Retail stock prices have fallen sharply as almost every retailer has issued cautionary guidelines due to supply chain problems and increased costs. Retailers, including Walmart (WMT) – Take Walmart Inc. ReportPurpose (TGT) – Get a report from Target CorporationAmazon (AMZN) – Get Amazon.com Inc. Reportand Costco (PRICE) – Get a report from Costco Wholesale Corporation everyone has seen their stock prices fall.
Dedicated shares, for example, have fallen nearly 40 percent since the beginning of the year, with most of the decline coming after the company reported first-quarter earnings. CEO Brian Cornell commented on how his company was presented in a press release.
“Guests continue to depend on our wide and affordable range of products, as reflected in the growth of guest traffic for the first quarter of nearly 4%. “Throughout the quarter, we faced unexpectedly high costs driven by a number of factors, which led to profitability that came well below our expectations and well below what we expect to work over time,” he said.
The company also revised its forecast for 2022, reducing its expected operating margin by 8% when reporting fourth-quarter results to “operating income margin will be in a wide range, centered around an operating margin for the first quarter of 5.3 percent “.
This is a rather modest change given the uncertain market, but investors did not like the news.
Target’s forecast is similar to its rivals
Shares of Amazon also fell in 2022, falling about 37% since the beginning of the year. This is not because the company has lost market share or seen its customer base go elsewhere, but because it is honest in telling investors that it will not be as profitable given current market conditions.
CEO Andy Jasi noted that unique market conditions have led the company to have higher costs in his remarks in Amazon’s first-quarter earnings announcement.
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Our consumer business has been growing at 23% per year for the past two years, with tremendous growth in 2020 of 39% on an annual basis, forcing us to double the size of our performance network we built in Amazon’s first 25 years – and it did in just 24 months. Today, as we no longer pursue physical or personal capacity, our teams are fully focused on improving productivity and cost-effectiveness throughout our implementation network. We know how to do this and we have done it before. This may take some time, especially as we work through the current pressures of inflation and the supply chain, but we are seeing encouraging progress on a number of customer experience dimensions, including delivery speed, as we are now approaching levels not seen in the months before the pandemic. in early 2020
It generally costs money to increase your customer base and capacity and these costs have been consolidated in a very short period of time. It should be noted that Amazon has always been ready to make an accelerated investment in its future at the expense of short-term profits.
This can create uneven results, but allows the company to make more money in the future. Amazon’s CEOs, whether they are Jesse or founder Jeff Bezos, have never made it to the quarter, instead they are making the right decision for long-term growth, and that’s actually a positive thing for investors.
Walmart has also invested heavily in building its supply chain in recent years, though not as aggressively as Amazon. Costco should not have done this, as it can further develop its supply chain, as its business is largely run by members who visit its warehouses.
However, Costco has grown membership base and improved its already excellent retention rate.
Amazon, Walmart, Target, Costco are positioned as long-term winners
Higher labor costs, higher supply prices and other inflation concerns are affecting all retailers. As an investor, ask yourself which companies will be best able to alleviate these problems? Will supermarket chains and retailers be much smaller than Walmart, Costco, Target and Amazon, or the largest companies that have invested the most in cost management and refining their supply chains?
Even in a recession, people have to eat and will shop from the best retailers. Target, Walmart, Amazon and Costco have done their best to offer the best prices, regardless of market conditions.
Currently, all four have chosen to bear some of the higher costs instead of passing them on to their customers. This is an investment in serving their customers and a growing market share. Making less money for a few quarters in historically unprecedented times does not reflect the weakness of these companies, but actually shows their strength as a long-term investment.