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We’re selling 100 shares of Eli Lilly (LLY) at roughly $311.78 each. Following Thursday’s trade, the portfolio will own 350 shares of LLY — decreasing its weighting to 4% from 5.12%. Big picture: We do not want to take too much out of the market right now — hence the Lilly trim — because we see reasons to be constructive at these levels. The market is still in a heavily oversold territory based on the S & P Oscillator, which clocked in at minus 9.28% after Wednesday’s session. Any time the oscillator is that low, it indicates that the market is technically oversold and positioned for a bounce. That, coupled with the recent rollover in many commodities and the decline in bond market rates should help buoy stocks for as long as this trajectory holds. The 10-Year Treasury yield has been moving down toward 3% after soaring last week to 2011 highs of nearly 3.5%. At the same time, however, Eli Lilly has been a great winner in the market this year, a rarity in a sea of red. We do not want to be greedy like we were with our oil names. We made a mistake not trimming our energy stocks at higher prices. We do not want to make the same mistake twice. Shares of Eli Lilly have gained about 11% this year in a turbulent market, with the S & P 500 confirming earlier this month that a bear market began in early January. A bear market is defined by a drop of 20% or from a prior high, which for the S & P 500 was a record. LLY shares have also outperformed the market nicely dating back to our upgrade to a 1 rating in late April . Since the upgrade, LLY shares have gained a little more than 5% against a roughly 8% decline in the S & P 500. But now we are downgrading LLY back to a 2 rating , meaning we would wait for a pullback before buying it again. In booking profits and rightsizing our position in Eli Lilly, we’re taking a solid win here and locking in a gain of about 25% on stock purchased in October 2021. We have a long list of reasons to like Eli Lilly, evident in this year’s outperformance. But with those gains, the stock became our biggest position at slightly more than 5% of the portfolio before the Thursday’s trim. This is what we call a high-quality problem. But still, this is where portfolio management kicks in, and why it’s prudent to reduce Lilly’s relative weighting to the rest of our holdings. We don’t want to sell too large of a chunk because of how much we believe in Eli Lilly for the long term. However, cashing out on shares not far from its highs Thursday will not only allow us to reduce LLY’s weighting to a more normalized level, it will allow us to recycle that cash into other stocks of high-quality — profitable companies that have been beaten down this year. In addition, cash raised from this sale will come in handy for whatever twists and turns the market throws at us next. Despite our trim and our wait-and-see rating, we continue to believe Eli Lilly is right stock for this moment because it’s one of the, if not, the best growth stories in all large-cap pharma. By now, you know how bullish we are about Lilly’s pipeline and all the great work they’re doing to combat not just Type 2 diabetes and obesity but Alzheimer’s, too. We remain incredibly bullish on Mounjaro , FDA-approved for diabetes and in clinical trials for treating obesity. We still believe the consensus on Wall Street has failed to appreciate how enormous of an opportunity this will be. Eli Lilly is also the type of stock that investors love to circle the wagons around when they are worried about a Federal Reserve-mandated slowdown, which is underway to fight inflation. The recession-resistant traits of health care are why we have so many stocks from this sector in the portfolio and recently built up positions in Johnson & Johnson (JNJ) and Humana (HUM). (Jim Cramer’s Charitable Trust is long LLY, JNJ and HUM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

David Ricks, CEO, Eli Lilly
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A Chipotle Mexican Grill location in Augusta, Maine, filed a petition for a union election on Wednesday.
The employees are seeking to unionize as Chipotle United, an independent union.

A customer carries a Chipotle bag in front of a restaurant in Santa Clara, California, U.S., on Tuesday, Oct. 19, 2021.
David Paul Morris | Bloomberg | Getty Images

A Chipotle Mexican Grill location in Augusta, Maine, filed a petition for a union election on Wednesday, becoming the first of the burrito chain’s restaurants to join the recent organizing push sweeping across the nation.
The Maine AFL-CIO said that workers at the restaurant are “demanding safe, adequate staffing at their store.” The employees are seeking to unionize as Chipotle United, an independent union, according to the organization.

