This last week's inflation data helps substantiate two trends. First, that goods inflation is slowing faster than services. We're seeing this show up in both "soft" surveys where manufacturing firms (which tend to produce goods) have tended to highlight more progress on inflation than services firms, and also in "hard" data like CPI and PCE (discussed below), where inflation has remained stubbornly sticky. The second trend that's increasingly coming into focus is the notion that input costs are slowing (energy, supply chain, etc.), but the prices for the goods and services actually using those inputs (consumer prices that you and I have to pay) are not yet seeing the ripple effects from that. Many companies still appear to be in catchup mode to help restore profit margins (see company commentary below), and this may create more of a lag between input cost inflation slowing and actual consumer price inflation slowing. This is the "race" we now find ourselves in. It's great that signs of inflation slowing are accumulating everywhere, but given the Fed has grown increasingly impatient and seems convinced we need to fix the problem now, the question is no longer just will inflation slow, but rather how quickly will it slow? Each month we don't see progress at the consumer level, the window of opportunity on a more mild outcome ("soft landing") for the economy closes further.
This Week's Macro Inflation Datapoints:
The Dallas Fed released its monthly manufacturing, services, and retail sector reports on Monday and Tuesday. The surveys continue to point to an economy that has bounced back in September, albeit modestly, while also showing signs that inflation continues to move in the right direction.
The manufacturing survey respondents indicated that on a seasonally adjusted basis, raw materials prices ticked up (to 37 from 34 and versus a pre-COVID average of 24.5), selling prices continued their decline (to 18.1 from 26.1 and versus a pre-COVID average of 6.4), while wages and benefits did the same (declining to 36.6 from 45.8 in the prior month and compared to a pre-COVID average of 18.8). Raw materials was the second lowest reading since October 2020 (bested by only last month’s reading), while the selling prices reading was the lowest since January of 2021. The wages and benefits reading was the best showing since April 2021. Lastly, expectations for future prices and wages was mixed, with selling prices and wages expected to decline further, while raw materials are expected to tick up.
The Texas Service Sector and Retail surveys for September showed improvement in both selling prices to consumers and wages and benefits, but both surveys noted a tick up in input costs. Similar to the service sector surveys from the Phila and NY Fed’s of late too, the more stubborn trends in input costs are likely attributable to the significant shift we’re seeing in consumer spending back towards services (from goods), keeping pressure on those supply chains for longer (whereas for manufacturing, which is more closely tied to goods demand, we’ve seen both inputs and selling prices correct faster). All sectors in service and retail surveys remain above their pre-COVID averages, but the general trends—and future expectations—still seem to be pointing in the right direction (meaning lower inflation either today, or coming down the pipe).
On the housing front, Case Shiller Index declines the most month-over-month (seasonally adjusted) since the aftermath of the Great Financial Crisis. Though this is quite delayed relative to other more current home price indicators from the National Association of Realtors and Realtor.com, its still a closely followed index. Based on what we saw in the NAR data for August, it wouldn’t be surprising if Case Shiller saw another decrease in August as well, but we’ll see.
More good “news” came on the rent front, as highlighted in this Wall Street Journal article: https://www.wsj.com/articles/rents-drop-for-first-time-in-two-years-after-climbing-to-records-11664135107?mod=hp_trending_now_article_pos5. The reports cited in the article were not exactly new (the Costar report came out 9/8, the RealPage report came out on 9/9, the Rent.com report came out on 9/15, and the Realtor.com report came out on 9/22), but together told a unified story: inflation in rents is slowing. The Costar report (which can be found here: https://www.costargroup.com/costar-news/details/apartments.com-releases-august-2022-rent-growth-report) makes a very important point: “Year over year rent data continues to give the impression that the multifamily market is performing meaningfully above previous averages, but major markets continue to retreat quickly at a time of year in which they should’ve posted their best results.” Similar to what we’ve argued about CPI and other inflation benchmarks over the past several weeks, looking at year-over-year figures is misleading, as it captures price increases that happened 6-12 months ago in a much different economic environment. The RealPage report can be found here: https://www.realpage.com/analytics/apartment-rent-growth-moderates-august/ and the Rent.com report can be found here: https://www.rent.com/research/average-rent-price-report/. The August Realtor.com report, which we cited last week, can be found here: https://www.realtor.com/research/august-2022-rent/.
