Retail sales have spiked over the last few months. You would think that would be great news for retailers, right?
Not so fast.
Revenues are, in fact, up for the big retailers.
Target (TGT) reported revenue of $25.2 billion in Q1. That was 4% higher than the stimulus-fueled first quarter of last year. Walmart (WMT) also reported a healthy year-over-year increase in revenue of 2.4%.
People like Elizabeth Warren point to surging revenue and claim that these big corporations are gouging customers with price increases, generating big profits. But revenue does not equal not profit. Revenue is the gross amount of money the company brought in. When you factor in surging costs, retailers are getting squeezed.
Target reported that its product costs jumped by 10.4%. Meanwhile, its selling and administration expenses rose by 5.6%. As a result, operating income fell by 43%, and its operating margin (operating income divided by revenues) came in low – 5.3%. That compares to 9.9% a year ago.
“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” the earnings release said.
Peter Schiff mentioned Target’s woes during an interview on NTD News.
Earnings are collapsing because Target customers are spending all their money on food. And Target doesn’t make big profits selling food. It makes profits selling other goods that Americans are now too poor to afford. And so the bad news is Target has to really raise prices even more, especially for food.”
Walmart faces a similar struggle. Its cost of sales rose 3.5%. Operating, selling, and administrative expenses rose 4.5%. Operating income plunged 23%, while net income plunged by 25%.
Walmart reported that its gross profit decline was due to “elevated supply chain costs and product mix,” with some customers shifting to lower-end products. Operating expenses increased “primarily due to increased wage costs in Walmart US.”
As WolfStreet put it, “The bad breath of inflation sinks Target, Walmart, other retailers.”
Online retailers aren’t fairing much better.
Amazon’s (AMZN) revenues grew 7% in Q1. That sounds good, but it was the slowest growth since the dot-com bubble burst.
Online furniture retailer Wayfair (W) reported a huge loss with revenues falling by 14% year on year.
Inflation creates the illusion of retail strength. But consumers are paying more to get less and retailers are seeing all of their revenue get eaten up by rising costs. Ultimately, these companies will have to pass more of these costs on to consumers, which means you can expect to see more price increases coming down the pike.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.