US in ‘hangover’ stage as ‘reopening euphoria is ending’: Former Toys 'R' Us CEO

Former Toys 'R' Us CEO Gerald Storch argued on Wednesday that earnings from Walmart and Target serve as "great indicators" of the health of the U.S. economy.

"During good times, Target does better because people like buying fancier stuff," he told "Varney & Co." on Wednesday, noting that he worked at the retailer for a long time. 

"It is a little fancier store, cleaner, nicer apparel etc." 

"Walmart does better in tougher times," he continued. "So what we’re seeing right now, is that the reopening euphoria is ending and the hangover, the headache is beginning between inflation and the slowing of the economy." 

CONSUMERS TAKING ON MORE DEBT IS ‘VERY REAL’ CONCERN: RETAIL EXPERT

He noted that the sentiment is "reflected in the relative performance of Target and Walmart" as well as the retail sales data that was released on Wednesday morning. 

The business leader provided the insight shortly before it was revealed that spending at retail stores stalled out in July and instead turned to online shopping. 

Retail sales, a measure of how much consumers spent on a number of everyday goods, including cars, food and gasoline, was flat at 0% in July, unchanged from the prior month, the Commerce Department said Wednesday. Economists surveyed by Refinitiv expected sales to rise 0.1%.

It marked a major decline from an increase of 0.8% in June, which was downwardly revised from the initial report of a 1% uptick.

The July advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck. When taking inflation into consideration, retail sales would likely show a modest but steady decline in recent months.

When excluding spending on autos and gasoline stations, sales actually increased 0.7% in July. Internet sales surged 2.7%, boosted by Amazon Prime Day. Spending at home and furniture sales also surged in July, jumping 1.9% for the month. 

Ticker	Security	Last	Change	Change %
WMT	WALMART INC.	84.27	-0.20	-0.24%
TGT	TARGET CORP.	152.16	-1.30	-0.85%

Meantime, earnings from Target released on Wednesday, revealed that the retailer missed comparable sales estimates in the second quarter as inflation impacted customers’ ability to spend. 

Walmart, the largest U.S. retailer, revealed on Tuesday that shoppers continued to buy groceries at its stores in the second quarter, though many held back from purchasing other merchandise amid the inflationary environment despite steep discounts on apparel, electronics and home goods.

Walmart CEO Doug McMillon noted during a call with investors regarding the company's second-quarter earnings results, that higher-income customers are increasingly migrating to the retail giant's stores in search of value as inflation persists.

Storch pointed to the details of earnings reports from retailers, which indicate people are buying food and other necessities, as opposed to discretionary items. 

"What’s not growing? Apparel," he said. "We had a period with the reopening when clothing sales started to take off. It’s over. Department stores and clothing stores were the worst numbers in the report today." 

"Even restaurant sales growth has slowed, which is the biggest sign of that great shift that is supposed to be taking place from goods to services," he added. 

"People are having to go to the grocery store where they can afford it, and travel will not be far behind," he warned.

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FOX Business’ Megan Henney and Breck Dumas contributed to this report.