By Tomi Kilgore, Emily Bary and Ciara Linnane
PayPal Holdings Inc. /zigman2/quotes/208054269/composite PYPL -1.89% Chief Executive Dan Schulman said on his company’s earnings call this week that it was “still a little hazy… to understand what normalized e-commerce will look like” though PayPal “clearly did not see the bump-up of five years.”
The company announced that it would be embarking on a cost-cutting plan, which was well-received by investors. Executives also signaled that they would stay more focused on the company’s core strengths going forward.
PayPal is scrapping its plan to add stock trading to its platform by the end of the year, a move expected to reduce the company’s regulatory footprint and allow it to allocate more headcount toward bigger missions like checkout.
Robinhood Markets Inc. /zigman2/quotes/228268942/composite HOOD -2.90% , meanwhile, joined Shopify in capitulating on pandemic-era predictions as it announced its own batch of layoffs.
“Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the COVID era would persist into 2022,” Chief Executive Vlad Tenov said in a Tuesday blog post.
But as trading activity has waned, the company is “operating with more staffing than appropriate,” he continued.
Robinhood ended up posting its earnings a day earlier than expected, to coincide with the blog post, and the results showed a sequential drop of 1.9 million monthly active users for the quarter as well as a 31% decline in assets under custody. Meanwhile, Tenov announced that Robinhood would be laying off 23% of its workforce.
Shopping less, but spending more
Another takeaway from earnings is that revenue growth is a bit deceiving. That’s because there are signs that customers are starting to shop less, to confirm pre-earnings concerns, but those who continue to shop are actually spending more as prices rise.
For example, Starbucks Corp. /zigman2/quotes/207508890/composite SBUX -1.42% reported fiscal third-quarter revenue that rose 8.7% from a year ago to $8.15 billion, in line with the FactSet consensus, while same-store sales growth of 3.0% beat expectations of 2.6%.
In North America, revenue jumped 13% to a record $6.1 billion, but that included a 9% jump in same-store sales and an 8% rise in average ticket, while the number of transactions rose just 1% even as store growth was 2%.
Chief Financial Officer Rachel Ruggeri explained on the post-earnings conference call with analysts, according to a FactSet transcript, that the rise in average ticket was driven by “strategic pricing actions,” which means higher prices, and “strong food attach,” which means more people are buying food to go with their coffee.
Meanwhile, raised prices was more impactful to United Parcel Service Inc.’s /zigman2/quotes/201245396/composite UPS -3.35% results.
The package delivery giant said daily package volume in its U.S. Domestic Package segment fell 4.0%, driven by an 8.2% drop in residential volume. However, revenue for the segment rose 7.3%, due to an 11.9% increase in revenue per piece .
Internationally, average daily volume dropped 4.8%, but revenue edged up 0.7% as average revenue per piece jumped 14.8%.
And Coca-Cola Co. /zigman2/quotes/209159848/composite KO -0.05% reported 19% jump in second-quarter revenue in North America from a year ago, even as unit case volume edged up just 2%. That’s because pricing and sales mix rose by 10%.
The bifurcated consumer effect
The latest earnings season has offered plenty of examples of how consumers are getting squeezed from inflation, rising rates, and other macroeconomic pressures.
Take Walmart Inc. /zigman2/quotes/207374728/composite WMT -1.16% , where executives said last month that shoppers may need to be enticed with markdowns before buying clothing because they’re spending so much on food and gas.
Or look at AT&T Inc. /zigman2/quotes/203165245/composite T +2.24% , which disclosed that some wireless customers are taking slightly longer to pay their bills.
And then there’s Sprouts Farmers Market Inc. /zigman2/quotes/209197151/composite SFM +0.50% The company’s Chief Executive Jack Sinclair pointed out in July that consumers are “moderating the number of cherries that they’ll buy,” among other new food patterns.
It’s becoming increasingly clear this earnings cycle that the storm of economic pressures is affecting spending patterns. But it’s also becoming evident that the various economic weights aren’t impacting all consumers—or companies—equally.
“We believe the financial health of subprime and affluent consumers is highly bifurcated,” RBC Capital Markets analyst Daniel Perlin wrote last month.
Chief Executive Stephen Squeri of American Express Co. /zigman2/quotes/203805826/composite AXP -0.88% said on an earnings call that he and his team “continue to see no significant signs of stress in our consumer base.”
Amex caters to “premium” customers across its consumer, small-business, and corporate bases, and that’s a big reason Chief Financial Officer Jeff Campbell sees the company posting strong results despite macroeconomic concerns in other parts of the market.
Additionally, he told MarketWatch that the company’s credit performance has benefitted from “liquidity that has been pumped into the economy over the past few years.”
Starbucks Corp. also pointed to its “premium” skew in discussing the impact—or lack thereof—of inflationary pressures on sales.
“It’s critically important that you all understand we are not currently seeing any measurable reduction in customer spending or any evidence of customer’s trading down,” Chief Executive Howard Schultz said on the company’s earnings call. One driver of that, in his view, is the “premium nature of our beverage and food offerings.”
The enthusiasm from Amex and Starbucks stood in contrast to less upbeat tones on other earnings calls over the past few weeks.
At Aaron’s Company Inc. /zigman2/quotes/222767078/composite AAN -1.05% , a lease-to-own retailer focused on categories like furniture and appliances, “customer demand and payment activity progressively worsened through the quarter,” Chief Executive Douglas Lindsay shared. He noted “significant financial pressure on the lower income customer that we serve.”
Newell Brands Inc. /zigman2/quotes/209507510/composite NWL +1.27% had been bracing for macro impacts, but Chief Executive Ravichandra Saligram said the pullback in demand amid pressure on lower-income spenders has been “more acute than initially anticipated,” namely in home fragrances. The company owns Yankee Candle and Chesapeake Bay Candle.
And McDonald’s Co. /zigman2/quotes/203508018/composite MCD +0.07% has noticed that “customers, and specifically lower-income customers,” are “[trading] down to value offerings and fewer combo meals,” Chief Financial Officer Kevin Ozan shared.
If there’s any consolation for McDonald’s, it’s that the company is simultaneously benefiting from a different leg of the “trade-down” cycle. Chief Executive Christopher Kempczinski noted that some consumers are moving down to McDonald’s as inflationary pressures keep them out of fast-casual joints.