Also on housing for the week, lumber prices have now fallen back to their pre-COVID levels, a fall of 60% since March. https://www.wsj.com/articles/lumber-prices-fall-back-to-around-their-pre-covid-levels-11664239652?mod=hp_lead_pos7.
Lastly, and most importantly, Personal Consumption Expenditures (PCE) data came out for August, and similar to August PCE, was very disappointing. The month’s core result was an increase of 0.6%, implying annualized inflation of 8.4%. Whatever hope there is for cooling inflation on the horizon from lower input costs (energy, labor, freight and supply chain, etc.), it is not yet showing up in consumer prices. Below are trailing 3 month averages of both core PCE and the PCE’s “market based” version of the index (which generally tells the same story). I’ll spare you the charts on categories this week, but most categories, including in key goods categories like furniture and home furnishings, as well as apparel, remain well above pre-COVID levels. Perhaps these do cool in coming months, but that isn’t happening yet, and we're running out of time for them to do so.
This Week’s Commentary on Inflation from Public Companies:
United Natural Foods Inc. (Ticker: UNFI) – F4Q22 Call Wholesale Food Distributor
Our operating expense rate before the impact of pension withdrawal charges in the prior year quarter increased by about 30 basis points compared to last year. This was primarily driven by continued investments in distribution center and transportation labor to ensure the best service level attainable for our customers as well as higher energy prices.
We're pleased that our distribution center job vacancy rate improved again this quarter, moving from 7% at the end of Q3 to 4% at the end of the fiscal year. We also made some progress on the driver side. The vacancy rate declined from 9% at the end of Q3 to 8% at year-end. We view these improvements as a signal that the associate-friendly programs we've instituted are having a positive impact, and we expect these vacancy reductions will lead to improvement in our operating expense trends over the next few quarters as new associates get up to speed. This should drive efficiency gains, gradually reduce the need for third-party labor and improve the customer experience.
Full year inflation is anticipated to be in the low to mid-single digits, and we're again expecting modest contraction in overall industry volumes, which is related to changes in consumer behavior resulting from the broad-based challenges of elevated inflation.
vacancy rates were volatile last year. I mean, we started the year in the mid-teens. We narrowed it down to the low teens. Omicron's ended up over 20%, and then steadily have been improving our vacancy rates through Q3. In our DCs, at the end of Q4, were down 4% and our driver vacancy rate had improved from 12% down to 8%.
We've made a lot of adjustments in wages as the market demanded. We, as Sandy mentioned, put in a lot of new innovative programs, which are now maturing and being adaptive across the network, and it's starting to show in a 4% vacancy rate for warehouse and 8% for drivers. So we are clearly making progress on this front, and that helps drive down the overall cost by eliminating third-party labor and the need for reactive versus proactive labor management
So just a quick follow-up. So is most of the improvement in the vacancy rates a result of retention?
Eric A. Dorne: It is. I mean, we're actively hiring as the market and the demand needs, but retaining associates, letting them mature, going through full training and becoming fully productive is what our driving force here is. And our DC and operations leadership have embraced that, and we're seeing the results of it.
Broadly speaking, we expect at some point for inflation to start to level off, and we expect suppliers then to want and need to drive margin through incremental sales. And the tool they'll use there is more likely than not to be accelerating promotions. And we're seeing some of that now, we expect more of that ahead of time, and that impacts our P&L.
Given this inflationary environment, our customers have a high demand for value-type programs. We have good programs, and we're inventing more. So as Sandy said, as the trends continue, we expect promotion to be a lever that our suppliers continue to pull throughout the year
And so now looking into my crystal ball, what I believe is that continued double-digit inflation is not sustainable. And as supply chain settles down, there won't be a case for it. Now I don't know when that happens exactly, and I wouldn't want to predict it. But as the situation normalizes in the supply chain, the labor environment and inflation starts to recede, then we'll be dealing with a growth environment where there won't be an accelerating headwind on the value of products. But to drive sales, we would expect suppliers to start to invest in promotions, and promotions will drive units.
Private Brands are definitely accelerating. We saw them sequentially accelerate in the third quarter and again in the fourth quarter, and our Private Brands business grew double digits in the fourth quarter….Yes. I'll just add that, as Sandy said, it's continued to accelerate through the fourth quarter and then in the early innings here in fiscal '23. We are definitely seeing a trend towards our value brands.
