Jason Miller -
In the consolidated statement of operations, I've highlighted the change in cost of sales and SG&A expenses. While total revenue rose 4.0% from last year, cost of sales spiked 10.4% and SG&A expenses rose 5.6%. The cost of sales makes this a supply chain story since those costs would include things such as truckload transportation, which as we know, has been at record levels. Likewise, higher prices for importing products would fall within this category.
•Looking within the "rate analysis," notice how the gross margin rate was down 430 basis points from last year. This is a massive drop and suggests consumers are buying a different basket mix. For example, more groceries and fewer electronics. This is why I keep stressing the key role of gross margin rate in shaping retailers' decisions.
Implication: for anyone who still questions why supply chain matters (after these past two years, I would seriously hope no one still has this question), watching Target's stock get crushed in pre-market trading this AM should make this point very clear.
