Inflation bites, shoppers swipe

From electronics to discount chains, retailers just reported another round of earnings—and the results did not disappoint.

• Best Buy topped both revenue and earnings expectations, driven by strength in gaming and computing, while highlighting its growing use of OpenAI and Gemini tools to improve the customer experience. Executives also said they aren’t currently concerned about rising memory prices weighing on demand. Shares rose 15.79%.
• Kohl’s also beat top- and bottom-line forecasts while posting its strongest comparable sales growth in four years. The retailer reaffirmed its full-year guidance, offering investors a rare bright spot after the stock’s 23.71% slide this year amid sluggish sales trends. The stock popped 20.48% today.
• Meanwhile, Dollar Tree reported better-than-expected earnings and raised its fiscal-year outlook. The discount chain’s strategy of raising prices to offset softer foot traffic is paying off, while a new partnership with DoorDash will bring on-demand delivery to its US stores. Shares jumped 17.87%.

Swipe now, save later

The wave of strong retail earnings comes at a strange moment for the US consumer. Inflation remains stubbornly high, with headline PCE inflation rising 3.8% year over year and core PCE climbing 3.3%—both their highest levels since 2023, though still in line with expectations. At the same time, personal income was flat last month, even as prices continued moving higher.

But consumer spending still rose in April, as Americans increasingly dipped into their savings: The personal savings rate plunged from 5.5% last April to 2.6%, its lowest level in four years.

The Fed’s balancing act

These inflation readings are the first major test under new Fed Chair Kevin Warsh’s leadership. The numbers arrive as investors increasingly bet that AI-driven productivity gains could eventually justify lower interest rates, by helping the economy grow without fueling inflation. But St. Louis Fed President Alberto Musalem said there still isn’t enough evidence of that shift, especially with inflation remaining well above the Fed’s 2% target.

But New York Fed President John Williams struck a more optimistic tone, maintaining that the Fed remains in a strong position to manage any economic fallout from the US-Iran war. He also said he expects the recent rise in inflation to peak in the coming months.

For retailers, that means the fight for consumers’ wallets is only getting more intense. As budgets tighten and inflation remains elevated, companies are competing harder than ever for the same discretionary dollar.—SY