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Target’s Plunge Exposes Inflation’s Risk To Margins

Target’s Plunge Exposes Inflation’s Risk To Margins

By Justin Zacks, Bloomberg Markets Live commentator and analyst

While share prices of…

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Target's Plunge Exposes Inflation's Risk To Margins

By Justin Zacks, Bloomberg Markets Live commentator and analyst

While share prices of retailers have been all over the map in 2022, this week’s post-earnings plunges in Target and Walmart are highlighting the damage inflation can do to profit margins. Still, the exact influence of inflation on retailers depends on what they sell, who they are selling to and the methods they are using to do so. This influence will change as consumer demand and supply chains adapt.

[ZH: Top-down, producers have still not passed along prices to consumers, with huge aggregate pressures building]

Among chain stores in the S&P 500, only Dollar Tree (+15%) and Walmart (+2.4%) had positive returns year-to-date before Tuesday. The two worst-performing retailers were ecommerce sites Amazon.com (-34%) and Etsy (-60%).

This rotation by investors generally was based on two themes, the switch from online to bricks-and-mortar retailers due to the continued economic reopening following the waning of Covid-19 cases and the expectation that consumers would shift to lower-priced goods due to high inflation.

New York City raising its Covid-19 alert level to high on Tuesday is a warning that the pandemic (along with online retailing) might not be over yet, while Tuesday’s disparate results from the two largest brick-and-mortar retailers in the US, Walmart and Home Depot, are examples of how the effects of inflation are not the same across the board.

Walmart fell 11% Tuesday, the most in 35 years, after it sliced its 2022 outlook due to inflationary pressures. Its first-quarter gross profit rate was 38 basis points lower than the previous year as customers shifted to buying lower-margin groceries.

Target plunged 22% in premarket trading on Wednesday after lowering its operating margin outlook for the full year. Similar to Walmart, the big-box department-store chain saw strong demand for groceries and household essentials at the expense of discretionary categories in the first quarter.

“The Fed is very concerned about your lower and middle income persons who are struggling with higher inflation,” Dana Peterson, chief economist at the Conference Board, said in a Bloomberg TV interview Tuesday.

She noted that “in the present situation, people are still pretty optimistic,” but are “concerned about the economy in the future as they see higher interest rates and inflation affecting consumption” which “may bleed over into their labor market prospects.”

The large retailers themselves are already seeing overstaffing issues, according to Business Insider.

On Tuesday, Federal Reserve Chair Jerome Powell said the Fed will continue to raise rates until there is “clear and convincing” evidence that inflation has abated. Just how severe the effects of inflation have been on lower-income consumers will be further tested next week as Dollar General and Burlington Stores report earnings.

Meanwhile, Home Depot closed higher by 1.7% on Thursday after reporting first-quarter comparable sales that exceeded the average analyst estimate. While customer transactions were down 8.2% year-on-year, the home-improvement retailer more than made up for that with an 11.4% increase in the average ticket.

Price is less of an issue for Home Depot’s customers than for Walmart’s, which tend to skew toward the lower end of the income distribution. But while the home-improvement retailer’s outlook is strong, its sales growth did not outpace inflation.

Competitor Lowe’s, which is positioned slightly down the income spectrum and which doesn’t have as big of a professional-contractor business as Home Depot, is trading lower in the premarket after reporting worse-than-expected first-quarter comparable store sales.

“Its about what strata of consumer you are talking about,” Bloomberg Intelligence analyst Jennifer Bartashus said in a Bloomberg TV interview Tuesday. Consumers that have the discretionary income to spend are still spending,” she said.

“When I look at the consumer landscape, I just see a bifurcation happening that is probably set to continue over the short term,” noted Bartashus.

Consumers with incomes on the high end of the spectrum are less sensitive to inflation and are ready to spend after being cooped up at home during the various waves of the coronavirus pandemic over the past two years.

“We are expecting a big summer season of vacation,” Telsey Advisory Group CEO Dana Telsey said in a Bloomberg TV interview Tuesday. And after Covid-19 delays, there will be 2.6 million weddings with the average attendee spending $430 in 2022, she noted.

Telsey expects “the luxury good universe will do very well,” as Asian travelers return to the US once Covid-19 restrictions are lifted.

Two of the largest US luxury-goods manufacturers, Estee Lauder and PVH Corp., are both down about 35% year-to-date due to the lack of a rebound in international tourism.

April US retail sales were better than expected, but overall those sales have failed to keep up with inflation, perhaps one of the reasons the VanEck Retail ETF is down 16.5% year-to-date. Stagflation concerns and negative sentiment led Goldman Sachs strategists to lower their short-term outlook for global equities Tuesday.

Tyler Durden Wed, 05/18/2022 - 09:45

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Economics

Expert on Bath & Body Works: ‘an easy double the next three years’

Bath & Body Works Inc (NYSE: BBWI) might have been painful for the shareholders this year, but the road ahead will likely be a rewarding one, says…

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Bath & Body Works Inc (NYSE: BBWI) might have been painful for the shareholders this year, but the road ahead will likely be a rewarding one, says the Senior Vice President and Portfolio Manager at Westwood Group.