“We received notice today that a petition was filed. We respect our employees’ rights under the National Labor Relations Act and are committed to ensuring a fair, just, and humane work environment that provides opportunities for all,” Chipotle Chief Corporate Affairs Officer Laurie Schalow said in a statement to CNBC on Thursday.
The Kennebec Journal, which first published the news of the workers’ petition, reported that workers at the location walked out last week in protest of staffing issues. Workers told the local newspaper that they were sometimes told to falsify logs of food temperatures because understaffing meant they didn’t have the time to check as many times a day as required by food safety rules.
Schalow said that the Augusta staff first raised their concerns last week and the company immediately began hiring and training additional staff, retraining existing workers and bringing new leadership to the location.
The company, based in Newport Beach, California, said it does not have any unionized locations and that the Maine store is the first to file a petition.
Workers at airlines, retailers and tech companies have been organizing, fueled by a desire for better working conditions during the pandemic and the newfound power gained in a tight labor market. Even the restaurant industry, where unions are rare, hasn’t been immune to the union push. Baristas at more than 150 Starbucks cafes have voted to unionize in the last nine months.

Chipotle employees have tried to unionize previously, but the chain successfully quashed those efforts. In 2019, the National Labor Relations Board accused the company of violating federal labor law by allegedly firing a worker in New York who was trying to organize a union.
Workers at a handful of New York City locations have allied themselves with the Service Employees International Union. They held a rally in late May for higher pay and better schedules but haven’t filed for a union election yet.
Chipotle’s workplace conditions have already come under fire from regulators and employee lawsuits. Earlier this year, the Equal Employment Opportunity Commission sued the company, alleging that it cultivated a toxic work environment by allowing a male manager to sexually harass young female employees at a Washington location. New York City has sued Chipotle multiple times for violating its laws on giving workers enough notice on their schedules.

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American artistic swimmer Anita Alvarez was saved from drowning by her coach Andrea Fuentes at the world championships in Budapest.
Spaniard Fuentes, a four-time Olympic medalist in synchronized swimming, jumped into the pool after she saw Alvarez sink to the bottom at the end of her solo free final routine.
She was given medical attention beside the pool before being taken away on a stretcher.

A member of Team USA (R) swims to recover USA’s Anita Alvarez (L), from the bottom of the pool.
Oli Scarff | Afp | Getty Images

American artistic swimmer Anita Alvarez was in danger of drowning after losing consciousness in the pool at the world championships in Budapest before being rescued by her coach Andrea Fuentes.
Spaniard Fuentes, a four-time Olympic medalist in synchronized swimming, jumped into the pool after she saw Alvarez sink to the bottom at the end of her solo free final routine.

She was given medical attention beside the pool before being taken away on a stretcher.
It was the second time Fuentes has had to rescue Alvarez after she leapt into the pool during an Olympic qualification event last year and pulled her to safety along with the American’s swim partner Lindi Schroeder.

USA’s Anita Alvarez is recovered from the bottom of the pool by a team member after the incident.
Oli Scarff | Afp | Getty Images

Read more stories from Sky Sports

“Anita is much better, she is already at her best. It was a good scare, to be honest,” Fuentes told Spanish newspaper Marca.
“I jumped into the water again because I saw that no one, no lifeguard, was jumping in. I got a little scared because she wasn’t breathing, but now she’s fine. She has to rest.”
In a statement on the US Artistic Swimming Instagram page, Fuentes said 25-year-old Alvarez would be assessed by doctors on Thursday before a decision was made on her participation in Friday’s team event.

She was given medical attention beside the pool before being taken away on a stretcher.
Peter Kohalmi | Afp | Getty Images

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United will cut about 50 flights a day out of Newark Liberty International Airport to help reduce delays.
United has blamed the delays on airport construction and capacity constraints.
The cuts are solely for domestic routes, starting July 1.

A United Airlines passenger airplane is landing on Newark Liberty International Airport in Newark, New Jersey, on January 19, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images

United Airlines will cut about 50 daily flights from Newark Liberty International Airport next month in an effort to reduce delays that have disrupted travelers’ plans this year.
The cuts amount to about 12% of United’s schedule in its New Jersey hub and apply solely to domestic flights, starting July 1.

