already less likely to have access to online and mobile banking, she wrote recently.
Retailers blame banks
Retail advocates say banks are to blame for cash-back fees.
Merchants must pay fees to banks whenever customers swipe a debit card or credit card for purchases. Those fees might be 2% to 4% of a transaction, for example.
Since cash-back totals are included in the total transaction price, merchants also pay fees to banks on any cash that consumers request.
The “vast majority” of retailers don’t charge for cash back, and therefore take a financial loss to offer this service to customers for free, said Doug Kantor, general counsel at the National Association of Convenience Stores and a member of the Merchants Payments Coalition Executive Committee.
“Banks have abandoned many of these communities and they’re gouging retailers just for taking people’s cards or giving people cash,” he said.
But consumer advocates say this calculus overlooks the benefit that retailers get by offering cash back,
“You’d think they’d see this as a free way to get customers: coming into [the] store because the bank branch isn’t there,” Rust said. “Instead they’re going ahead and charging another junk fee.”
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CEO of Fortune REIT discusses its 2024 interim earnings
Justina Chiu, CEO of the real estate investment trust, says "we expect a better set of results in the second half of this year."
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Yum Brands falls short on revenue as Pizza Hut and KFC same-store sales fall
A sign is posted in front of a Taco Bell restaurant on May 01, 2024 in Richmond, California.
Justin Sullivan | Getty Images
Yum Brands on Tuesday reported revenue that fell short of expectations as both Pizza Hut and KFC reported declining same-store sales.
Shares of the company fell 1% in premarket trading.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
- Earnings per share: $1.35 adjusted. That may not compare with $1.33 expected.
- Revenue: $1.76 billion vs. $1.8 billion expected
Yum reported second-quarter net income of $367 million, or $1.28 per share, down from $418 million, or $1.46 per share, a year earlier.
Excluding items, the company earned $1.35 per share.
Net sales rose 4% to $1.76 billion.
This story is developing. Please check back for updates.
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JPMorgan Chase is opening more small-town branches in middle America
Three years ago, JPMorgan Chase became the first bank with a branch in all 48 contiguous states. Now, the firm is expanding, with the aim of reaching more Americans in smaller cities and towns.
JPMorgan recently announced a new goal within its multibillion-dollar branch expansion plan that ensures coverage is within an “accessible drive time” for half the population in the lower 48 states. That requires new locations in areas that are less densely populated — a focus for Chairman and CEO Jamie Dimon as he embarks on his 14th annual bus tour Monday.
Dimon’s first stop is in Iowa, where the bank plans to open 25 more branches by 2030.
“From promoting community development to helping small businesses and teaching financial management skills and tools, we strive to extend the full force of the firm to all of the communities we serve,” Dimon said in a statement.
He will also travel to Minnesota, Nebraska, Missouri, Kansas and Arkansas this week. Across those six states, the bank has plans to open more than 125 new branches, according to Jennifer Roberts, CEO of Chase Consumer Banking.
“We’re still at very low single-digit branch share, and we know that in order for us to really optimize our investment in these communities, we need to be at a higher branch share,” Roberts said in an interview with CNBC. Roberts is traveling alongside Dimon across the Midwest for the bus tour.
Roberts said the goal is to reach “optimal branch share,” which in some newer markets amounts to “more than double” current levels.
At the bank’s investor day in May, Roberts said that the firm was targeting 15% deposit share and that extending the reach of bank branches is a key part of that strategy. She said 80 of the firm’s 220 basis points of deposit-share gain between 2019 and 2023 were from branches less than a decade old. In other words, almost 40% of those deposit share gains can be linked to investments in new physical branches.
In expanding its brick-and-mortar footprint, JPMorgan is bucking the broader banking industry trend of shuttering branches. Higher-for-longer interest rates have created industrywide headwinds due to funding costs, and banks have opted to reduce their branch footprint to offset some of the macro pressures.
In the first quarter, the U.S. banking industry recorded 229 net branch closings, compared with just 59 in the previous quarter, according to S&P Global Market Intelligence data. Wells Fargo and Bank of America closed the highest net number of branches, while JPMorgan was the most active net opener.
