Borrowers aren’t the only ones bracing for the impact of resuming student loan payments.
Some of America’s largest retail and food chains are preparing investors for a slowdown in consumer spending He stopped for three years The student loan payments are coming to an end.
Macy’s (M) chief financial officer Adrian Mitchell said Tuesday that student loans, along with other forms of consumer debt, “will come into focus in the next month or two.” “So we think the customer is under pressure because these are new realities that they have to continue to deal with as we go through the latter half of this year and move into next year.”
A similar warning came this month from the world’s largest retailer, Walmart.
“Jobs, wages and pockets of inflation are helping our customers. But rising energy prices, resumption of student loan payments, rising borrowing costs and tightening lending standards, and drawing down excess savings mean household balance sheets remain under stress,” Wal-Mart CEO said. Doug McMillon told Wall Street when the retailer reported its earnings.
Federal student loans will begin accruing interest again on September 1, as payments resume Oct. 1.
Read more: Worried about when your student loan repayment will resume? These programs can help
Charlie Wise, president of global research and advisory at TransUnion, told Yahoo Finance that nearly 40 million consumers will experience “payment shock” when student debt relief ends.
Consumers were already having trouble paying off credit card debt, Macy’s warned this week. Now, the return of student loan payments could worsen financial matters, as executives warn that the additional outlay could prompt consumers to cut back on spending in other areas.
Yahoo Finance takes a look at which consumer stocks are most at risk.
Retailers who are exposed to the most student loan payments
Some retailers appear to be more vulnerable to payment shock than others as they head into the crucial back-to-school and holiday shopping seasons.
“We are more cautious about brands with high exposure to student debt holders and lower value perceptions among 18-34-year-olds, the most representative demographic of student debt holders,” Andrew Charles, an analyst at TD Cowen, wrote in a note to clients.
The research team at TD Cowen highlighted Target (TGT) and Ulta (ULTA) as particularly vulnerable, due to their exposure to younger, lower-income consumers through student loans.
“The resumption of student loan payments is one of several factors that we’re watching closely,” Target CFO Michael Fedelke told Yahoo Finance as the retailer lowered its full-year profit forecast.
Other stocks “highly exposed” to younger, lower-income student borrowers, according to TD Cowen analysts, include Academy Sports and Outdoors (ASO), FIGS (FIGS), Foot Locker (FL), Burlington Stores (BURL), and Williams. Sonoma (WSM).
UBS analyst Jay Saul writes that US student debt borrowers are more likely to pull back on apparel spending in general because they “prefer brand names over private labels and specialty retailers over discount.”
This is bad news for American Eagle Outfitters (AEO), Carter’s (CRI), Crocs (CROX), Canada Goose (GOOS), The Gap (GPS), Nordstrom (JWN), Nike (NKE) and Stephen Madden (SHOO), he said. Sol N Under Armour (UAA) and Victoria’s Secret & Co. (VSCO).
Stores with higher discretionary product mix also face higher risks, according to JPMorgan analyst Christopher Horvers.
That includes Target and Ulta, as well as Dick’s Sporting Goods (DKS) and Best Buy (BBY), followed by Home Depot (HD), Lowe’s (LOW), Costco (COST), and Walmart, with the main difference. Driven by the higher mix of the prior group’s discretionary products.
On the flip side, auto parts stocks are less vulnerable “given their exposure to lower income and lower discretionary mix,” Horvers wrote in a note to investors.
Meanwhile, Hovers added that BJ’s Wholesale Club “remains a question mark” since its “geographically weighted exposure to student loans ranks it highly offset by its largely non-discretionary mix (85% grocery)”.
Restaurants are watching weak sales
When it comes to spending in restaurants, TD Coin’s Charles said he estimates up to an “annual headwind of 2% to spending in the restaurant industry as student loan payments resume”.
The team at TD Cowen suggested that Jack in the Box (JACK), Dutch Bros (BROS) and Sweetgreen (SG) could face headwinds. Investors should also play lightly with tobacco and beverage brands such as Altria Group (MO), British American Tobacco (BATS), and Monster Beverage (MNST).
Even high-end plays in the restaurant space are not immune.
Cava—a bowl of salad can cost $14—expressed caution about the consumer outlook in its most recent earnings.
CEO Brett Schulman told Yahoo Finance that restarting student loan payments was one of “multiple factors” facing consumers, along with higher gas prices, costly utility bills, and a “hawkish Federal Reserve”.
“So we are aware of those pressures,” Schulman said. “We saw a resilient consumer in the second quarter, but we would be remiss if we didn’t take these considerations into account.”
Of course, not all borrowers will have to pay immediately.
TransUnion’s Wise notes that those still in school remain “in the normal endurance period.” “But we believe that about 26 million to 27 million consumers will experience the onset or resumption of payments in the next two weeks.”
There is another problem: the Ministry of Education is creating a 12 months “on the slope” For repayment from October 1, 2023 to September 30, 2024. Although interest will accrue during this period, financially vulnerable borrowers who default on monthly payments will not be considered delinquent or reported to credit bureaus and debt collectors.
This “will likely push any significant impact on spending into late next year,” Charles Quinn said in a note to clients.
Are you an American with student loan debt or a business nervous about getting your student loan payments back? Drop a note to [email protected].
For the latest earnings reports and analysis, earnings whispers and forecasts, and company earnings news, click here
Read the latest financial and business news from Yahoo Finance