United executives have said the delays are the result of capacity constraints, airport construction and air traffic control — not airline staffing shortfalls.
From the start of the year through mid-June, 31% of flights at Newark were delayed, the second-worst rate in the country behind Chicago Midway, according to flight-tracking site FlightAware.
Jon Roitman, United’s executive vice president and COO told staff in a note Thursday that “after the last few weeks of irregular operations in Newark, caused by many factors including airport construction, we reached out to the FAA and received a waiver allowing us to temporarily adjust our schedule there for the remainder of the summer.”
United said it is currently not ending service to any cities, but will reduce the number of flights it operates to certain markets.
“Even though we have the planes, pilots, crews, and staff to support our Newark schedule, this waiver will allow us to remove about 50 daily departures which should help minimize excessive delays and improve on-time performance – not only for our customers, but for everyone flying through Newark,” he wrote.

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Media executives are hopeful they’ve learned lessons and streamlined their businesses to weather a potential recession.
Media job losses have spiked in each of the last three recessions.
The scope of any advertising pullback is still unknown, although one executive told CNBC a 20% retreat is possible by year-end.

Delegates wait in line at Cannes Lions International Festival of Creativity, Cannes, France, June 2019
Cannes Lions

While media executives are meeting with advertising leaders this week over glasses of rose at the annual Cannes Lions International Festival of Creativity, they can’t help but talk about the disconnect between hanging out with celebrities on yachts and the creeping feeling that a recession is around the corner.
“It feels like a party here,” NBCUniversal CEO Jeff Shell said to CNBC’s Julia Boorstin from Cannes on Wednesday. “I don’t know if that’s because most of you are out for the first time in a long time or because we’re in the south of France in June, but no, it doesn’t feel like a down market.”

But Shell did acknowledge there are warning signs, albeit complicated ones. “The scatter market has weakened a little bit,” he said, referring to the real-time cost of TV commercials, rather than the preset “upfront” market. “It’s very complicated because there’s so many things going on.”
Macroeconomic downturns have historically led to a spike in layoffs throughout the media industry. With recession odds on the rise and executives preparing for an advertising revenue pullback in the second half of the year, media companies aren’t laying off people or furloughing employees — at least, not yet. Instead, industry leaders feel their companies are finally lean and balanced enough to weather an advertising downturn without sacrificing profit or contracting their businesses.
“Our focus has been to build a really resilient, adaptable digital media company,” BuzzFeed Chief Executive Jonah Peretti said earlier this month. “We thrive amid volatility. We’ve built an agile, diversified business model.”

Jonah Peretti, founder and CEO of Buzzfeed; co-founder of the Huffington Post
Courtsy of Ebru Yildiz/NPR

“While an economic downturn may affect the media advertising market, we’re on track to achieve our business growth goals following a milestone year of profitability,” said Roger Lynch, CEO of Conde Nast. The company, which publishes The New Yorker and Vogue, turned a profit last year after many years of losing money.
Part of why smaller digital media companies feel prepared for a recession is they’ve already laid off hundreds of employees in the past few years, stemming from acquisitions and a desire to shed costs. BuzzFeed announced more layoffs just a few months ago.

Still, many digital media companies make the bulk of their money from advertising — Conde Nast and BuzzFeed included. And not everyone is optimistic that media companies are out of the woods. Since going public, BuzzFeed shares have fallen more than 80%. BuzzFeed took in $48.7 million in advertising revenue during the first quarter, about 53% of total sales.
If companies are looking to save money on marketing, there’s little they can do to avoid taking it on the chin, Graydon Carter, founder of subscription-based media company Air Mail and former longtime editor of Conde Nast’s Vanity Fair, said in an interview.
“If you are in the business of programmatic advertising, which most digital media companies are, you’ll suffer at some point when the economy turns. It’s simply out of your hands,” Carter said. “I think [a downturn] will be brutal and possibly long.”

