How CFOs at Block and CarParts.com decipher where consumer spending is headed

Hello.

The proverbial consumer has become the focal point of the economy this summer, the key to deciphering the bleak outlook ahead. Consumer spending, which accounts for 68% of the US economy, is fragile and on the verge of a decline. So what are businesses learning about consumers?

With confidence waning and households increasingly cautious about spending, CFOs are turning to their internal data to gain more accurate insights into consumer behavior and strategize how to respond effectively. This week, consumer-facing companies like Block and CarParts.com announced earnings, giving some insight into how they are adapting in these uncertain times.

“We have a number of signals about the health of consumers and businesses in our ecosystems,” Block’s Chief Financial Officer Amrita Ahuja said during a company’s second-quarter earnings call. “We follow these trends in real time. And we will use them to act quickly and prudently to guide our business decisions.

The idea is likely one of the reasons Block, formerly known as Square, said on Thursday it was cutting investments in areas such as sales and marketing by $250 million this year, including by slowing down its pace of hiring.

Block’s earnings were mixed, with revenue down 6% to $4.4 billion in the quarter – largely driven by volatility in crypto assets – although both revenue and profit beat estimates by Wall Street. It was cost cutting, however, that Raymond James analyst John Davis considered the report’s “highlight”, as it “should more than offset any potentially reduced gross profit estimate”, it said. -he declares. After falling 7% on Thursday night, Block rallied somewhat in Friday’s trading session.

Ahuja said Block looks at metrics such as consumer engagement with products, as well as product adoption and transaction frequency, to gauge consumer health. These measures show stability in both discretionary (meaning necessities like food and utilities) and non-discretionary (splurge spending like travel or clothing) spending. Data from Square Payments and CashApp showed steady growth in verticals such as food and beverage, retail and personal care, even as consumers grappled with inflation and the slowdown of economic growth.

We saw a wide range of use cases [in CashApp] including gasoline, utilities, travel, food and groceries, and big-box discount retailers,” Ahuja said. “But we also recognize that the environment has changed. And we are prepared to adapt to uncertainty and maintain discipline by reducing operating expenses, especially those that are less efficient.

Meanwhile, CarParts.com is leveraging technology investments in its own e-commerce platform to bolster its presence in what it sees as a traditionally inefficient corner of the retail industry. The online retailer has adopted a Warby Parker-like business model of selling directly to consumers and bypassing middlemen, bolstering that model with a team of data scientists and an in-house logistics system that can better handle supply chain hiccups. ‘supply.

“We’ve leaned heavily on technology to create efficiencies and to help our employees be safer and more productive,” Carparts CFO Ryan Lockwood tells me. “We have built a base that we can now build on instead of trying to catch up in tough economic times.”

While Carparts aims to offer discounts to physical competitors, it has managed to avoid the margin squeeze that big discount retailers like Walmart and Target have seen as prices inflate. The company’s revenue rose 12% to $176 million last quarter on net income of seven cents per share, both figures beating analysts’ estimates.

Unlike online retailers willing to sell goods at a loss to drive sales volume, CarParts has always been profitable on every transaction, Lockwood says. The company also avoided volatile swings in consumer demand as lockdowns and fiscal stimulus boosted online spending in 2020 and 2021 before slowing significantly this year.

At a time when many digital retail stocks are collapsing and startups are struggling to fund themselves, Carparts aims to be an outlier that can harness growth by doing what e-commerce has always done best. : find an inefficiency 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 the cost of things isn’t really clear because it’s an occasional purchase,” Lockwood says. “No one has ever enjoyed their auto repair experience – I don’t know if I’ve ever heard anyone say that. The industry has been wanting disruption on the consumer side for some time, and we’re looking to address that. this application.

Kevin Keller

Twitter: @kpkelleher

Big deal

CFOs at corporate America are starting to sharpen their scissors as they assess their budgets for the coming year. Gartner surveyed more than 200 CFOs and CFOs in July to ask where they plan to spend more and cut costs. Property spending is the most likely to see cuts, with 35% saying they plan to reduce their property footprint, although 9% are willing to spend more. Finance and operations are two other areas that can see smaller budgets. However, IT costs remain popular in business budgets, with 40% planning to increase spending in the era of digital transformations. Sales and R&D are two other areas that could see increased spending.

Courtesy of Gartner

Go further

There are some early warning signs that banks are beginning to tighten standards for business lending. The Federal Reserve’s July survey of senior loan officers showed both stronger demand and tougher standards for commercial and industrial loans. Meanwhile, banks reported tougher standards but weaker demand for most categories of commercial real estate loans, especially for subprime borrowers. On the consumer side, demand for mortgages was unsurprisingly weaker, although lending standards remained unchanged for households borrowing for new homes. “During the second half of 2022, banks, on the whole, said they expected tighter lending standards across all lending categories,” the Fed said when discussing the survey results. .

Ranking

Some notable moves from the past week:

Blake Jorgensen was appointed Chief Financial Officer and Executive Vice President of PayPal, effective August 3, 2022. Jorgensen has 40 years of experience, most recently serving as Executive Vice President of Special Projects at Electronic Arts for five months and prior to that in as CFO of the gaming company for ten years. . He was also CFO of Levi Strauss from July 2009 to August 2012 and CFO of Yahoo before that. Jorgensen replaces John Rainey, who left to become Walmart’s chief financial officer in May after seven years at PayPal.

Brian Savoie will become chief financial officer and executive vice president of energy holding company Duke Energy, effective September 1. He replaces Steve Young, who had served as chief financial officer since 2013 and will be named the company’s chief commercial officer. Previously, Savoy served as chief strategy officer, chief transformation and administration officer, chief accounting officer and controller at Duke after joining Duke in 2001 as head of its energy trading unit.

Brad Watkins joined wealth management firm Oppenheimer & Co. as chief financial officer effective August 1. Watkins, who will also join the company’s executive committee, had previously worked at KPMG since 2003, spending most of his time in that company’s New York Financial Services Audit. Train and become a partner in 2015. Watkins succeeds Jeffrey Alfano, who resigned as Oppenheimer’s chief financial officer in March to pursue other opportunities. Salvatore Agosta has since served as interim chief financial officer.

Rambus, a manufacturer of computer chips and silicon IP, operated Desmond Lynch as Chief Financial Officer and Senior Vice President, effective August 1. Lynch had served as vice president of finance at Rambus since 2020 and previously held senior finance positions 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 company.

Understood

“Waterways could become an Achilles’ heel…If an accident were to occur under current conditions, blocking a shipping channel, the effects would be far more severe than normal.”

—Deutsche Bank analysts in a report warn of what could become the next shock to global supply chains: rivers drying up from droughts. Even as the global supply chain recovers from disruptions to shipping and trucking, low river levels are limiting the ability of boats to transport certain goods, Fortunewrote Alena Botros. The problem is acute in Europe, where a scorching heat wave and climate change are affecting the Rhine, which stretches from Switzerland to the Netherlands, but major rivers in other countries are also drying up.