📦 Retail’s inventory glut

Thursday, May 26, 2022 by Robinhood Snacks |
Clear eyes, full aisles… (Joe Raedle/Getty Images)

Clear eyes, full aisles… (Joe Raedle/Getty Images)

Yesterday’s Market Moves
Dow Jones
32,120 (+0.60%)
S&P 500
3,978 (+0.95%)
Nasdaq
11,435 (+1.51%)
Bitcoin
$26,685 (+0.62%)

Hey Snackers,

Beyond Meat hired Kim Kardashian as its “chief taste consultant” this week — a dramatic (and likely pricey) bid to reverse slumping sales. But the move may’ve flopped after social-media sleuths noticed Kim didn't seem to actually bite into any Beyond products in its latest ad.

Stocks closed higher yesterday after the Fed indicated it’s prepared to move ahead with more rate hikes to tame inflation. The major indexes are on track for a rare week in the green.

Stocked

1. Retailers have gone from having too little inventory to too much — that’s bad for profits, but good for consumers

Wedding tuxes and golf clubs… Americans are stocking up ahead of the first summer with (mostly) no Covid restrictions. Yesterday, shares of Nordstrom and Dick’s Sporting Goods jumped 10%+ as IRL and outdoor events pushed their sales above pre-pandemic levels. But both Nordie and Dick’s also reported higher inventories, a theme in recent retail earnings:

  • Stuffed stockrooms: Shares of Walmart and Target tanked last week, partly because of their bloated inventories. Walmart's inventory was up 33% and Target’s was up 43% from a year earlier.

New luggage > 100-piece puzzles… When the first wave of the pandemic caused a collapse in demand for discretionary goods (think: TVs, appliances), retailers stopped taking new orders and factories halted production. But as demand quickly snapped back, stores rushed to stock up on those items.

  • Problem 1: The global supply chain wasn't ready, which caused shipments to miss their window altogether (think: snowblower deliveries in April).
  • Problem 2: Now stores are stocked to the brim, just as inflation-weary shoppers are shifting their spending habits toward lower-cost (and lower-margin) essentials like groceries.
THE TAKEAWAY

It’s the “bullwhip effect” in action... aka: when distortions in demand cause companies to order too much too late. While retailers risk losing billions of dollars in sales from sitting on excess supply, widespread markdowns could cool inflation by making goods more affordable for price-sensitive shoppers. Now all eyes turn to Costco's earnings today: the wholesaler keeps inventories slim on purpose, so any mention of a glut in supply could signal a wider problem for the retail industry.

Comp

Can't do this one on TurboTax... The median pay for CEOs of America's largest companies hit a record $14.7M last year (nine chief execs got packages worth $50M+). That was a year when the S&P 500 rose 27%, which translated to big shareholder returns. Now the S&P is down 18% for the year, and investors are protesting meaty exec-pay packages.

  • "Say on pay" votes are mandatory for large public US companies. But historically it's rare to get less than 90% support on exec-pay votes (which, BTW, are nonbinding).
  • This year investors have said "nah" to pay packages at dozens of major US companies, including for JPMorgan's Jamie Dimon and Intel's Pat Gelsinger (two-thirds of investors voted down his $178M comp package). Coke barely made it with 50.5% support.
  • Amazon and Meta held their annual "say on pay" votes yesterday. The results: Amazon shareholders greenlighted comp for six execs, including new CEO Andy Jassy. Ditto Meta.

Eyes on the price... While tech stocks are leading the market plunge, tech-exec comp has never been higher. But it's not all cash $$: about two-thirds of CEO comp is made up of stocks or equity awards, which usually vest over years. The idea: CEOs will work harder to boost shareholder value if their pay is directly tied to their company's stock price (but it doesn’t always work that way).

  • For the 25 top-paid CEOs, cash accounted for just one-fifth of their comp. The median cash compensation (think: salary, bonuses) was "just" $4M.
THE TAKEAWAY

It's not just about falling stock prices... Exec-pay scrutiny is part of a wider movement where investors seek progress from leaders on environmental, social, and governance issues. For example, Amazon investors challenged the company not only on exec pay but also on working conditions, climate impact, and tax transparency. But shareholders rejected all 15 proposals.

What else we’re Snackin’

  • Pause: Lyft plans to halt some hiring and cut budgets to prop up its tumbling stock price, following similar plans by Uber. Lyft shares are down 60% this year, twice as much as the Nasdaq.
  • Coin: Bitcoin is down 36% this year as the wider crypto-sphere sees a pullback from riskier assets. But that didn’t stop VC giant Andreessen Horowitz from starting a new $4.5B crypto fund to hunt for bargains.
  • Bittersweet: Coke's doubling down on its sweet spot: the beverage behemoth said it would discontinue its Honest Tea brand to focus on better-selling drinks. Coke axed its Tab, Odwalla, and Zico brands in 2020.
  • Shipped: It’s a good time to be a logistics startup: Mexico’s Nowports — a freight-forwarding company — became the latest supply-chain disruptor to hit unicorn status after raising $150M this week.
  • Fizzle: Pepsi will stop sponsoring the Super Bowl’s halftime show, though it will continue its partnership with the NFL. Pepsi plans to shift its focus to digital ads, where it hopes to reach more future soda-sippers.

Snack Fact of the Day

This year Americans are spending an average of $825 to be in a wedding party

Thursday

  • Jobless claims
  • Economic data from the first quarter
  • Earnings expected from Costco, Gap, Dell Technologies, Macy’s, TD Bank, Jack in the Box, American Eagle, Ulta Beauty, Dollar Tree, and Dollar General

Authors of this Snacks own shares of Amazon, Bitcoin, Uber, and Walmart

ID: 2219382