Media layoffs in recessions

The last three recessions – the 2020 Covid-19 pullback, the 2007-09 financial crisis and the 2001 dot-com bubble bust – have all led to job loss spikes among media companies, many of which have historically lacked the balance sheets to shrug off temporary downturns in advertising. While the media industry has contracted over the past two decades, 2001, 2008 and 2020 were the three biggest years for job losses, according to data from Challenger, Gray & Christmas.

It’s natural for executives to feel optimistic about their company’s prospects. But their sense of “this time will be different” isn’t without merit, said Alex Michael, co-head of Liontree Growth, which specializes in working with emerging media companies. This is especially true for smaller digital media companies, including newspaper and magazine owners, which have had diversify to subscriptions, e-commerce, events and other products to wean themselves off ad revenue.
“In the past, these businesses both didn’t have their models right and weren’t fully matured,” Michael said. “Now they’ve gone through waves of consolidation. There absolutely has been streamlining and optimization. Many of the remaining companies now have endemic audiences who will open their wallets in a bunch of different ways.”

How bad could it be?

There are mixed feelings among industry participants about how big of a pullback media companies may see in advertising revenue.
TikTok’s head of global business solutions, Blake Chandlee, said he’s heard there’s been about a 2% to 6% contraction in advertising spend so far, though he notes TikTok hasn’t seen it.
“I’ve talked to some other folks, and I think there are some other folks feeling it,” Chandlee said in an interview. “We’re not seeing the headwinds that others are seeing.”
Read more: TikTok exec: We’re an entertainment platform, not a social media network
Still, others are being cautious. Snap, the owner of Snapchat, said last month the “macroeconomic environment has deteriorated further and faster than anticipated,” causing its shares to fall 40% in a day. Meta and Twitter have instituted partial hiring freezes. Digital media companies Insider and Vice Media are reportedly slowing down hiring.
One digital media executive told CNBC while a smaller slowdown may have already happened, a 20% advertising revenue cutback by year-end isn’t out of the question.

Getting the model right

The key to weathering a recession is having a product that resonates with a specific audience, said Liontree Growth’s Michael. Digital media companies and magazines that have had too wide an aperture haven’t been able to compete during economic lulls because brands haven’t had passionate user bases.
“Advertisers have asked, what do you stand for?” said Michael. “What are they selling against?”
There’s also been a “loosening” among ad buyers willing to move money away from Facebook and Google on moral grounds, said Justin Smith, former CEO of Bloomberg Media.
Smith is in the process of establishing Semafor, a new media start-up for global news. While Google and Facebook have dominated the digital ad space for more than a decade, there’s a growing movement among some advertisers who are diversifying ad spend away from the tech giants to support the news industry in the face of Big Tech privacy violations and disinformation.
“It used to be that ad marketers really shunned the news media, especially with digital targeting, because of brand safety. The news was tied closely with negativity, war and famine,” said Smith. “Now you’re seeing the opposite of that — brand bravery. The only true antidote to misinformation is human intervention. This is a multi-hundred-billion-dollar pool. Even a small loosening of that group is big, big money.”
Smith isn’t concerned with launching Semafor into a potential recession. He said while Semafor aims to appeal to college graduates around the globe, a wider audience than niche sites with passionate audiences, even general interest publications are in a better place now than they were 10 or 15 years ago. He credits the wide adoption of subscription.
“If you look at the last five years in particular, whether it was the pandemic, or the fascination with Trump, or the rise of Spotify and Netflix, there’s been a sea change with subscription,” said Smith. “There’s example after example of cross-category consumer adoption for subscription models for news.”
Smith implemented a consumer paywall for Bloomberg News’ website three years ago. Today, more than 400,000 people pay for access. Semafor, which will launch this fall, will start as a free, ad-supported service and will stay that way for “six, 12, maybe 18 months,” before installing a paywall. Some articles will always remain free, Smith said, similar to many other digital news services.
Smith also said the industry has morphed in ways to better connect audience to reporters, even through down times. Smith is promoting this enhanced bond by directly staffing talent agents, who will be tasked with pairing journalists on products and events outside of Semafor’s core business to broaden their reach.
“The media industry is in better shape than it was a decade ago,” Smith said. “Strategies are more sensible. Digital adoption is more ubiquitous. Models are clearer. Revenue streams are more diverse. Executives are more experienced. Even though we’re probably heading into a global recession, I do think the media business is going to withstand some of the downward pressure in a stronger way than it has in the past.”
Disclosure: NBCUniversal is the parent company of CNBC.
WATCH: TikTok ad chief Blake Chandlee speaks from Cannes