According to FDIC research collated by KBW, growth in bank branches peaked right before the financial crisis, in 2007. KBW said this was due, in part, to banks assessing their own efficiencies and shuttering underperforming locations, as well as technological advances that allowed for online banking and remote deposit capture. This secular reckoning was exacerbated during the pandemic, when banks reported little change to operating capacity even when physical branches were closed temporarily, the report said.
But JPMorgan, the nation’s largest lender, raked in a record $50 billion in profit in 2023 – the most ever for a U.S. bank. As a result, the firm is in a unique position to spend on brick-and-mortar, while others are opting to be more prudent.
When it comes to prioritizing locations for new branches, Roberts said it’s a “balance of art and science.” She said the bank looks at factors such as population growth, the number of small businesses in the community, whether there is a new corporate headquarters, a new suburb being built, or new roadways.
And even in smaller cities, foot traffic is a critical ingredient.
“I always joke and say, if there’s a Chick-fil-A there, we want to be there, too,” Roberts said. “Because Chick-fil-A’s, no matter where they go, are always successful and busy.”
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Lost in the market’s sharp rotation out of tech stocks is a really bullish call on major banks
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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The pool party’s over as Americans ease up on backyard upgrades
Americans will be splashing around this summer in the backyard pools they’ve already got, but not splashing out as much on new ones.
Swimming pool installations were part of the home improvement frenzy that swept the country during the pandemic as Americans were stuck at home. But recent signs show demand is slowing as households with spending money shift it more toward vacations than renovations.
Pool Corp., a national pool equipment distributor with a roughly $11 billion market valuation, said last week it expects new pool construction to fall by 15% to 20% this year. Some local contractors across the country are seeing a pullback, too.
Skip Ast III, sales director at Shasta Pools in the Phoenix metropolitan area, said the local industry has been having a harder time since roughly 2022.
“If 2023 wasn’t already considered — by pool volume — kind of disastrous, this year’s been worse,” he said, but added that the company has managed to adapt.
While consumers aren’t cutting back on overall record spending, those with extra money in their budgets are increasingly burning it on experiences like travel, dining out and other service-sector purchases.
Airlines and hotels are expecting a strong travel season, cruise lines are seeing record bookings, and tickets for concerts and sporting events are still hot at sky-high prices. By contrast, nonessential household purchases are cooling off amid higher food costs and the Federal Reserve’s push to tame inflation by keeping interest rates elevated — triggering a long stretch of steep mortgage and credit card rates.
The falloff in big-ticket home purchases has been many months in the making, and pools aren’t the only backyard feature facing slower demand; Traeger Grills reported declining revenues in the first quarter, part of a trend that began early in the post-pandemic recovery. But businesses that rely on Americans’ appetite for home upgrades are still adjusting to leaner times — including pool builders.
In 2020, installations of all kinds of pools, from in-ground and hot tub pools to typically cheaper inflatable and above-ground models, rose by 20%, according to property analytics firm Cape Analytics.
At the time, “people started settling in for, ‘OK, we’re going to be at home for a while, we need to bring the vacations into our backyards,’” said Ast, whose family has been in the pool construction business for nearly 60 years. He recalled suppliers struggling to keep up with a crush of orders and contractors facing monthslong backlogs.
Scott Payne, a pool installer in Hatfield, Pennsylvania, also saw business explode during the pandemic: “As a company, we doubled revenue five of the first seven years. Two of those years were during Covid.” He described taking eight to 10 calls a day at the peak of demand.
But despite the more recent declines nationwide, Payne and Ast said their businesses are doing well, even as both have raised prices due to rising materials costs. Both said their work during the pandemic helped lay a foundation to weather this slowdown.
Responding to surging demand in an affluent area several years ago allowed Payne’s company to develop an “omnipresence” there that it’s still cashing in on, he said. While he has fewer projects in the works today, he’s doing more expensive ones, allowing his business to maintain its higher revenues.
“A lot of companies have maybe pulled back a little,” he said. “I can’t say we’re not seeing it, but we’re maybe a little isolated from it. We’re very, very busy still.”
Ast said Shasta’s own moves during the pandemic are also paying off as demand cools. It rolled out an online calculator to help potential clients estimate the costs of their projects, and it launched a new pool care division that offers maintenance services after installation. All these factors combined have allowed the company to take in a greater share of revenue from fewer consumers in the overall market, Ast said.
Even Pool Corp. pointed to a silver lining in the slowdown: After so many households recently built new pools or upgraded existing ones, there’s higher demand for upkeep services like the kind Shasta now offers.
“We are encouraged as maintenance-related product sales have remained stable, evidenced by volume growth in chemicals, and equipment sales (excluding cleaners) being down only 2% for the year, an improvement from the 3% decline realized in the first quarter of 2024,” the company said in its earnings release.
And with climate change contributing to earlier, hotter, more frequent heat waves — like those that scorched much of the country in mid-June — some consumers may be starting to see swimming pools as more of a must-have.
In Arizona, Ast said, “the lines get blurred a little bit between luxury and need in the middle of the desert.”
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The stock market flips and tech falls out of favor — why this move may be hard to stop
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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How Walmart turned Bentonville, Arkansas into a boomtown
Walmart’s hometown of Bentonville, Arkansas has become a boomtown with many amenities you might expect to find in New York or San Francisco – fancy restaurants, craft cocktails, bike paths and a world-class art museum. The town has more cranes per capita than any other U.S. city as Walmart builds a 350-acre new headquarters. Bentonville’s population is expected to triple by 2050. But with the boom comes big-city economic challenges. CNBC’s Melissa Repko travels to Bentonville for the story.
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Nutritional needs are ‘shifting’ amid rise of weight loss drugs, says Nestle CEO
The meteoric rise of weight loss drugs means consumers’ nutritional needs are “shifting” which provides new opportunities for food companies, Nestle CEO Mark Schneider told CNBC.
Investors were initially concerned about the popularity of GLP-1 drugs such as Wegovy and Ozempic as it was assumed that people on the drugs would consume less food, Schneider told CNBC’s Silvia Amaro.
But that perspective has since changed, he said. “I think what since has emerged is that nutritional needs don’t go away. They’re just shifting. So, you know before, during, after GLP-1 therapy — consumers still have nutritional needs, but they may be different from someone who is not on a weight loss regimen.”
According to Schneider, consumers who are on weight loss medication simply have different nutritional needs. Users of the GLP-1 drugs need to focus more on protein intake to retain muscle mass and ensuring enough vitamins and micronutrients are consumed, he said.
This serves as an opportunity for Nestle to bring science to the table and then “work on what we call companion products, products that really then address some of the specific consumer needs during that treatment,” Schneider said.
‘An interesting addition’ to the food industry
Nestle is looking to capitalize on the popularity of the GLP-1 drugs with its “ambitious goal to push the healthier products,” the CEO said.
The GLP-1 drugs will “certainly be an interesting addition to all the other needs that we’re trying to meet in the food industry,” Schneider told CNBC, adding that even as the importance of the drugs grows, they will not become the sole focus for food and drink companies.
While GLP-1 users may look out for products that are tailored to their diet and impacts of the medication such as feeling satiety sooner than before, not all consumers will have the same goals.
“Remember, there’s going to be a lot of consumers out there that are not on an GLP-1 diet. And there is lots of situations where a snack and a chocolate product may still be of a lot of interest. So it doesn’t go away,” Schneider explained.
Consumers will also all be at different life stages, from infancy to the elderly, and therefore have different nutritional requirement that are met with different products, he added.
Frozen food range for GLP-1 users
Even though long-term effects of GLP-1 weight loss treatments are still uncertain and concerns about side effects persist, Schneider said it is important to respond to them as a “major consumer trend.”
The Swiss food and beverage giant announced earlier this month that it was launching Vital Pursuit, a frozen food range that targets those taking GLP-1 drugs. Twelve products are set to hit supermarkets later this year, including pastas, pizzas, and sandwich melts. All meals will include at least one essential nutrient such as calcium or iron.
Foods that are traditionally not linked to weight loss like Pizza will be included to provide consumers with variety, Schneider told CNBC.
“But the most important part is all of them are going to be portion controlled,” he said. “Then the micronutrient status is very important. So we’re adding vitamins to be sure that all the central needs of these consumers are met.”
Nestle is also planning other “companion offerings” for consumers taking weight loss drugs, both in the U.S., where Vital Pursuit products will launch, and elsewhere, Schneider said.
“Some of these products will also make a lot of sense to consumers, if they’re not on a GLP-1 treatment, but another type of weight loss treatment, because the same fundamentals apply, and that is you want to be sure that you’re losing fat and not lean muscle mass and you want to be sure that you don’t develop any vitamin deficiencies,” Schneider said.
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Long-predicted consumer pullback finally hits restaurants like Starbucks, KFC and McDonald’s
It’s finally here: the long-predicted consumer pullback.
Starbucks announced a surprise drop in same-store sales for its latest quarter, sending its shares down 17% on Wednesday. Pizza Hut and KFC also reported shrinking same-store sales. And even stalwart McDonald’s said it has adopted a “street-fighting mentality” to compete for value-minded diners.
For months, economists have been predicting that consumers would cut back on their spending in response to higher prices and interest rates. But it’s taken a while for fast-food chains to see their sales actually shrink, despite several quarters of warnings to investors that low-income consumers were weakening and other diners were trading down from pricier options.
Many restaurant companies also offered other reasons for their weak results this quarter. Starbucks said bad weather dragged its same-store sales lower. Yum Brands, the parent company of Pizza Hut, KFC and Taco Bell, blamed January’s snowstorms and tough comparisons to a strong first quarter last year for its brands’ poor performance.
But those excuses don’t fully explain the weak quarterly results. Instead, it looks like the competition for a smaller pool of customers has grown fiercer as the diners still looking to buy a burger or cold brew become pickier with their cash.
The cost of eating out at quick-service restaurants has climbed faster than that of eating at home. Prices for limited-service restaurants rose 5% in March compared with the year-ago period, while prices for groceries have been increasing more slowly, according to the Bureau of Labor Statistics.
“Clearly everybody’s fighting for fewer consumers or consumers that are certainly visiting less frequently, and we’ve got to make sure we’ve got that street-fighting mentality to win, irregardless of the context around us,” McDonald’s CFO Ian Borden said on the company’s conference call on Tuesday.
Outliers show that customers will still order their favorite foods, even if they’re more expensive than they were a year ago. Wingstop, Wall Street’s favorite restaurant chain, reported its U.S. same-store sales soared 21.6% in the first quarter. Chipotle Mexican Grill, whose customer base is predominantly higher income, saw traffic rise 5.4% in its first quarter. And Restaurant Brands International’s Popeyes reported same-store sales growth of 5.7%.
“What we’ve seen with the consumer is, if they are feeling pressure, they have a tendency to pull back on more high-frequency [quick-service restaurant] occasions,” Wingstop CEO Michael Skipworth told CNBC.
He added that the average Wingstop customer visits just once a month, using the chain’s chicken sandwich and wings as an opportunity to treat themselves rather than a routine that can easily be cut due to budget concerns. Skipworth also said that Wingstop’s low-income consumers are actually returning more frequently these days.
Even so, many companies in the restaurant sector and beyond it have warned consumer pressures could persist. McDonald’s CEO Chris Kempczinski told analysts the spending caution extends worldwide.
“It’s worth noting that in [the first quarter], industry traffic was flat to declining in the U.S., Australia, Canada, Germany, Japan and the U.K.,” he said.
Two of the chains that struggled in the first quarter cited value as a factor. Starbucks CEO Laxman Narasimhan said occasional customers weren’t buying the chain’s coffee because they wanted more variety and value.
“In this environment, many customers have been more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent,” Narasimhan said on the company’s Tuesday call.
Yum CEO David Gibbs noted that rivals’ value deals for chicken menu items hurt KFC’s U.S. sales. But he said the shift to value should benefit Taco Bell, which accounts for three-quarters of Yum’s domestic operating profit.
“We know from the industry data that value is more important and that others are struggling with value, and Taco Bell is a value leader. You’re seeing some low-income consumers fall off in the industry. We’re not seeing that at Taco Bell,” he said on Wednesday.
It’s unclear how long it will take fast-food chains’ sales to bounce back, although executives provided optimistic timelines and plans to get sales back on track. For example, Yum said its first quarter will be the weakest of the year.
For its part, McDonald’s plans to create a nationwide value menu that will appeal to thrifty customers. But the burger giant could face pushback from its franchisees, who have become more outspoken in recent years. While deals drive sales, they pressure operators’ profits, particularly in markets where it is already expensive to operate.
Still, losing ground to the competition could motivate McDonald’s franchisees. This marks the second consecutive quarter that Burger King reported stronger U.S. same-store sales growth than McDonald’s. The Restaurant Brands chain has been in turnaround mode over the last two years and spending heavily on advertising.
Starbucks is also betting on deals. The coffee chain is gearing up to release an upgrade of its app that allows all customers — not just loyalty members – to order, pay and get discounts. Narasimhan also touted the success of its new lavender drink line that launched in March, although business was still sluggish in April.
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Walmart-backed fintech One introduces buy now, pay later as it prepares bigger push into lending
Customers shop in a Walmart Supercenter on February 20, 2024 in Hallandale Beach, Florida.
Joe Raedle | Getty Images News | Getty Images
Walmart’s majority-owned fintech startup One has begun offering buy now, pay later loans for big-ticket items at some of the retailer’s more than 4,600 U.S. stores, CNBC has learned.
The move puts One in direct competition with Affirm, the BNPL leader and exclusive provider of installment loans for Walmart customers since 2019. It’s a relationship that the Bentonville, Arkansas, retailer expanded recently, introducing Affirm as a payment option at Walmart self-checkout kiosks.
It also likely signals that a battle is brewing in the store aisles and ecommerce portals of America’s largest retailer. At stake is the role of a wide spectrum of players, from fintech firms to card companies and established banks.
One’s push into lending is the clearest sign yet of its ambition to become a financial superapp, a mobile one-stop shop for saving, spending and borrowing money.
Since it burst onto the scene in 2021, luring Goldman Sachs veteran Omer Ismail as CEO, the fintech startup has intrigued and threatened a financial landscape dominated by banks — and poached talent from more established lenders and payments firms.
But the company, based out of a cramped Manhattan WeWork space, has operated mostly in stealth mode while developing its early products, including a debit account released in 2022.
Now, One is going head-to-head with some of Walmart’s existing partners like Affirm who helped the retail giant generate $648 billion in revenue last year.
Walmart’s Fintech startup One is now offering BNPL loans in Secaucus, New Jersey.
Hugh Son | CNBC
On a recent visit by CNBC to a New Jersey Walmart location, ads for both One and Affirm vied for attention among the Apple products and Android smartphones in the store’s electronics section.
Offerings from both One and Affirm were available at checkout, and loans from either provider were available for purchases starting at around $100 and costing as much as several thousand dollars at an annual interest rate of between 10% to 36%, according to their respective websites.
Electronics, jewelry, power tools and automotive accessories are eligible for the loans, while groceries, alcohol and weapons are not.
Buy now, pay later has gained popularity with consumers for everyday items as well as larger purchases. From January through March of this year, BNPL drove $19.2 billion in online spending, according to Adobe Analytics. That’s a 12% year-over-year increase.
Walmart and One declined to comment for this article.
Who stays, who goes?
One’s expanding role at Walmart raises the possibility that the company could force Affirm, Capital One and other third parties out of some of the most coveted partnerships in American retail, according to industry experts.
“I have to imagine the goal is to have all this stuff, whether it’s a credit card, buy now, pay later loans or remittances, to have it all unified in an app under a single brand, delivered online and through Walmart’s physical footprint,” said Jason Mikula, a consultant formerly employed at Goldman’s consumer division.
Affirm declined to comment about its Walmart partnership. Shares of Affirm climbed 2% Tuesday, rebounding after falling more than 8% in premarket activity.
For Walmart, One is part of its broader effort to develop new revenue sources beyond its retail stores in areas including finance and health care, following rival Amazon’s playbook with cloud computing and streaming, among other segments. Walmart’s newer businesses have higher margins than retail and are a part of its plan to grow profits faster than sales.
In February, Walmart said it was buying TV maker Vizio for $2.3 billion to boost its advertising business, another growth area for the retailer.
