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Wednesday, March 8, 2023
Today's newsletter is by Myles Udland, Head of News at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo Finance App.
The retail business is simple — buy from wholesalers, sell to consumers, pocket the difference.
In exchange for capturing this difference between the wholesale and retail cost of goods, retailers take on the financial risk of fronting money to one party while working to make it back and then some from another.
At the scale of the U.S. consumer economy, the differences between an additional week in a quarter, an additional weekend in a month, or even an additional day in a year can be millions of dollars or more.
And if the timing of a day or two can disrupt the financial fortunes of a business — meaning there can be just hours between profits and losses — then one can imagine the challenges faced by retailers during the supply chain disruptions that results from the pandemic.
In 2021, the story was that retailers were unable to match consumer demand as the economy re-opened. In 2022, supply chains that got unstuck eventually left retailers with more stock than they needed.
As 2023 gets underway, retailers are suggesting the balance may finally be just right.
Sporting goods retailer Dick's Sporting Goods (DKS) reported fourth quarter results Tuesday morning that impressed investors, with shares rising 11% after the company offered a full-year earnings forecast well above expectations. And driving this profit forecast were inventories that are in "great shape" ahead of the company's busy spring season.
"As planned, we continued to address targeted inventory overages, and as a result our inventory is in great shape as we start 2023. We couldn't be more excited about our spring assortment," said Lauren Hobart, president and CEO.
Dick's CFO Navdeep Gupta added on a call with analysts Tuesday morning, "We were chasing inventory last year amidst industry-wide supply chain disruptions. ...Compared to Q4 of 2019, a 38% increase in sales was well ahead of our 29% increase in inventory. Our inventory is healthy and well positioned."
Looking at economy-wide data, we can see inventory-to-sales levels are still depressed relative to pre-pandemic levels. Though this measure is in part driven by strong sales, which keeps the ratio of inventories to sales low.
Still, comments from Dick's were the latest echo of a refrain heard often from the industry as retail results have poured in over the last few weeks. And that refrain says the industry is finally finding something like a "normal" setting after three pandemic-altered years.
Back in late February, Walmart (WMT) CEO Doug McMillon said his team, "acted quickly and aggressively to address the inventory and cost challenges we faced last year."
"We ended the quarter with inventory about flat to last year which is better than we anticipated and even better when you consider how inflation lifts that number," McMillon added on a call with analysts. "And [we] did it while improving in-stock levels."
McMillon added: "And so as we look at where we are today with much better position around inventory...I feel like this year will be more of a normal environment for markdowns or certainly more normal than what it was last year."
The company did, however, say there was "work to be done" on its apparel inventory levels.
But clothing retailers Macy's (M) and Nordstrom (JWN) both indicated in their latest reports inventory levels continue to improve.
"Despite an increasingly volatile macroeconomic climate, through the ongoing execution of our Polaris strategy, we remained agile, pivoted to meet customer demand and elevated our approach to inventory management,” said Jeff Gennette, Macy's chairman and CEO. "In the fourth quarter, we benefited from our disciplined inventory approach."
The company reported inventory levels that were down 3% from last year and said, "Inventory productivity continues to be a focus for the company in 2023 and beyond."
Nordstrom, for its part, said inventory levels were down 15% from last year and at levels similar to those that prevailed in 2019, the last year before the pandemic.
"We took decisive actions to right-size our inventory as we entered the new year, positioning us for greater agility amidst continuing macroeconomic uncertainty," said CEO Erik Nordstrom.
What to Watch Today
Economy
MBA Mortgage Applications
ADP Employment Report, February
Balance of Trade, January
Job Openings and Labor Turnover Survey, January
Federal Reserve Chair Jerome Powell testifies before House Financial Services Committee
Federal Reserve Beige Book
Earnings
Campbell Soup (CPB); Brown-Forman (BF-B); Korn/Ferry (KFY); MongoDB (MDB); The Children's Place (PLCE); United Natural Foods (UNFI)
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