Cracker Barrel Old Country Store Inc. (Ticker: CBRL) Restaurant and Retail Store Operator
This morning, we announced earnings per share that were above our expectations with an operating income margin of 4.4% that came in within our anticipated range of 4.0% to 4.5% of total revenue, despite softer sales than we had predicted and inflation that was at the top end of our range for the quarter.
Looking back at the fourth quarter, the challenging environment I discussed in June continued to impact us through the end of our fiscal year, including a slower-than-expected summer travel season, fewer visits from guests 65 and older and high gas prices and other inflationary pressures that weighed most heavily on lower income guests. Due to our unique business model, we felt some of these pressures more acutely than others, particularly in June and July when gas prices and broader inflation were especially elevated and many households abstained from or curtailed summer holiday-related driving. From a cost perspective, food inflation came in at the very high end of what we expected. As we believe this inflation will ease over the back half of fiscal '23, we decided to pass on much but not all of the cost impact in our pricing. We believe this was the right decision to maintain our strong value proposition with our guests, especially in the face of a potential recession
Comparable store restaurant sales grew by 6.1% over the prior year driven primarily by 7% pricing. The fourth quarter's 7% pricing consisted of 3% carryforward from a first quarter price increase and roughly 4% carryforward pricing from actions in the third quarter.
Restaurant cost of goods sold in the fourth quarter was 28.7% of restaurant sales versus 25.1% in the prior year quarter. This 360 basis point increase was primarily driven by commodity inflation of 18% as well as elevated freight costs, partially offset by pricing. While we experienced inflation across our entire market basket, the primary drivers of the increases were poultry at 35% inflation, oils at 76% inflation and grains at 27% inflation. Having faced a year with such historically high commodity inflation impacting the fiscal '22 bottom line, it is worth spending a minute on the broader inflation and pricing dynamic. While we do not believe that labor costs will ease in the future substantially, we do believe that food commodity costs will ease. As such, we made the decision, especially in the face of a potential recession to take moderately less price than we might have to offset this inflation. As Sandy mentioned, we seek a balanced and consistent value proposition for our guests and believe this is important to maintaining long-term brand affinity.
Comparable store sales growth is expected to be primarily driven by approximately 8% total annual pricing.
We anticipate commodity inflation of approximately 8% for the fiscal year. We anticipate mid-teens commodity inflation will continue in Q1. And by the end of Q4, we anticipate slight deflation. The largest drivers of commodity inflation are expected to be poultry, produce and dairy with each category representing approximately 13%, 13% and 9% of our market basket, respectively. These 3 categories alone are expected to account for approximately 60% of our overall commodity inflation impact.
We expect approximately 5% wage inflation for the fiscal year with Q1 being the highest inflation quarter until we begin to lap the jump in prior year wage rates, which will result in a lower inflation rate for the second through fourth quarters.
We expect to grow operating income by between 8% and 10% over the prior fiscal year. In addition to considering the revenue growth, commodity and wage inflation and cost savings guidance I just spoke to, this operating income growth expectation contemplates the following assumptions. Continued inflationary pressures in other areas of the P&L most notably supplies and utilities, moderation in retail margin compared to the prior year near historic high and incentive compensation normalization. We anticipate fiscal 2023 first quarter operating income to be meaningfully below the prior year first quarter and below the quarter we just ended. We believe our operating income performance versus the prior year will improve with each quarter as commodity inflation moderates and our cost savings initiatives gain traction. And as a result, we anticipate 2023 fourth quarter operating income to be well above the fourth quarter we just reported.
As Craig just outlined for you, we expect to see compressed margins in the first half of the year but believe they will expand significantly in the back half as commodity inflation subsides in the manner we expect. A bigger question is whether we eventually will get back towards pre-pandemic levels of profitability, the answer is yes, over time. Of course, we are taking and will continue to take shorter-term actions to drive traffic, reduce costs and selectively raise pricing in an appropriate manner to help offset high levels of commodity and wage inflation, but our focus is on the sustainable cost savings that Craig referenced and the longer-term top line initiatives that we're speaking to today.