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Darden Restaurants on Thursday reported quarterly earnings and revenue that beat analysts’ expectations.
The company’s combined same-store sales climbed 11.7%, fueled in part by the rebound of its fine-dining business.
In the face of inflation and other economic uncertainty, Olive Garden’s parent company issued a mixed forecast for fiscal 2023.

An Olive Garden restaurant in Silverdale. Darden Restaurants, Inc. which owns Olive Garden and other restaurant chains is scheduled to report its fourth-quarter 2022 earnings on June 23.
Toby Scott | Lightrocket | Getty Images

Darden Restaurants’ quarterly earnings and revenue beat analysts’ expectations, shaking off inflationary pressures as diners returned to LongHorn Steakhouse and The Capital Grille.
In the face of higher costs and economic uncertainty, Olive Garden’s parent company issued a mixed forecast for fiscal 2023.

Shares of the company were up 5% in premarket trading on Thursday.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: $2.24 vs. $2.21 expected
Revenue: $2.6 billion vs. $2.54 billion expected

Darden reported fiscal fourth-quarter net income of $281.7 million, or $2.24 per share, down from $368.5 million, or $2.78 per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings per share of $2.21.
Net sales rose 14.2% to $2.6 billion, topping expectations for $2.54 billion. Across the company’s chains, same-store sales climbed 11.7%, fueled by the rebound of its fine-dining business.
Its fine-dining restaurants, which include The Capital Grille and Eddie V’s, reported same-store sales growth of 34.5%. The segment was hardest hit by the pandemic but its sales surpassed 2019 levels in the fiscal fourth quarter.

Olive Garden, which accounts for nearly half of Darden’s revenue, saw its same-store sales rise just 6.5% in the quarter. Wall Street was expecting same-store sales growth of 7.2% for the Italian-inspired chain, according to StreetAccount estimates.
Strong demand for LongHorn Steakhouse helped make up the difference. The steak restaurant chain reported same-store sales growth of 10.6%, beating analysts’ estimates of 5.6%.
For its fiscal 2023, Darden is expecting earnings per share from continuing operations of $7.40 to $8, falling short of analysts’ expectations of $8.11. The company is assuming that inflation will rise 6% in the new fiscal year. Its revenue outlook of $10.2 billion to $10.4 billion is in line with Wall Street’s estimates for $10.22 billion.
Darden is also expecting same-store sales growth of 4% to 6% and 50 to 60 new restaurant openings in fiscal 2023.
The company’s board authorized a new $1 billion share buyback program. It does not have an expiration date.

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Last week, Revlon filed for Chapter 11 bankruptcy protection, making it the first household consumer-facing name to do so in months.
Now the questions are: Which retailer will be next, and how soon?
After a nearly two-year reprieve, the retail industry could start seeing an increase in bankruptcies later this year, experts say.

Revlon makeup products are displayed at a CVS store on August 9, 2018 in Sausalito, California.
Justin Sullivan | Getty Images

The retail industry is up against a potential wave of bankruptcies following a monthslong slowdown in restructuring activity.
There could be an increase in distressed retailers beginning later this year, experts say, as ballooning prices dent demand for certain goods, stores contend with bloated inventory levels and a potential recession looms.

