Cedar Grove Capital Management

Share this post

It's All About "Perspective"

www.cedargrovecm.com
Chart of the Week

It's All About "Perspective"

Why looking under the hood on retail names is incredibly important

Paul Cerro
Aug 29, 2022
3
Share this post

It's All About "Perspective"

www.cedargrovecm.com
Source: Company financials, Koyfin.

The going trend on every investor’s mind in a post-pandemic world is, how have companies been able to weather the storm of inflationary pressure on consumers.

Given COVID pushed more money into consumers’ bank accounts (stimulus + saving) and increased the time it takes for freight shipments to make it to their destination, companies decided to take drastic measures. They started front-loading to make sure they would have inventory as seasons approached.

However, what they didn’t anticipate was the shift in consumer spending from hard goods to services/experiential. This has led to a slowdown in sales growth but an increase in inventory since they haven’t been able to turn them over as fast.

Above are 12 companies that operate in different areas of the consumer space and how they’ve seen inventory levels jump in comparison to sales growth.

Even looking at a 3-year stack, some companies have had their inventory jump by multiples of their sales growth.

These trends should be alarming for any investor suggesting 2 things:

  1. Consumers might be pulling back on spending though retail sales, in general, are still doing very well, or

  2. Companies have had poor inventory planning management and will have to continue heavily discounting merchandise to move it out the door directly putting pressure on margins for longer than expected

As earnings continue to roll out, investors should continue monitoring the situation but be cautious in the modeling of outcomes. We’ve already seen WMT and TGT make inventory comments twice. Patience is key.

Share


Until next time,

Paul Cerro | Cedar Grove Capital

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm

Like what you read? Subscribe to get premium C&R research straight to your inbox.


Disclaimer
All information provided herein by Cedar Grove Capital Management, LLC (“Cedar Grove Capital”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.
Cedar Grove Capital may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. Cedar Grove Capital may buy, sell, or otherwise change the form or substance of any of its investments. Cedar Grove Capital disclaims any obligation to notify the market of any such changes.
The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Cedar Grove Capital. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Cedar Grove Capital which are subject to change and which Cedar Grove Capital does not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment.
Share this post

It's All About "Perspective"

www.cedargrovecm.com
Previous
Next
Comments
TopNewCommunity

No posts

Ready for more?

© 2023 Paul Cerro
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing