Retail stocks have posted strong results over the last month through 11/15/22, generally outperforming the S&P 500’s +12% benchmark. This would suggest that investors are of the opinion that the consumer is back despite substantial inflationary pressures. Year-to-date (YTD) stock performance has been less flattering, with the majority of the stocks in the red and many of them with large double-digit declines during this period. The employment situation remains encouraging, providing consumers with spending money for now. All-the-same, much of the 3Q management commentary has been guarded about the lower-income demo which is starting to show signs of weakness even as gas prices have declined over the summer. The large restaurant stocks are holding their own even as their margins compress because of an inability to pass along price increases sufficient to cover unprecedented inflationary cost pressures. The hope is that peak inflation has passed and investors can look forward to margin harvesting as all these sticky price increases remain while costs start to decline. Of course, 4Q financial results (and stock performance) will depend on how investors gauge the consumer by their holiday spending patterns.
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