Most investors know that the holiday season is a crucial time of year for retailers, but it's not just brick-and-mortar stores and e-commerce companies that depend on the seasonal shopping season.
The gift-giving time of year is also key for the advertising industry, consumer products makers, logistics companies, video entertainment providers, fintechs, and others. Consumer demand is also a bellwether for the broader U.S. economy as consumer spending makes up roughly 70% of GDP, meaning investors of all stripes should be paying attention to how the holiday season goes.
While the shopping boom won't kick off until next week after Black Friday, there are a number of signs showing that investors could get a lump of coal from Santa this holiday season. Let's take a look at them and discuss what you should do as an investor.
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Bellwether companies are cutting guidance
Companies that have reported earnings in the last week or two have good insight into the holiday season as the quarter is nearly halfway through, and a number of companies have cut their upcoming guidance.
GXO Logistics (GXO 5.63%), for example, the world's largest pure-play contract logistics company, recently cut its organic revenue growth guidance for the year from 6%-8% to 2%-4%. GXO CFO Baris Oran explained the move on the earnings call, saying, "For this holiday season, we are seeing lower customer volume growth than anticipated, particularly in consumer-focused sectors, " and added, "In addition, some seasonal Christmas pop-up projects will not recur this year,
because of lower customer volumes." GXO generates roughly $10 billion in annual revenue, so the dollar value of the goods it ships is much greater than that.
Omnichannel retail makes up nearly half of its revenue, but it has a diversified range of customers across industries like manufacturing, food and beverage, and consumer electronics, and its own customers seem to be responding to sluggish consumer demand by cutting back on their warehousing needs.
Bill Holdings (NYSE: BILL) helps nearly 500,000 small and medium-sized businesses manage their accounts and automate payments. In its recently released fiscal first-quarter earnings report, the company said that growth would slow significantly in its current quarter. It blamed macroeconomic challenges, as CEO Rene Lacerte explained, "As a result of higher interest rates and tighter credit markets, capital and cash have become less affordable and available for SMBs. Some of our larger businesses have scaled back their spend while both customers and their suppliers became more selective with their payment choices."
Bill Holdings handled $70 billion in transactions in the fiscal first quarter, showing it has its finger on the pulse of small businesses, which make up a significant portion of the U.S. economy.
Finally, The Trade Desk (TTD 1.75%), the leading demand-side platform (DSP) in digital advertising, recently issued disappointing guidance for the holiday quarter, citing an uncertain macroeconomic environment and pointing to specific challenges in automotive and consumer electronics, including media and entertainment as well as cellphones.
The Trade Desk counts more than half of the S&P 500 index as its customers, so its guidance cut shows that major companies are also cutting back on advertising heading into the peak selling season.
NASDAQ: TTD
Key Data Points
How investors should handle it
The factors noted above should become clearer after retail earnings season over the next couple of weeks, but there's a lot of evidence, including the restart of student loan payments, that retailers and others who depend on holiday shoppers could be in for a rough quarter.
For investors, it's a good idea to make a watch list for stocks to buy if they fall, as the macro challenges will eventually pass.
A few I'd consider adding are Target (TGT +0.32%), which has been struggling all year with weak consumer demand but has successfully differentiated itself in the broader retail industry; Home Depot (HD 1.04%), whose fortunes are more connected with the housing market than with consumer discretionary, but still benefit from holiday shopping; and Walt Disney (DIS 0.81%), which depends on holiday travelers to its theme parks, moviegoers, and gift-givers shopping for toys and other Disney-themed products.
Long-term investors know that sell-offs are the best times to buy high-quality stocks as these stocks go on sale due to temporary challenges. Take advantage of what is shaping up to be a weak holiday season by going shopping for your own stocks when they fall into the bargain bin.