‘Bank of Walmart’
When it comes to finance, One is just Walmart’s latest attempt to break into the banking business. Starting in the 1990s, Walmart made repeated efforts to enter the industry through direct ownership of a banking arm, each time getting blocked by lawmakers and industry groups concerned that a “Bank of Walmart” would crush small lenders and squeeze big ones.
To sidestep those concerns, Walmart adopted a more arms-length approach this time around. For One, the retailer created a joint venture with investment firm firm Ribbit Capital — known for backing fintech firms including Robinhood, Credit Karma and Affirm — and staffed the business with executives from across finance.
Walmart has not disclosed the size of its investment in One.
The startup has said that it makes decisions independent of Walmart, though its board includes Walmart U.S. CEO, John Furner, and its finance chief, John David Rainey.
One doesn’t have a banking license, but partners with Coastal Community Bank for the debit card and installment loans.
After its failed early attempts in banking, Walmart pursued a partnership strategy, teaming up with a constellation of providers, including Capital One, Synchrony, MoneyGram, Green Dot, and more recently, Affirm. Leaning on partners, the retailer opened thousands of physical MoneyCenter locations within its stores to offer check cashing, sending and receiving payments, and tax services.
From paper to pixels
But Walmart and One executives have made no secret of their ambition to become a major player in financial services by leapfrogging existing players with a clean-slate effort.
One’s no-fee approach is especially relevant to low- and middle-income Americans who are “underserved financially,” Rainey, a former PayPal executive, noted during a December conference.
“We see a lot of that customer demographic, so I think it gives us the ability to participate in this space in maybe a way that others don’t,” Rainey said. “We can digitize a lot of the services that we do physically today. One is the platform for that.”
One could generate roughly $1.6 billion in annual revenue from debit cards and lending in the near term, and more than $4 billion if it expands into investing and other areas, according to Morgan Stanley.
Walmart can use its scale to grow One in other ways. It is the largest private employer in the U.S. with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for a corporate version of One.
Walmart’s next card
There are signs that One is making a deeper push into lending beyond installment loans.
Walmart recently prevailed in a legal dispute with Capital One, allowing the retailer to end its credit-card partnership years ahead of schedule. Walmart sued Capital One last year, alleging that its exclusive partnership with the card issuer was void after it failed to live up to contractual obligations around customer service, assertions that Capital One denied.
The lawsuit led to speculation that Walmart intends to have One take over management of the retailer’s co-branded and store cards. In fact, in legal filings Capital One itself alleged that Walmart’s rationale was less about servicing complaints and more about moving transactions to a company it owns.
“Upon information and belief, Walmart intends to offer its branded credit cards through One in the future,” Capital One said last year in response to Walmart’s suit. “With One, Walmart is positioning itself to compete directly with Capital One to provide credit and payment products to Walmart customers.”
A Capital One Walmart credit card sign is seen at a store in Mountain View, California, United States on Tuesday, November 19, 2019.
Yichuan Cao | Nurphoto | Getty Images
Capital One said last month that it could appeal the decision. The company declined to comment further.
Meanwhile, Walmart said last year when its lawsuit became public that it would soon announce a new credit card option with “meaningful benefits and rewards.”
One has obtained lending licenses that allow it to operate in nearly every U.S. state, according to filings and its website. The company’s app tells users that credit building and credit score monitoring services are coming soon.
Catching Cash App, Chime
And while One’s expansion threatens to supersede Walmart’s existing financial partners, Walmart’s efforts could also be seen as defensive.
Fintech players including Block’s Cash App, PayPal and Chime dominate account growth among people who switch bank accounts and have made inroads with Walmart’s core demographic. The three services made up 60% of digital player signups last year, according to data and consultancy firm Curinos.
But One has the advantage of being majority owned by a company whose customers make more than 200 million visits a week.
It can offer them enticements including 3% cashback on Walmart purchases and a savings account that pays 5% interest annually, far higher than most banks, according to customer emails from One.
Those terms keep customers spending and saving within the Walmart ecosystem and helps the retailer better understand them, Morgan Stanley analysts said in a 2022 research note.
“One has access to Walmart’s sizable and sticky customer base, the largest in retail,” the analysts wrote. “This captive and underserved customer base gives One a leg up vs. other fintechs.”
