The decade's most triggering comedy
Retail and food services sales for the month of July remained virtually unchanged from June, according to a Wednesday report from the Census Bureau, reflecting a Consumer Price Index (CPI) that remained flat during the same period. As year-over-year inflation nevertheless remains at 8.5% — continuing to rival four-decade highs — retailers are witnessing disruptions in consumer behavior and adjusting their business practices in response.
Target, for instance, reported a 90% decline in quarterly profits from last year, which occurred amid the company’s decision to mark down unwanted inventory ahead of the holiday season.
“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Target CFO Michael Fiddelke told reporters, per CNBC. “While our quarterly profit took a meaningful step down, our future path is brighter.”
According to Target CEO Brian Cornell, the company is prioritizing food, household items, and other inventory with a high turnover rate — even canceling $1.5 billion in orders for goods with lower demand.
Meanwhile, home improvement retailer Home Depot reported a 6.5% rise in profits from the second quarter of fiscal year 2021.
“Our performance reflects continued strength in demand for home improvement projects,” Home Depot CEO Ted Decker said in a statement. “Our team has done a fantastic job serving our customers, while continuing to navigate a challenging and dynamic environment.”
Walmart likewise saw sales that exceeded analysts’ expectations, even as inflation eroded profit margins. In an interview with CNBC anchor Courtney Reagan, Walmart CEO Doug McMillon explained that Walmart is growing its consumer base by attracting wealthier families struggling to contend with higher prices at competing retailers.
“It’s a conflicting period in terms of the data. If you look at what’s happening across categories and across income levels, inflation is having an impact particularly for those who don’t have as much money,” McMillon said. “So we see them behaving in different ways. … Higher income families are shopping at Walmart because they’re so price sensitive right now. We shared earlier this morning that families making more than $100,000 in household income have driven a lot of our growth during this last quarter.”
Likewise, McMillon — whose company boasts 1.6 million domestic employees and remains the largest private employer in the United States — said that wage inflation will endure indefinitely.
“We’ve raised our wages, which we’re happy to do … that creates a new level of which pricing has to be adjusted to reflect,” he commented. “So I think there’s some level of inflation that’s going to be with us basically forever. Hopefully we’ll see food inflation in particular improve as we go through next year.”
The earnings reports came as President Joe Biden signed the Inflation Reduction Act — a $740 billion piece of legislation based primarily upon climate and tax provisions. According to a recent analysis from the Tax Foundation, the 15% book minimum tax provision enacted by the law will cost retail companies $3.5 billion.
“The book minimum tax affects industries very differently, some of which may be unintended, reflecting a tax proposal that has not been fully vetted,” the analysis observed.