BBWI separated from Victoria’s Secret

The retail chain separated from Victoria’s Secret in 2021, which, as per Lauren Hill, clears the way for a 100% increase in the stock price in the coming years. On CNBC’s “Closing Bell: Overtime”, she said:

[Bath & Body Works] has really strong pricing power. They have 85% of their supply chain in the United States and with the Victoria’s Secret brand now gone, I think it’s a wonderful buy; an easy double the next three years.

Last month, the Columbus-headquartered company reported results for its fiscal first quarter that topped Wall Street expectations.

Bath & Body Works is a reopening play

The stock currently trades at a PE multiple of 6.64. Hill is convinced Bath & Body works is a reopening name and will perform so much better as the world continues to pull out of the pandemic. She noted:

Customers have missed buying their scented products in store and as their social occasion calendars fill up, they are getting back out there and buying more gifts, including Bath & Body Works products.

Hill also dubbed BBWI a great pick amidst the ongoing inflationary pressures because of its reasonably priced products. Shares are down more than 50% versus the start of 2022.

The post Expert on Bath & Body Works: ‘an easy double the next three years’ appeared first on Invezz.

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Economics

Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Authored by Naveen Anthrapully via The Epoch Times,

A…

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Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Authored by Naveen Anthrapully via The Epoch Times,

A majority of C-suite executives are considering leaving their jobs, according to a Deloitte survey of 2,100 employees and C-level executives from the United States, Canada, the UK, and Australia.

Almost 70 percent of executives admitted that they are seriously thinking of quitting their jobs for a better opportunity that supports their well-being, according to the survey report published on June 22. Over three-quarters of executives said that the COVID-19 pandemic had negatively affected their well-being.

Roughly one in three employees and C-suite executives admitted to constantly struggling with poor mental health and fatigue. While 41 percent of executives “always” or “often” felt stressed, 40 percent were overwhelmed, 36 percent were exhausted, 30 percent felt lonely, and 26 percent were depressed.

“Most employees (83 percent) and executives (74 percent) say they’re facing obstacles when it comes to achieving their well-being goals—and these are largely tied to their job,” the report says. “In fact, the top two hurdles that people cited were a heavy workload or stressful job (30 percent), and not having enough time because of long work hours (27 percent).”

While 70 percent of C-suite execs admitted to considering quitting, this number was at only 57 percent among other employees. The report speculated that a reason for such a wide gap might be the fact that top-level executives are often in a “stronger financial position,” due to which they can afford to seek new career opportunities.

Interestingly, while only 56 percent of employees think their company executives care about their well-being, a much higher 91 percent of C-suite administrators were of the opinion that their employees believe their leaders took care of them. The report called this a “notable gap.”

Resignation Rates

The Deloitte report comes amid a debate about resignation rates in the U.S. workforce. Over 4.4 million Americans quit their jobs in April, with job openings hitting 11.9 million, according to the U.S. Department of Labor. In the period from January 2021 to February 2022, almost 57 million Americans left their jobs.

Though some are terming it the “Great Resignation,” giving it a negative connotation, the implication is not entirely true since most of those who quit jobs did so for other opportunities. In the same 14 months, almost 89 million people were hired. There are almost two jobs open for every unemployed person in the United States, according to MarketWatch.

In an Economic Letter from the Federal Reserve Bank of San Francisco published in April, economics professor Bart Hobijn points out that high waves of resignations were common during rapid economic recoveries in the postwar period prior to 2000.

“The quits waves in manufacturing in 1948, 1951, 1953, 1966, 1969, and 1973 are of the same order of magnitude as the current wave,” he wrote. “All of these waves coincide with periods when payroll employment grew very fast, both in the manufacturing sector and the total nonfarm sector.”

Tyler Durden Sat, 06/25/2022 - 20:30

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Spread & Containment

Optimism Slowly Returns To The Tourism Sector

Optimism Slowly Returns To The Tourism Sector

Coming off the worst year in tourism history, 2021 wasn’t much of an improvement, as travel…

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Optimism Slowly Returns To The Tourism Sector

Coming off the worst year in tourism history, 2021 wasn't much of an improvement, as travel remained subdued in the face of the persistent threat posed by Covid-19.

According to the United Nations World Tourism Organization (UNWTO), export revenues from tourism (including passenger transport receipts) remained more than $1 trillion below pre-pandemic levels in 2021, marking the second trillion-dollar loss for the tourism industry in as many years.

As Statista's Felix Richter details below, while the brief rebound in the summer months of 2020 had fueled hopes of a quick recovery for the tourism sector, those hopes were dashed with each subsequent wave of the pandemic.

And despite a record-breaking global vaccine rollout, travel experts struggled to stay optimistic in 2021, as governments kept many restrictions in place in their effort to curb the spread of new, potentially more dangerous variants of the coronavirus.

Halfway through 2022, optimism has returned to the industry, however, as travel demand is ticking up in many regions.

You will find more infographics at Statista

According to UNWTO's latest Tourism Barometer, industry experts are now considerably more confident than they were at the beginning of the year, with 48 percent of expert panel participants expecting a full recovery of the tourism sector in 2023, up from just 32 percent in January. 44 percent of surveyed industry insiders still think it'll take until 2024 or longer for tourism to return to pre-pandemic levels, another notable improvement from 64 percent in January.

Tyler Durden Sat, 06/25/2022 - 21:00

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