We will continue to approach pricing in a way that will keep our value perception scores high
What we're seeing is some abatement on the freight side. So our container costs appear to be coming down, and that's helping offset a little bit of that markdown risk that we see elevating in this year. In terms of our inventory level, which was higher at the end of '22 than we saw in the prior year, the majority of that or the biggest single piece of that was we accelerated our holiday merchandise, the shipments so that we would be sure we receive them in time and that ended up in those hitting the fourth quarter instead of the first quarter or even some of them would have had last year in the second quarter.
So we are about 30% covered for fiscal '23 at this point. And the way that's working is if you think about calendar '22, so through December, we are -- our coverage ratio is very high. And for calendar '23, it's very, very low. And so we're working through right now exactly how much we're going to lock and when because we're factoring in a couple of things. One is, here's what's happening in the spot market. But to lock for '23, there is a premium for that. So those are conversations that we're having right now. So right now, 30% locked and heavily weighted to calendar '22.
Similar to Darden in that it seems like they’ve wanted to delay locking in prices for their COGS based on a hunch that they’ll get better prices later
And then I had a question on the pricing. Sandy, in your comments about kind of being careful and wanting to maintain the value proposition for consumers, I was anticipating that the commentary about menu pricing was going to be that it would be kind of rolling off, especially given your expectation for commodity costs to start rolling off. But I think what I'm hearing is that you expect 7 -- 8% for the whole year. So that I think would imply that as price rolls off over the next -- through the whole fiscal year, then you're going to be adding price in.So Craig, I think your comment was that we should kind of expect roughly 8% for each quarter. So I just want to make sure I got that right. And I guess how comfortable -- if that is true, how comfortable that, that would be maintaining the right value? I think we're probably going to be seeing grocery store coming up pretty sharply. Assume that narrative of grocery being more expensive than restaurants will likely slip if commodities come down. So one, am I right -- I mean, is it right that you expect about 8% incremental pricing throughout the year? And then our total pricing? And then how comfortable we are with that?
So Jake, I'll start, and then Sandy will build on it and Jen can jump in as well. So again, we've got the total revenue growth of 7% to 8% for the year. In Q1, we've said it's kind of generally in line, and it will kind of leave it -- leave the guidance part of it there.I think the other factor here is the cumulative pricing over the last few years. And over really through our '22 year, if you take 2021 and '22, we've had -- get a very rough terms about 10% price, and we've had inflation that's well in excess of that, right?So as we think about the overall business model as it relates to inflation and cost saves and then price to ensure that we are deliberate and maintaining a great value. I think with that lens, we think there is room there and we're comfortable at that level. So I'll turn it over to Sandy and she can add a little bit more
Yes. I guess what I'll reiterate is the thoughtfulness that goes into our pricing strategy. We've moved away from really 2 big increases a year -- 2 modest increases a year to more frequent smaller increases that we monitor. We always have a holdout group, so we try to assess the impact that's having on menu mix and it's to a degree, we can, frequency.And so we're being very thoughtful about it. And I think Jen and her team are being very careful to ensure that even after the price increase, that guests can find value on the menu in all dayparts, sort of throughout the menu. We'll be doing the increases through, I guess there's about 4, 5 planned for the year, but we'll monitor each one and adjust as we see either the commodity environment changing significantly or the guest reaction to the price changing.
Yes, I would just add one thing, which is that we've already taken our August pricing action, right, which was likely to be the largest of the year. Now we will carefully monitor that across our holdout group, our guest satisfaction surveys. We monitor sprinkler. We check our guest relation. So we have 4 or 5 different sources that we're monitoring every week to see if there's any trade-down risk or traffic risk. And then we hold the option to not take those back half price increases. Should we see some of those trends that you mentioned in your question, we can always pull off.
Jon Michael Tower: Got it. And then just a follow-up on the development side. Obviously, it's a call for a faster development this year versus '22. And I believe, Sandy, you had mentioned, obviously, there were some supply chain issues in '22, in particular, that kind of delayed the openings of particularly Maple Street. So I was wondering if you could provide some color on what signs you're seeing to suggest that the guidance for '23 is more attainable than last year, maybe you're seeing permitting delays improve or even just the ability to source equipment has gotten better relative to what it was 6 months ago?
