Retail Sector Earnings Analysis: Beware Supply Chain Issues

While most headlines during the critical Black Friday and Holiday Season will focus on demand and customer traffic trends, recent earnings calls in the retail sector depict a supply chain that is already stressed.

This could derail even a "strong" holiday season. 

Supply Chain Already Stressed Going Into the Black Friday & Holiday Season

Through the Query Insights feature of Amenity Viewer our earnings analysis identified negative supply chain comments from 11 retail/consumer companies in just the last week.

Only 3 of these 11 companies had a sequential improvement in its Amenity Score, and the average Amenity Score for this cohort was 15, down from 30 last quarter.

A look at the earnings sentiment from key players:

  • The Gap (11/20):

"The remainder of the merchandise margin deleverage was largely due to increased shipping expense."

  • Kohls (11/20):

"...cost of shipping continues to be a headwind"

  • Target (11/20):

"This was the result of a higher-than-expected supply chain cost, driven by digital fulfillment and the cost of receiving and processing a larger holiday inventory position compared with a year ago."

  • Ross Stores (11/20):

"Cost of goods sold for the quarter rose 60 basis points, as a 20 basis point increase in merchandise margins was more than offset by 50 basis points of higher freight cost and increases of 15 basis points each from buying and distribution expenses."

  • Campbell Soup (11/20):

"In late September, we had noted in our 10-K that we were experiencing significant higher-than expected costs as well as considerable shipment delays across our meals and beverages portfolio because of supply chain challenges we faced early in the quarter related to the start up of a new distribution center in Ohio."

  • TJX Companies (11/20):

"This was due to significantly higher freight costs and expenses related to our supply chain."

  • Stage Stores (11/20):

"Cost of goods sold increased as a rate to sales by 40 basis points due to ongoing industry-wide supply chain cost increases."

  • Refresco Group (11/20):

"On the cost side prices went up sharply compared to last year and we saw market shortages of carbon dioxide that led to hiccups in our supply chain."

  • Home Depot (11/13):

"...higher supply chain and transportation costs cost approximately 23 basis points of gross margin contraction"

  • Advanced Auto Parts (11/13):

"Consistent with prior quarters, these cost benefits were partially offset by both planned and unplanned supply chain expenses, which reduced our gross margin by 39 basis points."

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This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

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