Last week, 90-year-old cosmetics giant Revlon filed for Chapter 11 bankruptcy protection, making it the first household consumer-facing name to do so in months.
Now the questions are: Which retailer will be next? And how soon?
“Retail is in flux,” said Perry Mandarino, co-head of investment banking and head of corporate restructuring at B. Riley Securities. “And within the next five years, the landscape will be much different than it is today.”
The industry had seen a dramatic pullback in restructurings in 2021 and early 2022 as companies — including those that had been on so-called bankruptcy watch lists — received relief from fiscal stimulus that offered cash infusions to businesses and stimulus dollars to consumers. The pause followed a flood of distress in 2020, near the onset of the pandemic, as dozens of retailers including J.C. Penney, Brooks Brothers, J. Crew and Neiman Marcus headed to bankruptcy court.
Including Revlon’s filing, there have been just four retail bankruptcies so far this year, according to S&P Global Market Intelligence. That’s the lowest number the firm has tracked in at least 12 years.

It’s not exactly clear when that tally could begin to grow, but restructuring experts say they’re preparing for more trouble across the industry as the all-important holiday season approaches.
An analysis by Fitch Ratings shows that the consumer and retail companies most in danger of default include mattress maker Serta Simmons, cosmetics line Anastasia Beverly Hills, skin-care marketing company Rodan & Fields, Billabong owner Boardriders, men’s suit chain Men’s Wearhouse, supplements marketing company Isagenix International and sportswear manufacturer Outerstuff.
“We have potentially a perfect storm brewing,” said Sally Henry, a professor of law at Texas Tech Law School and former partner at Skadden, Arps, Slate, Meagher & Flom LLP. “I wouldn’t be surprised to see an uptick in retail bankruptcies.”
Still, advisors who have worked on retail bankruptcies in recent years believe, for the most part, that any looming distress in the industry shouldn’t be as intense as the massive shakeout in 2020. Instead, bankruptcies could be more spread out, they said.
“What you saw in 2020 was a tremendous amount of restructuring activity getting pulled forward,” said Spencer Ware, managing director and retail practice leader at Riveron, an advisory firm. “Then we got from 2020 through today with a tremendous amount of stimulus. What’s going to happen now? It’s a bit of a mixed bag.”
A split in consumer behavior could make things more unpredictable. Americans with lower incomes have been particularly pinched by inflation while wealthier consumers keep splurging on luxury goods.
“We’re at a moment now we’re predicting what will happen next is far more complicated,” said Steve Zelin, partner and global head of the restructuring and special situations group at PJT Partners. “There are many more variables.”

The clearance rack at T.J. Maxx clothing store in Annapolis, Maryland, on May 16, 2022, as Americans brace for summer sticker shock as inflation continues to grow.
Jim Watson | AFP | Getty Images

The latest retail sales data shows where consumers are pulling back the most. Advance retail and food service spending fell 0.3% in May versus the prior month, the Commerce Department reported last week. Furniture and home furnishings retailers, electronics and appliances stores, and health- and personal-care chains all saw month-over-month declines.
“Consumers aren’t just buying less stuff, they are shopping less, which means a loss of the impulse-shopping moments that are critical to retail growth,” said Marshal Cohen, chief retail industry advisor at NPD Group, a market research firm.
In the first three months of 2022, consumers bought 6% fewer items at retail than they did in the first quarter of 2021, NPD Group said in a survey issued in late May. More than 8 in 10 U.S consumers said they planned to make further changes to pull back on their spending in the next three to six months, it said.

