Part 2: Solid 2Q23 Results for Consumer Companies, But Not +5.9% Real GDP Kind

Aug 28, 2023 | Macro Insights, No Bull Economics

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In our last post, we highlighted how the Atlanta Fed is now forecasting an astounding +5.9% y/y real GDP growth for 3Q23. In this post, we look at the 2Q23 financial performance of the largest retail consumer companies to triangulate actual results on main street with government forecasts.

Commentary

  • 2Q23 revenues for the 85 consumer companies under our coverage increased +5.8% (median), which while healthy, represents a slow-down from the +8.5% y/y growth during the last 12 months (LTM) period.
  • Notably, 2Q revenue growth is nominal and not adjusted for inflation, which ran +4% during the quarter. In other words, real 2Q revenue growth for the consumer retail companies was just +1.8% which is a far cry from the +5.9% real GDP growth forecast for 3Q.   
  • At least, from a 2Q profitability standpoint, we see trends moving in the right direction as the consumer retail companies continue to carry their LTM price increases while their costs decline (the benefit of disinflation).
  • This resulted in an expansion of the median 2Q23 EBITDA margin (10.1%) relative to the LTM period (8.4%), with 2Q23 y/y EBITDA growth (+7.9%) also outdistancing LTM results (+5.1%).
  • In conclusion, it does not appear that consumer retail 2Q23 financial performance confirms the Atlanta Fed’s stunning +5.9% 3Q23 forecast. While things are moving in the right direction (especially for travel-related companies), we would hold off popping the cork until the sector’s profit growth is driven by traffic as opposed to sticky LTM price increases.
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