Airlines and Retailers Signal Consumer Pullback Will Cause Q1 Turbulence

Earnings season, for the fourth quarter, is moving toward its conclusion. The last few companies will weigh in with their results through the coming days.

In roughly a month, it all begins again, as the first quarter reports roll in. And though fewer than three weeks remain, we’ve gotten a few tells of what the quarter might look like — and the tea leaves may serve up a bitter brew.

Or, as several airlines have stated that the quarter is been marked by a reticent consumer, we’ll use another metaphor: Turbulence is right in the flight path.

When companies lower their first quarter forecasts — as Delta and others have done — even before the quarter’s done, in part it’s to get ahead of news that will shake investors, and perhaps it can help soften volatility in stock prices.

This past week, as detailed here, Delta revised its March quarter outlook, revamping guidance it had given as recently as mid-January. The airline now expects its total revenue to grow 3% to 4% year over year during the March quarter, down from its earlier guidance of 7% to 9%. Margins will be pressured.

“The outlook has been impacted by the recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in Domestic demand,” Delta said in the release. That’s a marked deviation from the boon in travel that had been a hallmark of the year’s end.

Also this week, American Airlines updated its first quarter guidance to call for its first quarter revenue to be flat compared to a year earlier, rather than seeing a gain of 3% to 5% per previous guidance. And Southwest Airlines said in a Tuesday presentation that it expects its RASM — a measure of operating revenue production based on available seat miles flown — to see a year-over-year increase of 2% to 4% rather than the 5% to 7% it previously expected. CEO Bob Jordan said the airline lowered its guidance primarily because bookings have weakened.

Retailers’ Take

Continuing the pace of muted expectations, Kohl’s said in its own earnings report this week that projected a 5% to 7% drop in revenue for the year, with comparable sales down 6.5% for the quarter. Management has stated that customers are seeking value, a sentiment that was voiced late last month by Walmart CEO Doug McMillon, who said that budget-conscious consumers are also prioritizing value purchases. Macy’s said, during its most recent quarterly earnings that first quarter comp sales would decline 2.5% to 4.5%.

The banks and the payment networks have yet to chime in — if they are going to do so in advance of their official earnings reports. But connecting the dots indicates that as consumers eye an uncertain macro environment and a volatile job market — along with expectations that inflation will ramp (and credit access deteriorates) they will pull back on spending, denting transaction volumes for the issuers and the networks.  Monday’s retail sales results will offer more grist for the first quarter mill, reflecting February’s consumer mindset that translates at the registers.