A race to stay ahead of rising rates

The threat of future rate increases — after the Federal Reserve last week raised benchmark interest rates three-quarters of a percentage point in its most aggressive hike since 1994 — has prompted retailers looking to tap the debt markets to accelerate those plans.
Riveron’s Ware said businesses had been racing to get in front of future rate increases. Some bought back debt or attempted to push out maturities. For example, department store chain Macy’s in March said it completed refinancing $850 million in bonds that were coming due in the next two years.
More recently, however, Ware said he’s noticed that refinancing activity over the past 12 months has begun to slow, with a bigger number of deals getting canceled or pulled. “It seems the window is closing for more difficult refinancing,” Ware said.
In late 2020, Revlon narrowly escaped bankruptcy by persuading bondholders to extend its maturing debt. But a little less than two years later, the company succumbed to a heavy debt load and supply chain issues that prevented it from fulfilling all of its orders.
As has always been the case, retailers that are grappling with the heaviest debt loads are going to be the most vulnerable to bankruptcy, said David Berliner, chief of BDO’s business restructuring and turnaround practice.
More distress could start to appear after the upcoming back-to-school shopping season, he added, after families return from long-awaited summer vacations and may be forced to tighten the belt.
A survey by UBS earlier this month found only about 39% of U.S. consumers said they plan to spend more money on the back-to-school season this year relative to the prior year, down from the number of people who said the same in 2021.
“Consumers are getting more stingy with their wallets,” Berliner said. “There are going to be the winners and losers like we always see. I’m just not sure yet how soon it’s going to happen.”
Berliner said he has been keeping a close watch on consumer debt levels, which are hovering near all-time highs.
“Consumers have been willing to spend on credit cards, on mortgages and on buy now pay later programs,” he said. “I’m afraid a lot of consumers are are going to be tapping out their credit cards and then they’re going to be forced into an abrupt pullback.”
If consumer spending slowed in that way, more retailers could be pushed into bankruptcy at a faster pace, Berliner said. But if spending stays at a reasonable clip, and consumers are able to reasonably pay off their debts, companies will instead “share a little bit of the pain” with fewer bankruptcy filings, he said.
Either way, Berliner said the distress will be greater among smaller retail businesses, particularly mom and pop shops, that don’t have as many resources to weather harder times.

Inventory levels on watch

Rising inventory levels are also on bankruptcy advisors’ radar because they have the potential to lead to much bigger problems. Retailers from Gap to Abercrombie & Fitch to Kohl’s have said in recent weeks that they have too much stuff after shipments arrived late and consumers abruptly changed what they were shopping for.
Target said earlier this month that it’s planning markdowns and canceling some orders to try to get rid of unwanted merchandise. As other retailers follow suit, profits are going to contract in the near term, said Joseph Malfitano, founder of turnaround and restructuring firm Malfitano Partners.
And when a retailer’s profit margins shrink as its inventories are reappraised — a routine practice in the industry — those inventories won’t be worth as much, Malfitano explained. A company’s borrowing base could fall as a result, he said.
“Some retailers have been able to cancel orders to not create more of a bubble on inventory. But a lot of retailers can’t cancel those orders,” Malfitano said. “So if the retailers that can’t cancel orders don’t knock it out of the park during the holiday season, their margins are going to go way down.”
“You’re going to have more problems in 2023,” he added.

Shoppers are seen inside a shopping mall in Bethesda, Maryland on February 17, 2022.
Mandel Ngan | AFP | Getty Images

Ian Fredericks, president of Hilco Global’s retail group, agreed that retail bankruptcies likely won’t pick up until 2023.
“Retailers aren’t in distress because they’re still sitting on a boatload of liquidity … between some cash that’s left on their balance sheet plus an undrawn revolver,” he said. “There’s still a lot of runway.”
That only means the upcoming holiday season, which every year is a vital span of time in the retail calendar for businesses to break even on profits, could be even more of a make-or-break moment for companies.
“I don’t see a big holiday spending season. I think people are going to really tighten up and buckle down,” Fredericks said. “Inflation is not going anywhere.”
One additional outcome of an economic slowdown could be an uptick in M&A activity across the retail sector, according to B. Riley Securities’ Mandarino.
Bigger retailers that are more financially stable may look to gobble up smaller brands, particularly when they can do so at a discount. They would use this strategy in tough times in order to keep growing revenues quarter after quarter, albeit inorganically, Mandarino said.
Home goods, apparel and department stores could face the most pressure in the months ahead, he added.
With Bed Bath & Beyond’s namesake banner underperforming in recent quarters, the retailer has faced pressure from an activist to hive off its Buybuy Baby chain, which is viewed as a stronger part of the business. Kohl’s, an off-mall department store retailer, also came under activist pressure to consider a sale and now is in exclusive deal talks with Franchise Group, the owner of Vitamin Shoppe. Franchise Group is considering whether to lower its bid for Kohl’s, a source told CNBC on Wednesday.
“It’s a buyers market,” Mandarino said. “Growth will not come organically when consumer spending goes down and if we go into a recession.”