Sandra Brophy Cochran: Well, I think all of that's the case. The pandemic impacted the numbers. We've opened for a whole variety of reasons. Supply chain was a lot of it. I guess, the labor to get the construction done was another piece, supply chain, there were times that we just couldn't get the equipment we needed to open. But it was also just on getting real clarity about real estate.So in each of those areas, I think it's improved for both Maple Street and for Cracker Barrel. So I am more optimistic about the Maple Street hitting their opening schedule for the fiscal -- this year than I was how we ended in the fourth quarter, we're only able to get 3 of the ones done and we had hoped to do, I think, 6 as well as I think what we'll see in the Cracker Barrel side is more ability to get higher new unit growth, modestly higher new unit growth in fiscal '24 than what we've just announced.
Thor Holdings (Ticker: THO) – Motor Home & RV Manufacturing Company
Over the course of fiscal 2022, we saw positive signs in the moderation of supply chain issues, particularly for North America towable products. As a result, we have been able to produce towable units and restock dealer inventories to historically normal levels. On the motorized side (approximately 10% of our unit volumes in North America and typically >75% of our unit volumes in Europe), chassis supply continues to be a major constraint due to the ongoing chip shortage along with other factors. Based on communications from our chassis suppliers, we anticipate the supply constraints of chassis to continue through fiscal 2023.
As we look ahead to fiscal 2023, we continue to expect that chassis availability will limit our European production volumes. However, we do expect gradual improvement over the course of fiscal 2023 with increasing availability of chassis in the second half of fiscal 2023. With a European segment backlog value of approximately $2.8 billion as of July 31, 2022 and independent dealer inventory levels at historically low levels, we expect the restocking timeline to extend into calendar 2023. As the chassis supply challenges dissipate over the course of the next fiscal year, our European operations are well positioned to perform well even in the face of macroeconomic headwinds
In the near-term, we continue to expect demand to be muted by various factors currently impacting end consumers, but believe it to be temporary as RV utilization and intent to purchase remains high while the easing of inflation and pricing should offer some relief in fiscal 2023.
Looking ahead to fiscal 2023, we will be normalizing production to pace retail demand through the reduction of daily production rates and the shortening of production schedules in our North American Towables segment. In addition, across each of our segments, we expect to see a continuation of some cost pressures and ongoing supply chain constraints.
MillerKnoll Inc. (MLHR) – Furniture Manufacturer
In the Americas segment, we posted healthy growth in revenue compared to last year but saw a slowdown in order activity. We are feeling the impact that the economic uncertainty is having on our customers, particularly in the U.S. They are voicing concerns about inflation, piloting smaller orders and requiring more revisions to projects as they learn to operate in a mostly hybrid environment. Given this macroeconomic backdrop, we are proactively taking actions, including continued pricing increases and careful management of discretionary spending.
We also saw signs of stabilization in our supply chain, and lead times returned to near normal levels, although some pockets with longer lead times still remain.
Adjusted gross margin decreased 150 basis points compared to the comparable quarter last year. And the variance was primarily driven by higher commodity costs and other inflationary pressures, partially offset by recently implemented price increases. Last month, we announced an 8% average list price increase in the Americas Contract segment, which will take effect in October to help further mitigate inflationary headwinds. Looking ahead, if the inflationary environment stabilizes, we believe that additional traction from net price increases and cost reduction initiatives will drive gross margin expansion in the periods ahead.
Well, so clearly, we did have a build in inventory and you see that in the cash flow. I think our cash flow from operating activities was a negative, I want to say, $67 million. It's in that hunt, Budd. And a big chunk of that is working capital tied up related to inventory.A couple of areas where we're seeing it. We do see some inventory buildup in the Contract business related to the continued relative strength in International, so I would make that point. That one will certainly take. I think that if you ring-fence the area that was a bit of a surprise, we did have an inventory build in the Retail business. And Debbie can unpack this a bit in a little more color, but I would just simply say that the lead times that, that business was contending with back in the spring and even the early part of summer were such -- and demand levels were such that we were ordering in front of it, right? We were trying to get in front of it. And with the falloff in demand that we saw in the quarter, as I mentioned in my prepared remarks, orders organically were down 8% for that business. We did see a buildup in demand or in inventory levels, they piled up. And in fact, we had to incur some costs related -- that we weren't expecting related to warehousing and storage and transportation of that inventory that weighed on margins in the period. So that's really the primary area.
