June 13, 2024

Walmart and Target: Retailers offer a new verification of markets and show that inflation in the United States is a barrier to consumption.

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The reaction of the markets to the Walmart and Target decisions in the first three months of this year is a testament to the fact that the quarterly balance sheet speaks not only about the financial health of a company but also about the economy as a whole. In this case, the world’s largest economy. Stock markets have not been weakened today by rising prices in the United States and signs by the Federal Reserve that interest rates may rise to curb inflation if necessary. This is because retailers ‘results indicate that this may be true, indicating that Americans’ purchasing power is deteriorating.

“American consumers are suffering from inflation, and I and many others have not even bought the daily basics of shopping at Target. This is the biggest red flag for the U.S. economy,” said James Collins, an analyst at Omrichurch. Moreover, although the frequency of consumers in the company’s stores has grown during this period, the amount they have spent has decreased.

Target’s dollar sales increased by $ 950 million from one year to the next, but the company’s expenses soared to $ 1.75 billion. Conclusion: The company’s total range narrowed 430 basis points to 25.7%.

“During the quarter, we encountered unexpectedly high costs, driven by a number of factors, resulting in profits falling short of our expectations and over time where we expect to operate,” said Brian Cornell, the company’s CEO. , In the speech that came with the results.

Costs quoted by Cornell include commodity and supply chain disruptions, as well as increased wages and staffing at the company’s distribution centers – the labor market inflation that the central bank has always emphasized in its speeches.

“Even in the United States, where retail is strong, rising costs are beginning to affect consumer behavior and wholesale margins,” says Credit Suisse Retailers Performance Analysis. Walmart’s profits fell 24.8% on Tuesday, and margins pressured by inflation. The company was unable to pass on the increase in costs with suppliers to the end customer.

“In the context of inflation, it is clear that spending increases cannot be fully met, that is, the consumer will not be able to pick it up in the end. Therefore, we need lower margins and lower consumption. In fact, the way to reduce inflation goes through this,” XP analysts wrote.

“As inflation knocks on consumers’ doors, the search for more ‘affordable’ products has become an endless hunt in major US markets,” says an analysis by Levante Ideia de Investimentos. In Eastern Europe, the conflict between Ukraine and Russia exacerbated prices Ingredients. Therefore, Walmart felt the impact on consumer prices that often come to supermarkets and target stores.

Morgan Stanley explains that inflation not only reduces the purchasing power of consumers, but also alters the nature of consumption and negatively affects preferred products. This comes at a time when companies are increasing their inventory, believing demand demand levels for the fourth quarter of 2021 will be in the coming months. “Companies do not want to risk losing products and losing sales,” says Morgan Stanley Analysis. Until then, the risks of overcrowding were low.

But sales were slow and retailers, in Morgan’s view, underestimated the reversal of demand – with high inflation, consumers stopped looking for non-essential goods. On the other hand, the rapid rise in fuel prices pushed up retailers’ costs. Soon, companies were forced to cut prices to burn inventory and create space to sell essential goods.

After the stock market crash, pulling the overall market together, retailer shares are facing further turmoil in Levante’s valuation. “We believe that the share prices of these companies may be negatively impacted in the long run because of high inflationary pressures affecting their costs / expenses, which will continue to shrink as companies are unable to overcome the prices of their products. Their margins and profits.”

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