By Juveria Tabassum and Niket Nishant
(Reuters) -U.S. companies across industries are feeling the squeeze from the deepening split between lower-income and affluent consumers as tariffs pile on more uncertainty.
Bellwethers such as Coca-Cola, along with toymakers, hoteliers, and financial-service providers, have revealed the impact as the latest quarterly results roll on.
"Businesses are increasingly feeling the fallout on their sales and profits from the mounting skew between the haves and the have-nots,"
said Mark Zandi, chief economist at Moody's Analytics.
"It is a tough business environment for those companies that don't cater to the well-to-do."
Affluent consumers continue to prop up overall spending despite higher prices, even as lower-income households pull back or delay purchases.
Target, which has reported several quarters of weak sales due to merchandise missteps, retail crime, and inventory management, said on Thursday it would cut about 1,800 jobs as part of a turnaround under incoming CEO Michael Fiddelke.
The retailer, set to report quarterly results next month, predominantly stocks non-essential products that lower-income consumers have been wary of purchasing over the last year to stretch their budgets.
Nearly two-thirds of customers, up from 59% last year, in a National Retail Federation survey plan to wait until Thanksgiving weekend for most of their holiday shopping to take advantage of discounts.
Deferred spending is also evident elsewhere.
Replacement auto parts retailer O'Reilly Automotive raised its annual revenue target after stronger-than-expected sales, but CEO Brad Beckham said some customers were delaying major repairs, a trend not seen earlier this year.
"We are seeing customers that are maybe putting some things off, and we'll just have to see how that plays out in the fourth quarter," he told analysts on Thursday.
Meanwhile, American Airlines on Thursday raised its 2025 profit forecast, supported by robust demand for high-margin premium services.
CREDIT MARKET JITTERS
The U.S. credit markets have been rattled by several high-profile bankruptcy filings by lenders that predominantly serve lower-income groups.
On Wednesday, financial-tech firm PROG Holdings, which caters to customers who may not qualify for traditional credit, cut its revenue outlook and said it was tightening lease approvals due to economic headwinds.
"While the overall unemployment rate is still low, the heightened financial stress and greater caution among lower-income consumers across our leasable categories is a headwind to gross merchandise volume," CEO Steve Michaels said.
While some estimates have shown steady headline spending, consumer sentiment surveys show pessimism about future conditions and inflation.
On Wednesday, PrimaLend Capital Partners, which finances car purchases for customers with poor or limited credit through the "buy-here-pay-here" auto market, filed for bankruptcy protection.
Tricolor, which sold cars and offered auto loans primarily to low-income Hispanic communities in the U.S. Southwest, filed for bankruptcy protection in September.
WIN SOME, LOSE SOME
The split is also reflected within individual companies.
Barbie maker Mattel and GI Joe parent Hasbro reported a steep drop in toy sales in the third quarter, as retailers delayed orders due to a more cautious customer.
On the flip side, Hasbro's gaming business, which caters to wealthier consumers, helped the toymaker raise its annual targets on Thursday.
Hotel chains, including Hilton and Wyndham Hotels, also reported softness in their budget brands and introduced discounts to woo price-sensitive travelers.
"Our franchisees in the lower chain scales are beginning to discount ... more so to try to capture demand right now," Wyndham Hotels' CEO Geoffrey Ballotti said. "We're helping franchisees where we can and urging franchisees to hold rates where it makes sense."
BETS ON SMALLER PACKS
Coca-Cola is gaining from its premium protein milk Fairlife and sparkling water brand Topo Chico, while also selling its flagship beverages in smaller pack sizes, aimed at lower-income consumers.
"Our system in the U.S. is adapting to both the higher and the lower end, and both offer opportunities and challenges. At the lower end, affordability and value are really important," Coca-Cola's CFO John Murphy told Reuters.
U.S. President Donald Trump's new 25% tariffs on all medium- and heavy-duty truck imports from November 1 adds another challenge, said Telsey Advisory Group analyst Dana Telsey.
"For companies operating in highly competitive sectors where price elasticity is high, there may be limited room to raise prices, forcing some firms to absorb part of the cost increase," she said.
(Reporting by Juveria Tabassum and Niket Nishant in Bengaluru; Editing by Sriraj Kalluvila)
