Loop Capital Managing Director Anthony Chukumba joins Yahoo Finance Live to discuss retail stocks, the state of the consumer, inflation, the expectations for the labor market, Bed Bath & Beyond, and the outlook for the retail industry in 2023.
BRIAN SOZZI: All right, the US economy isn't in a recession just yet, as seen in today's big bank results. So is it time to get more bullish on the consumer and, by extension, retail stocks? Let's check in with Loop Capital Managing Director and friend of the show Anthony Chukumba.
Anthony, always great to get some time with you here. So you've done a lot of work on the consumer. What is the state of the consumer? And what does it mean for some of the retailers that you cover?
ANTHONY CHUKUMBA: Sure. So, yes, we have a monthly report. We call it the "Eye on the Consumer." It's just a bunch of different macroeconomic variables that we keep track of to gauge where the consumer's head is at. And I will tell you, the last few months we are getting more and more bullish on the consumer.
First off, the employment market remains incredibly robust. The unemployment rate is 3 and 1/%. Initial jobless claims are very low. Continuing jobless claims are very low. Wage growth is actually pretty decent. Now, the housing market is tough.
But the main thing is that inflation continues to come down, right? So the latest reading was 6.5%. That was down 60 basis points from the prior month, 130 basis points from two months prior. So the Fed's interest rate increases are clearly working.
And in addition to that, gasoline prices continue to decline. They peaked at $5 a gallon last year. They're now down in the low kind of $3 range. So we're starting to think that we may see a risk-on trade because it's looking to us like there's a higher probability that we have a soft landing in 2023.
BRIAN SOZZI: Anthony, well, if the consumer is going to hang tough this year and maybe surprise a few folks, what does it mean for companies trying to turn themselves around like a Bed Bath & Beyond? Can they survive?
ANTHONY CHUKUMBA: Well, Bed Bath & Beyond's a very, very unique situation. And it's funny. I've been thinking a lot about Bed Bath & Beyond lately. And I will say, what is going on with Bed Bath & Beyond just the past few days of what's gone on with their stock price, it is a living, breathing example of the need for financial literacy education in the United States.
I mean, Bed Bath & Beyond is going to go bankrupt. You don't have to believe me. I mean, it's been very widely reported in the press that they are working with AlixPartners. Now there's a report that they're working with Sycamore Partners on a prepackaged sale of assets, probably Bye Bye Baby. And so the fact that the stock is up since they reported earnings is nonsensical, in a word, quite frankly. I mean, when they file, the equity will be worthless.
BRAD SMITH: A lot of retail traders out there are kind of asking about why media covers Bed Bath & Beyond the way they do. But I think at the end of the day, there's so many of the fundamentals from a business perspective too that we have to acknowledge and have to be acknowledged that go counter to what the stock price is actually doing, even if they omitted the word bankruptcy from their most recent earnings.
ANTHONY CHUKUMBA: 100%. I mean, look, believe your lying eyes. I mean, look, the fat lady is not just singing, she's on her encore right now. Bed Bath & Beyond is going to go bankrupt.
And so the fact that the stock price is going up while a bankruptcy filing is imminent, I mean, that's a story. So this is not a let's blame the media. There are no conspiracy theories here. This is a company that's going to go bankrupt, and the stock should trade accordingly.
JULIE HYMAN: Anthony, it's Julie here. I mean, it's also striking to me that in this environment, the company is doing that badly. I mean, you are-- you do outline in your report some of the challenges and headwinds, and you were just talking about them, that retailers are facing.
We did just get a consumer confidence read from University of Michigan that was better, right? So it's not like consumer spending is going to go to zero here. So there is opportunity for retailers. If you take Bed Bath & Beyond on the one hand, like, what's on the other polar end of that spectrum?
ANTHONY CHUKUMBA: Well, look, I mean, to your point, I mean, there are very company-specific reasons that Bed Bath & Beyond is struggling as mightily as they are, mistakes in strategy, trying to go to private label products. They got caught up in the whole supply chain morass of last year. But that-- but that's very, very unique to Bed Bath & Beyond.
As I said, I mean, the fact that gas prices are coming down, the fact that consumer confidence, like you just said, is getting better, the fact that the labor market continues to be very, very robust, I mean, these are all very, very good things. But at the end of the day, the rising tide lifts all boats but not if you have a big hole in your hull. I mean, you're going to sink.
JULIE HYMAN: Anthony, your analogies, I just-- I love them.
BRAD SMITH: It's spot-on. Anthony, while we have you as well, something that you were mentioning about being bullish on the consumer right now, I think back to what Matt Maley of Miller Tabak told us, and it was about demand and him saying "demand is fine because companies are lowering prices." We've just come out of a heavy promotional period in the holiday season. And his point at the end of it was, well, I guess demand's not fine because that shows that the consumer is really looking for some of those lowered prices. But is that a baseline that consumers can count on that feeds into the bullish sentiment that you may have on the consumer right now?
ANTHONY CHUKUMBA: Look, I think that last year, a lot of retailers raised prices because of inflation, right? I mean, if you have to pay your employees more, if you have to pay more to get goods into your stores, at some point you have to pass those along to consumers.
I think that if we start to see supply chain costs come down, as we've seen, if we don't see the level of wage pressure, and particularly if a retailer starts to kind of blink and lower prices, then other retailers have to respond accordingly. I mean, price transparency is as high as it's ever been, largely because each of us has a smartphone, right, and so we can easily compare prices much more easily than, let's say, 20 years ago when you'd have to kind of drive from store to store.
BRAD SMITH: So what we've also heard from some manufacturers of apparel and footwear is that the inventory peak is behind them. Do you believe that to be true?
ANTHONY CHUKUMBA: There's no question about that. And we've actually been doing some work on that. So, yeah, if you recall-- and part of this had to do with the pandemic, right, and the fact that the ports were all screwed up and you had all these ships that were off these West Coast ports. And so-- and a lot of retailers, quite frankly, they were being more aggressive in terms of ordering inventory because they thought it was going to take so long for the inventory to get to the stores, and also because demand was quite stronger.
They got kind of caught with their pants down. I mean, Target and Walmart were probably the two poster children of that. But what they did is they very aggressively worked through those inventories. I mean, retail inventory is not like fine wine. It does not get better with age. And so I think what you're going to see coming out of holiday is that a lot of these retailers' inventory positions are going to be much, much better than they were in early 2022.
BRIAN SOZZI: Loop Capital Managing Director Anthony Chukumba, always good to see you. Looking forward to continuing our conversation over on LinkedIn. Anthony, thanks so much. Have a great weekend.