Business

How Block and CarParts.com CFOs Are Decoding Where Consumer Spending

Good morning.

The dialect consumer has become the focus of the economy this summer, the key to deciphering the bleak outlook ahead. Consumer spending, which accounts for 68% of the US economy, is low and could decline. So what are companies learning about consumers?

With confidence to slide As households become more cautious in their spending, CFOs are looking at their internal data to gain more insight into consumer behavior and devise strategies. to react effectively. This week, consumer-focused companies like Unit and CarParts.com reported earnings, giving a glimpse of how they’ve adapted in times of uncertainty.

“We have a number of signals about the health of consumers and businesses in our ecosystem,” Block CFO Amrita Ahuja said on a call discussing the company’s second-quarter earnings. . “We are monitoring these trends in real time. And we will use them to act quickly and prudently to guide our business decisions. “

That insight could be one reason Block, formerly known as Square, said on Thursday that cut investments in areas like sales and marketing are $250 million this year, including slowing hiring.

Block of income was a mixed bag, with revenue falling 6% to $4.4 billion in the quarter — largely related to volatility in crypto assets — though both revenue and earnings exceeded estimates. properties of Wall Street. Still, the cost-cutting, which Raymond James analyst John Davis considers the “key highlight” of the report, as it “shouldn’t make up for any potentially downgraded gross margin estimates.” ,” he said. After dropping 7% late Thursday, Block recovered somewhat in Friday’s trading.

Ahuja said Block looks at metrics like consumer engagement with a product, along with product acceptance and transaction frequency, to gauge a consumer’s well-being. Those metrics show stability in both discretionary (i.e., necessities like food and utilities) and non-discretionary (thrifty spending like travel or clothing). Data from both Square Payment and CashApp show steady growth in verticals like food and beverage, retail and personal care even as consumers grapple with inflation and economic growth. economy slower.

We’ve seen a wide range of use cases [in CashApp] including gas, utilities, travel, food and groceries, and big box discount retailers,” Ahuja said. “But we also realized the environment had changed. And we are prepared to adapt to uncertainty and maintain discipline by reducing operational costs, especially those that are less efficient.”

Meanwhile, CarParts.com is leveraging technology investments in its own e-commerce platform to strengthen its footing in what it sees as a traditionally underperforming corner of the sales industry. odd. The online retailer has adopted a Warby Parker-like business model of selling directly to the consumer and bypassing the middle man, supporting it with a team of data scientists and logistics systems. can better manage supply chain failures.

Carparts CFO Ryan Lockwood told me: “We have put a lot of emphasis on technology to create efficiency and make our employees safer and more productive. “We’ve built a platform that we can now leverage on instead of trying to catch up in tough economic times.”

While Carparts aims to offer discounts to its traditional competitors, it has managed to avoid the profit squeeze that large discount retailers enjoy. Walmart and Target has been witnessed as prices soar. Company’s revenue 12% increase to $176 million last quarter on a net profit of 7 cents a share, with both numbers topping analyst estimates.

Unlike online retailers that are willing to sell at a loss to boost sales volume, CarParts is consistently profitable on every transaction, Lockwood said. The company also avoided a volatile shift in consumer demand as shutdowns and fiscal stimulus boosted online spending in 2020 and 2021 before slowing significantly this year.

At a time when many digital retail stocks are plunging and startups fight for sponsorshipCarparts is aiming to be an outlier that can harness growth by doing what e-commerce has always done best: spot inefficiencies in a stagnant market and attract customers. with a better retail experience.

“The automotive world is a really tough place for consumers – pricing isn’t transparent and it’s not really clear how things should cost because it’s an occasional purchase,” says Lockwood. . “No one has ever liked their car repair experience — I don’t know if I’ve heard anyone say that. The industry has been wanting some disruption from the consumer side for a while, and we’re looking to meet that demand. “


Kevin Kelleher

Twitter: @kpkelleher

Big deal

CFOs at corporate America are beginning to sharpen as they evaluate their budgets for the coming year. Gartner investigated more than 200 CFOs and finance leaders in July to ask where they plan to spend more — and cut costs. Real estate spending is more likely to be cut, with 35% saying they plan to reduce their real estate footprint, although 9% are willing to spend more. Finance and operations are two other areas that could see smaller budgets. However, IT expenses are still prevalent in corporate budgets, with 40% planning to increase spending in the digital transformation era. Sales and R&D are two other areas that could see an increase in spending.

CFOs are likely to increase spending in IT and sales, but cut back on real estate and finance.

Courtesy of Gartner

Go deeper

Some early warning signs are emerging that banks are starting to tighten standards for corporate loans. Federal Reserve July survey of senior loan officers indicate both higher demand and tighter standards for commercial and industrial loans. Meanwhile, banks say standards are tighter but demand is weaker for most types of commercial real estate loans, especially for subprime borrowers. For consumers, mortgage demand is surprisingly lower, although lending standards have remained unchanged for households taking out a new home loan. “In the second half of 2022, banks, on balance, reported that lending standards would be tightened across all loan portfolios,” the Fed said in a discussion of the survey results. .

Charts

Some notable moves in the past week:

Blake Jorgensen was appointed chief financial officer and executive vice president at PayPal, effective August 3, 2022. Jorgensen has 40 years of experience, most recently as executive vice president of special projects at Electronic Arts for five months and before that as CFO at the company. game for ten years. He was also CFO of Levi Strauss from July 2009 to August 2012 and CFO at Yahoo before that. Jorgensen replaces John Rainey, who left to become Walmart’s chief financial officer in May after seven years at PayPal.

Brian Savoy will become chief financial officer and executive vice president at the energy company Duke Energy, effective September 1. He replaces Steve Young, who has served as CFO since 2013 and will be appointed chief commercial officer of the company. Previously, Savoy served as Duke’s chief strategy officer, chief transformation and administrative officer, and chief accounting and control officer after joining Duke in 2001 as a director in the company’s energy business unit. company.

Brad Watkins join a property management company Oppenheimer & Co. as Chief Financial Officer since August 1. Watkins, who will also join the company’s management committee, has previously worked at KPMG since 2003, spending most of his time in Real that company’s New York Financial Services Audit and became a partner in 2015. Watkins succeeds Jeffrey Alfano, who stepped down as Oppenheimer’s CFO in March to pursue other opportunities. Salvatore Agosta has served as interim CFO since then.

Rambusa manufacturer of computer chips and IP silicon, mined Desmond Lynch is chief financial officer and senior vice president, effective August 1. Lynch has served as Rambus’s vice president of finance since 2020 and previously held senior finance roles at Knowles Corp. ., Renesas Electronics, Amtel and National Semiconductor. He replaces Keith Jones as CFO, who will step down on August 5 to join Adeia, an IP business.

Listen

“The waterway could become the Achilles’ heel… If an accident occurred in the present conditions, clogging the shipping channel, the consequences would be much more severe than in normal times.”

Deutsche Bank analysts in a report warn of what could become the next shock to global supply chains: rivers drying up due to drought. Even as global supply chains recover from disruptions to sea and land transport, low river levels are limiting the ability of ships to carry some goods. LuckAlena Botros’s Written. The problem is serious in Europe, where an intense heatwave and climate change are affecting the Rhine, which stretches from Switzerland to the Netherlands, but major rivers in other countries are also drying up. shallow.

This is the web version of Daily CFO, a newsletter about the trends and individuals shaping corporate finance. Sign up to get it delivered to your inbox for free.

Source link

news7h

News7h: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button