i saw something on instagram recently that said something along the lines of “create the content you wish you saw” and if there was one thing i wish i saw more of it was an understanding of how retail, business, and the economy works, but in plain speak. too often it feels like we need to have a degree in Economics, and coming from a girl that dropped her Econ 101 class because there was wayy too much stats involved, you do not. it’s actually really simple to understand. so today, i’m taking you through my version of what earnings reports are and how to think about them.
ok, so the purpose of today’s conversation is to give you a few nuggets of info to talk about, should it come up over light and casual dinner convo, as well as confirm the fact that you, my friend, are really, really smart and can totally talk about the economy, big companies, and how it all comes to life in our day to day.
first off: what is an earnings report? why are there seasons? for large and publicly held companies with shareholders, there is a regular routine of reporting out earnings to said shareholders. ok but what are shareholders? shareholders are defined as a person/entity that owns a fraction of a company (share). shareholders invest their money into a company (typically through the stock market) in exchange for a return on that investment – dividends – as the company performs well. it’s actually fascinating to me that the perception of the stock market is so analytical (helloooo, charts and graphs on MSNBC/CNBC all day long) when in reality they’re showing how people (investors/shareholders) really feel in regards to that company. like, humans are fickle in nature, freak out often, and end up being highly reactionary. if we take a step back and think about it, the fact that the stock market continues to live on and grow today is WILD. but, the law of averages applies here, and as much as people can freak out, they can get really hyped on something, too (crypto, twitter stocks, gamestop, etc. those are all really extreme examples, but you catch my drift).
ok so an earnings call – typically looks a little different depending on the company, but they are typically done quarterly to review a prior fiscal period (the quarter with a nod to the full year and seasonality) and also give investors any sort of ideas on what may be coming in the near future. it’s a moment to review any notable trends, highlights, or disruptors as well as share the financial and operational performance.
ok so why look at retail specifically? first, if i were to focus us in on oil or big banking or something of the like, i’d probably just end up ranting. working in a retailer myself, i know that many retailers want to serve their customers and their shareholders, which helps us balance and moderate the profit-seeking behavior a bit. below is MY take on some of the recent earnings calls held by two large retailers in the US:
AMAZON: revenue (also called “topline,” this is how much they straight up took in $$$) and operating income (what they had leftover after they spent most of the monies) were both up above what they had originally shared they thought they might do. most of their growth was from what i will call “halo effect” businesses vs. the normal stuff you and i buy on amazon. as consumers pull back and evaluate their spending, they spend less in those impulse amazon purchases (as told by how amazon earned their revenue). on the flip side, they made up that gap and then some by amazon’s 3p seller program. (i went down a rabbit hole on what it is, so expect a full post on 3p seller programs coming soon!). worth noting that as amazon tightened up on operational expenses, those layoffs cost them a pretty penny in severance this past quarter.
KP’s takeaway: amazon continues to do just fine, but i’ll be curious to see what sort of “halo effect” businesses they double down on to help bolster the existing pillars they have.
WALMART: revenue grew by 7+%, but operating margin came in flat to LY. what does that tell us? while people are still shopping at walmart, but what they are buying may be shifting. they are spending more on groceries and necessities, which tend to have lower margins (i mean, except eggs – MY GOODNESS), while foregoing some of the more fun (and higher margin) products. wally world saw traffic (how many people shop) AND ticket price (how much things cost) both go up, signaling an increase in market share and most notably, inflation rearing it’s ugly head. ALSO – similar to amazon, walmart’s earnings were bolstered by those halo effect biz units, namely their advertising services and other new capabilities they are hoping will pan out.
KP’s takeaway: walmart continues to walmart. i’ll be paying attention to how they decide to invest in and evolve their grocery business (or just continue to make sure it runs smoothly) along with the halo effect businesses they have.
ok – that’s enough for one post. check back for some more earnings breakdowns as companies start to release them.