Recent stock purchases of U.S. retailers — from Warren Buffett's Berkshire Hathaway to Bill Ackman's Pershing Square Holdings — mark a contrarian bet on the consumer amid concerns of a wider spending slowdown.
Berkshire, the Omaha-based conglomerate, unveiled a $266 million investment in Ulta Beauty in a regulatory filing last week, while billionaire investor Bill Ackman's hedge fund disclosed a stake worth roughly $229 million in Nike. Both purchases took advantage of this year's sell-off, which slashed stock valuations. Meanwhile, the buying also came at a time when concerns about the American consumer intensified and the outlook for the economy deteriorated.
Consumer sentiment unexpectedly dropped to an eight-month low in July, according to the Consumer Sentiment Index from the University of Michigan. Unemployment ticked up a hair in July, too. Yet, overall, hedge funds recently turned increasingly bullish on consumer stocks.
The cohort of professional investors widened their exposure to the consumer discretionary sector in the second quarter, making consumer stocks their second-most overweight sector, behind technology, according to data from Morgan Stanley. Some crowded trades in the sector among hedge funds included Wendy's , Bath & Body Works , Wayfair and Under Armour , Morgan Stanley said. Value buys Before the disclosure of Berkshire's stake gave the stock a boost, Ulta had tumbled 32% in 2024, trading at just 12 times forward earnings, according to FactSet.
The beauty supply chain has been grappling with cooling demand in the beauty category as well as increased competition from rival retailers, including Macy's and Kohl's . Nike suffered a 20% sell-off in one day on June 28 after the sportswear retailer cut its full-year guidance and said it expects sales to drop 10% in its latest quarter. Nike slumped 13.
4% in the first quarter and another 19.8% in the second quarter. It has since rebounded 10.
7% in the third quarter but is still down 23% in all of 2024 to date. ULTA NKE YTD mountain Ulta, Nike The real test of the consumer could come this week when some of the largest retailers in the nation report quarterly earnings, including Lowe's , Target , Macy's and TJX . Last week, Walmart reported strong earnings and sales for the previous quarter and raised its outlook, though it sounded some cautionary notes about the second half of 2024.
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