The PC boom has gone bust and we’ll see the results before Black Friday

The pandemic-related PC boom is over. So how will this affect demand and prices for PCs and the retailers who sell them this holiday season?

A sense of the impact will be provided by PC maker Dell Technologies Inc.’s results next week. DELL,
+0.67%
and HP Inc. HPQ,
+0.17%,
together with video conferencing platform Zoom Video Communications Inc. ZM,
-1.15%
and electronics chain Best Buy Co Inc. BBY,
+2.88%

All of these companies are set to report amid signs of heavy holiday discounts on products like clothing and electronics after many customers – stuck at home in 2020 and 2021 – loaded up laptops and other goods and turned Zoom into a digital conference room. But this year, decades of inflation and a return to pre-pandemic spending on travel and face-to-face meetings have forced retailers and electronics manufacturers to adapt to a world where more people are spending on essentials.

PC shipments have fallen at a rate not seen since at least the 1990s. Adobe ADBE,
-2.06%
has said online holiday discounts for electronics have been as high as 17%. For computers, they cost up to 10% less. TVs are also sold cheaper. Forecasts for the holiday season have generally called for sales increases, supported by price increases and continued demand despite these price increases.

In detail: The pandemic PC boom is over, but its legacy will live on

Results from Target TGT,
+0.54%
on Wednesday, third-quarter earnings fell sharply, and the big retailer said it braced for a possible decline in fourth-quarter same-store sales, citing “softening sales and earnings trends that emerged and continued late in the third quarter.” November.” Results from Walmart WMT,
+1.51%
however, were almost the opposite, with significantly better earnings and an upgraded full-year outlook.

Among the smaller retailers is discounter Ross Stores Inc. ROST,
+9.86%
raised its full-year earnings guidance citing sales momentum, but lighter year-on-year comparisons. But Williams-Sonoma Inc. WSM,
-6.15%
noted “macro uncertainty” and “increasingly inconsistent” demand.

This week in the result

Businesses are reporting a shortened, quieter week – thanks to Thanksgiving – and after fears of a recession dominated for much of the year. With 94% of the S&P 500 SPX,
+0.48%
Companies that have already reported third-quarter results will be down to a dozen more to report in the coming week.

But among that 94%, there are signs that concerns about a slowdown may be easing after the economy grew in the third quarter and reversed after two quarters of decline.

FactSet senior analyst John Butters said in a report Thursday that 179 companies mentioned the term “recession” during third-quarter earnings calls. That’s still above the 10-year average, but below the 242 companies that reported recession in the second quarter.

So far: Executives seem pretty confident that a recession is coming

Elsewhere on Monday, JM Smucker Co. SJM,
+1.11%
– best known for Folgers and Jif – is reporting results after concerns about higher food prices and how much higher they could go. The life sciences electronics manufacturer Agilent Tecnologies Inc. A,
+1.21%
report the results on Monday too. Fast Food Chain Jack in the Box Inc. JACK,

reports Tuesday. Tractor and construction vehicle Deere & Co. DE,
+0.31%
reports Wednesday after manufacturing and supply chain snarls but steady demand.

The calls that you can enter in your calendar

Clothing demand, discount demand: Urban Outfitters Inc. URBN,
+2.44%
reported Monday, while Burlington Stores Inc. BURL,
+4.63%,
Nordstrom Inc JWN,
+1.71%
and Dollar chain store Dollar Tree Inc. DLTR,
-0.21%
report on Tuesday.

The discount wave at clothing retailers, an attempt to clear inventory, could attract more consumers, but Wall Street analysts have focused on margins and bottom line with concern. However, some analysts have said that more younger shoppers are feeling their closets becoming stale, and they say that Nordstrom, whose customers tend to have more cash, is best prepared for “an upcoming wardrobe refresh.”

Burlington, retailer of off-price clothing and homewares, meanwhile, will report after rival discounters Ross and TJX received a boost from investors this week.

Also Read: The holiday shopping season has a different problem this year than last — and it could lead to some deals

Ross CEO Barbara Rentler noted that rising prices had hurt lower-income consumers. But Jefferies analysts said Burlington and other discounters, which often pick up merchandise other retailers don’t want, would benefit from the inventory cleanup.

Dollar Tree, meanwhile, reports that more and more shoppers are looking for cheaper grocery options, but grocery prices are still rising. But Bank of America analysts said in a note last month that the traffic data implied a “slowing down” toward results.

The numbers to watch

Demand Trends for PCs, Electronics: Dell and HP are reporting deeper job cuts in the tech industry, while Zoom is trying to add more features — like calendaring and email — to appeal to small businesses and adapt to a hybrid workforce.

The tail end of the PC boom hit Dell during the previous quarter reported in August after the company’s personal computer sales came in below estimates. Executives said at the time PC demand had fallen and “customers are more cautious about their needs given the uncertainty.”

Opinion: Tech earnings are on the verge of collapsing, and there’s no lifesaver in sight

However, some analysts signaled that a certain level of investor pessimism was already baked into stock prices.

“We recognize the deteriorating industry fundamentals related to PCs and the increasing slowdown in IT infrastructure. However, we believe the magnitude of the cuts last quarter has made Dell less vulnerable to another round of material earnings revisions,” analysts at JPMorgan said in a note. And even if HP is feeling similar pain, analysts there said stock buybacks could be “a bright spot.”

HP and Dell’s results could also impact Best Buy, which sells laptops, TVs, phones and other electronics.

“Remember, initial expectations for the year were that BBY would come under pressure as it overlapped stimulus-driven spending and broad-based demand for technology products and services,” analysts at Wedbush said Friday in a note.

“However, the macro has been more volatile than expected as consumers face significant inflationary pressures and lower-income households make decisions to trade lower in some categories such as TVs.”

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