🛒 America’s K-shaped shopping spree

We’ve spent much of this year reading about America’s so-called “K-shaped” economy. A handful of earnings reports last week gave us a glimpse of that world, in which the rich have more money to spend on expensive perfumes and makeup while everyone else searches for something their size at discount retailers. 

Two of last week’s biggest winners (according to Wall Street, at least) were Estée Lauder and Ross Stores, two brands on opposite sides of the income spectrum. 

• Estée Lauder beat earnings and revenue expectations. Notably, the company saw its North America sales grow year over year for the first time in several years, which it attributed to market share gain in the “prestige beauty” category. Luxury conglomerate LVMH also reported growing US sales when it reported results in July. 

• Ross reported earnings, revenue and same-store sales well-above Wall Street estimates. It saw a rise in store traffic consisting of “new customers and higher engagement from existing customers,” the company said. 

Meanwhile, the country's largest retailers got a boost from an unusual source: tariff refunds. The Supreme Court ruled in February that many of the Trump administration's tariffs were imposed unlawfully, and the government has since been refunding billions to the importers who paid them. Walmart and Target are now pledging to plow some of that money into lower prices.

• Walmart, the biggest retailer in the country, reported quarterly earnings and revenue above expectations but reported same-store sales growth of 2.6% — below Wall Street estimates and the lowest reading of that key metric since 2022. Walmart CFO John Rainey told analysts consumers began to noticeably make “trade-offs” once gas prices hit above $4 a gallon in June. He said the company intends to lower prices on some items, including on back-to-school items. 

• Target — Walmart's smaller but pricier competitor — also reported an earnings and revenue beat, as well as higher-than-expected sales growth. The company also noted that it’s bringing down prices (including a barbie doll for $5) to meet shoppers where they are. “We're proud of that price investment,” CEO Michael Fiddelke told analysts. “We think it matters to consumers right now.”

The takeaway: 

While affluent shoppers are happily splurging on Jo Malone fragrances and Christian Dior bags, middle- and lower-income households are locked in a relentless search for value. 

The macro environment offers little near-term relief. Retail sales unexpectedly fell in July, according to data from the Census Bureau, meaning there may be more consumers treating themselves to prestige luxury, while others are hunting down $5 Barbies and twenty-five cent crayons.

— J. Edward Moreno

• 📊 Elections: With the vast majority of primaries settled, Democrats have an 83% chance of taking the House of Representatives, but are still underdogs in the Senate where as of the end of last week the party has a 48% chance of taking the chamber.

• 📺 WBD: Markets are pricing in a 21% chance that nobody ends up buying Warner Bros; while the antitrust case from the states has rattled Paramount’s bid for the studio, it’s a sign that this deal’s not done for quite yet. 

*Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.

That’s how much one New Yorker paid a matchmaker over nine years to set him up on 40 first dates, the 38-year-old software executive told the New York Times. His search goes on.