It's a tale of two retailers. One reported strong sales on Thursday, while the other warned it may experience a sales decline for the year.
Earnings reports this week from two companies — the higher-end Lululemon and the discount chain Dollar General — show how inflation and the post-pandemic economy are playing out differently among diverging income classes.
Lululemon, an athletic retailer whose leggings sell for $100 or more, reported that revenue jumped 18% for the second quarter and sales increased 11%.
"We still see our business driven by new guests coming in as well as our team's ability to retain existing guests and increase share of wallet and spend with them. So nothing that would signal they're behaving differently," Lululemon's CEO Calvin McDonald said Thursday on the company's quarterly earnings call.
Lululemon also raised its expectations for net revenue for the rest of 2023.
Dollar General's earnings report on Thursday painted a different picture.
The company, a discount store that advertises a "dollar deals" section on its website, slashed its sales and profit outlook for the year, blaming headwinds including weaker consumer spending and increasing theft.
"Core customers continue to tell us they feel financially constrained," said Dollar General's CEO, Jeff Owen, on the company's earnings call.
Neil Saunders, retail analyst and managing director at GlobalData, told CNN that Dollar General's slowdown was partially attributed to its customer base feeling the pressure of higher costs of living.
"This has been exacerbated by cuts in SNAP payments as temporary pandemic benefits came to an end. As a result, lower-income shoppers are cutting back on non-consumable and indulgent purchases from the chain in a bid to save money," he said.
But some analysts still see strength in American consumers, even as credit card debt hit a record $1 trillion earlier this year.
Brian Nagel, a retail analyst at Oppenheimer & Co. who covers Lululemon, said he sees still strong spending across all retailers he covers. "I think the consumer is holding up quite well," he said.
Nagel said shoppers are still willing to shell out cash for brands that innovate, like Lululemon.
"It is a very strong brand that keeps on bringing new products to the market, and this discerning consumer is spending," Nagel said.
Tighter budgets for lower-income Americans
Dollar General isn't the only budget retailer that has seen their core customers cut down on spending.
Last month, Dollar Tree's CEO, Richard Dreiling, said customers were shifting their shopping patterns after "years of elevated spending," while Walmart's CFO, John Rainey, said the big box retailer's customers were "buying more necessities and focusing on lower-priced items and brands."
"Customers are stretching their dollars further and seeking better value across more categories more often," Rainey said.
Shannon Seery, an economist at Wells Fargo, told CNN there is evidence that lower income households are getting squeezed.
"Lower-income households are the ones that are going to be most impacted by inflation historically," she said. "Things like food and energy are a bigger portion of their budget."
The inflation rate in the United States peaked at over 9% in June 2022, its highest level in over 40 years. While it has steadily fallen over the past year, inflation remains elevated. The Personal Consumption Expenditures index, the Federal Reserve Bank's preferred inflation gauge, showed that prices increased 3.3% annually in July — above the 2% target that the Fed considers healthy.
The increase in prices means the typical American household spent $709 more in July this year than in July 2021 to buy the same goods and services, according to one estimate.
Nagel said he thinks retail spending has held up surprisingly well despite inflation, bolstered by a strong labor market.
"Generally speaking, consumer spending has held in," he said. "What we definitely have not seen is the bottom fall out. That is absolutely not happening."