A brain surgeon is not needed to pull out a host of negative results from Target and Walmart this week and conference calls.
Although they all come to the same conclusion: consumers are being hit financially by inflation and the economy is slowing down much faster than Wall Street economists have factored in their 500-step multi-factor models.
“It’s been a wild 48 hours at retail,” said Jeffreys analyst Steve Wisink on Yahoo Finance Live (video above). “We heard from Walmart yesterday and from Target today. One of the things that stands out to us is the general pattern. We see that both companies indicate that their stores are seeing strong traffic as opposed to e-commerce. Both are seeing high costs to run.” Their business. Consumers are moving more towards what they need as opposed to prudent products. “
“The last thing is not going to go down anytime soon,” Wisink added. “There has been a lot of talk among investors that inflation has probably peaked for consumers, but these firms are giving us a very different signal that we are still seeing costs rise more than prices.”
Wild can even be an underestimation. The two retailers have spent more than 65 billion on combined market caps over the past two sessions as investors re-rated both stocks for the weaker quarters ahead.
Walmart and Target’s poorer quarters have seen big sell-offs at other household name retailers such as Best Buy, Dollar General, Dollar Tree and Costco.
Here are three takeaways that caught our analytics attention at Yahoo Finance.
1. Inflation is out of control
Both Walmart and Target have seen severe margin pressures as inflation in the supply chain descends into the financial statements. Discounters were caught not raising prices fast enough to close the ugly tent of inflation.
Brian Cornell, chairman and CEO of Target, told Yahoo Finance, “We never expected the kind of increase in freight and transportation we see right now.” Target estimates that this could see an additional $ 1 billion in freight and transportation costs this year, coupled with near-record-high fuel and diesel prices.
The theme of inflation was similar at Walmart.
“We still feel great about the company’s business model. I feel good about the year. We’re working on some issues we haven’t tackled before, and we’ll work our way through it,” Walmart CFO Brett Biggs admitted in an interview with Yahoo Finance. Has done.
2. Inflated inventory
Both retailers saw more than 30% inventory balloons in the first quarter, which reflects price increases by sellers but consumers have returned from prudent purchases such as home products.
Walmart noted that the general merchandise markdown was $ 100 million more than expected.
“Most of the increased inventory and related costs have been related to buying in the last few quarters with a deep focus on in-stock, and we are now in a short period of time to acquire it.” Give us confidence in efficiency, “Biggs told analysts at the earnings call.
Analysts say it will take retailers a few quarters to work through their additional inventories, pushing further margins into the process.
3. Prices are rising
Walmart and Target will now push buyers toward inflation by raising prices where they can resist inflation. They both deal with their confidence as they choose to embark on their play activities.
“First, we will try to keep costs down with suppliers – but if prices go up in a certain way, we have to take prices. [up] In the items, “Biggs explained.
“We have to make sure we don’t lose our standard positioning,” said Col. Target. “So we’re selectively and surgically running costs in certain areas where the prices of our products have skyrocketed, but from a freight perspective, we need to look at other ways to improve our operations.”
Brian Suzy A great editor and Yahoo is anchored in finance. Follow Suzy on Twitter @ Briansoji And then LinkedIn.
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