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If there is one thing guaranteed to get Americans to stand to attention it is cheap Viagra. On June 2nd a firm owned by Mark Cuban, a billionaire investor (as well as a judge on “Shark Tank”, a tv show for budding entrepreneurs, and the owner of an nba basketball team), caused a stir by reducing the price of the blue pill—whose patent expired two years ago—from several dollars a pop to 11 cents. It was one of 87 drugs that the Mark Cuban Cost Plus Drug Company added to its growing assortment of cheap off-patent medicines. A new study finds that Mr Cuban’s prices might have saved Medicare, a federal health scheme for the elderly, $3.6bn on $9.6bn-worth of drugs it had bought in 2020. Drugs in America are notoriously dear. In 2019 spending on prescription medicines came to $1,126 per citizen, twice the figure in other rich counties (see chart). Critics like Mr Cuban seek to shake things up. He intends to offer thousands of cheaper drugs by the end of the year. His company buys these directly from manufacturers and sells them to consumers at cost, plus a 15% mark-up and a $3 pharmacy fee. The idea is to make drugs affordable to the 31m Americans who lack health insurance and the many more whose policies make them pay hefty fees for prescriptions. Patients have thanked him on social media for slashing the cost of drugs to treat conditions ranging from heartburn to cancer. Mr Cuban is not the only one to have lost patience with America’s current set-up. CivicaScript, from Lehi, Utah, is also trying to bring down the price of generics. In March it said it would manufacture a generic insulin at no more than $30 a vial, down from $300 for today’s branded versions. At the innovative, patented end of the market, meanwhile, eqrx and Checkpoint Therapeutics are developing new cancer and immunology drugs with the explicit intention of undercutting expensive existing therapies from big pharma.Competing on price seems like an obvious thing to try in America’s overpriced drug market. A lack of such competition suggests that obstacles get in the way. Some of these are practical. Certain off-patent drugs take years to copy, manufacture, test and win regulatory approval. Insulin, a complicated biological molecule, is one of them. Having borne the expense of copying and certifying its insulin, CivicaScript may find that the incumbents, which have long since recouped their development costs, simply lower the price of their branded products to undercut it instead. Ned McCoy, CivicaScript’s boss, insists this would make him happy; the firm’s goal, he says, is to bring about change in the market. The firm is set up as a public-benefit corporation that is not seeking profits but rather a “positive impact on society”. But it cannot do that if it goes out of business. In the American market for patented medicines, the drug’s inventor has a great deal of pricing power, which has driven prices higher. Developing new therapies is a costly gauntlet of research, clinical trials and regulatory hurdles. All too often it ends in failure. Risks can be reduced by picking well-understood diseases. Nevertheless, to succeed in the long run, eqrx will need to make up with volume what it forgoes on margins, observes Daniel Chancellor of Informa Pharma Intelligence, a research firm. The same applies to others who choose this model, like Checkpoint. Britain’s government has indicated that it would make large-scale purchases from eqrx’s pipeline of cancer drugs if those gain regulatory approval. Though this will not help American patients in the near term, it is good news for the company if it helps scale up production. The final wrinkle is that any medicine-seller who undercuts incumbents becomes a target for acquisition by them. It is easy to imagine a pharma giant launching a takeover bid for the firm, and if successful simply jacking up prices to what the market will bear—which in America is a lot more than what eqrx wants to charge. After buying a biotech startup that had developed a hepatitis drug in 2011, one big drugmaker, Gilead, charged much more for the treatment than its target had planned. On June 13th Goldman Sachs, an investment bank, noted that the market was undervaluing the drugs being developed by eqrx. On the topic of being acquired, eqrx’s boss, Melanie Nallicheri, remarks cryptically that the firm has put thought into how “not to let that happen”, but declines to give details. Mr Cuban shares the sentiment: “I don’t have a reason to sell…I can afford to absorb the losses that come from starting the company.” CivicaScript, too, has made itself an unattractive investment by ceding control over a lot of what it can do to a second non-profit sister company, Civica. The poison pill, it seems, has a place in the pharma business. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More