The counter narrative: Consumers’ pullback on discretionary spending may have been overstated.

• Better-than-expected results from companies such as Abercrombie & Fitch, Dick’s Sporting Goods, and Cava demonstrate shoppers’ willingness to splurge on some nice-to-have items.

The examples:

• Abercrombie delivered the strongest first quarter in the company’s history and soared past analysts’ expectations. The retailer reported a 22% year over year (YoY) jump in sales to $1.02 billion, well past analysts’ expected $963.3 million, and its earnings per share of $2.14 were nearly seven times higher than a year ago.
• Dick’s Sporting Goods raised its full-year guidance after reporting its comparable sales rose 5.3% in FY Q1, well ahead of the 2.4% growth analysts expected, as both transactions and average order value ticked up.
• Net sales of Deckers Brands’ Hoka jumped 34.0% to $533.0 million, and Crocs’ revenues rose 14.6% (15.6% on a constant-currency basis) to $744.0 million.

The trend carried over to quick-service restaurants (QSRs) as Cava, Sweetgreen, and Chipotle each posted better-than-expected results in recent weeks.

• Cava boosted its same-store sales growth outlook to as much as 6.5%—a sharp increase from its previous outlook that topped out at 5%.
• “We’re seeing a very resilient consumer consistent across the country and across all income brackets,” CEO Brett Schulman told Bloomberg. “We’re not seeing check management.”

The counterexamples: Those results fly in the face of the dominant narrative that consumers’ growing price-consciousness is responsible for disappointing quarters from retailers like Target, as well as QSR companies like Starbucks, McDonald’s, and Yum Brands.

• While a sizable segment of consumers are interested in value, that doesn’t directly correlate to a low price. Shoppers are willing to spend if they see value in an on-trend, well-made dress from Abercrombie, or a healthy salad from Sweetgreen.

Beyond the conventional wisdom: There’s no shortage of takes about the tough macroeconomic environment. But the reality is that the US economy is in fair shape.

• Consumers’ paychecks are growing. The strong labor market has helped push US workers’ wage growth rates ahead of prices for more than a year, per the Atlanta Fed's Wage Growth Tracker.
• Consumer confidence ticked up. Consumer confidence rose in May after three straight months of declines, per The Conference Board.
• CEOs are also increasingly optimistic. More CEOs felt positive than negative in Q2, marking the second-straight quarter of cautious optimism among leaders, per The Conference Board’s Measure of CEO Confidence. That dovetails with a recent CNBC study that suggests US companies will import slightly more items for the peak holiday season this year compared with 2023.

The conditions suggest a relatively healthy landscape for retail, which is in line with our expectations of US retail sales growth of 2.8% this year, up from 2.1% last year.