And I would say from a price increase, it is also market by market. So where we felt most of the brunt commodities, we've been able to raise prices. And I think so far, we haven't necessarily seen an increase in discounting or anything like that. But we're watching Europe very closely. Like everything else these days, it's changing minute to minute. But we feel -- we have a very flexible and agile approach because we are localized there. And I think that will make a difference in how we look at what's coming forward
I'll talk year-over-year from a gross margin standpoint. We saw a nice benefit from pricing at the consolidated level, about 330 basis points of net price realization to last year, which is encouraging. Commodities remain at elevated levels. There's some signs, you probably see this, in some of the categories that they're beginning to stabilize and begin to roll over, but they still remain at elevated levels across most categories to prior year. So that accounted for about a 240 basis point erosion in gross margin.The freight and transportation costs as well remain elevated. We estimated that to be 90 basis points of margin pressure. Bear in mind, some of that -- that includes some of that retail inventory-related costs that, while meaningful, are temporary as we work those balances down. And then labor and overhead collectively about 70 basis points of pressure. And then -- so that's kind of the cost price. And then if you kind of walk the rest of that gross margin, you've got product and channel mix changes that accounted for 60 to 80 basis points of pressure year-over-year as well. So that should get you the walk.
Gregory John Burns: So I just wanted to dig into the price increases and the impact that has had on demand. Is there any element of pull-forward that's happened over the last couple of quarters, where now we're -- that's like exacerbating or why we're seeing such a significant decline this quarter maybe instead of maybe a more moderate slowdown? Like how do you think pricing has affected demand in previous quarters? And then going forward, if things are slowing down, do you still feel comfortable being able to pass along as much price as you've been passing along, especially with the new proposed increase?
John P. Michael: Sure. Greg, this is John Michael. Yes, I think from a price perspective, conversations with customers, there's never been a better time to have a conversation with a customer about price increase because they all understand it, because inflation is pretty much across the board. And I think as we look at our competitive set and how prices have gone up, we see that we are in line with others. So I don't think we see any significant impact from the price increases. And I think the conversations we've had with customers and the projects we've been pricing of late would indicate that the market is accepting the pricing that we have, and we should be able to continue to realize it going forward.
Worthington (Ticker: WOR) - Steel and consumer goods Manufacturer
So by end market, there are some things that are a little unique in each. But one of the things that's inherent to all the businesses and really to the entire market is inflation. You see higher prices, but then you also see much higher costs. And so in consumer products and in building products, specifically, you have higher costs in building products. You actually have -- and in consumer products, excluding the purchase accounting for the Level5 acquisition, you saw increases in EBIT dollars, but then you saw decreases in EBIT margins, and that's a direct reflection of the inflationary trends that we're seeing. Steel is a bit more unique just because of the impact that rapidly rising prices have there and rapidly declining prices have in terms of people's behavior and on the way that sort of things can get priced, et cetera. Automotive is starting to show some signs of life. We're not ready to declare that things are back. Everybody seems to have semiconductor solutions, but other supply chain limitations are holding them back. I think all the choice we have mentioned the same over the last month or so. Construction markets are reasonable as is ag. All that being said, across our markets, we see evidence, right, and signs that things are happening that are slowing down. And nothing is very steep and nothing is catastrophic. But as Andy mentioned, you're in an environment where the economy has higher prices and some potentially still in growth. So we've got our eye on everything. Businesses have a really good feel for what's happening.
Re: Autos: We think it's -- sequentially, it's pretty flat, Seth, the supply chain challenges. It seems as though most have solved or addressed their semiconductor shortages, and those should get better. At the same time, there are shortages for other products. And their ability to produce is bounded by lots of different things. And so we actually see automotive sequentially up slightly, but from a low base. So I would call it, creeping along the bottom searching for some upside… And so we don't anticipate automotive recovering to pre- or post-COVID levels just because those supply chain challenges are persisting, John, but we do feel pretty good that there won't be any worse volume-wise than they have been in the last 6 or 9 months.
Katja Jancic: Can you talk a little bit about the inflationary pressures? Specifically, what do you think how this will develop through the rest of the year? And maybe are you taking any actions that you could mitigate those?
Joseph B. Hayek: Sure. We, like others, have seen inflation everywhere, whether it's in our business or at the grocery store or at the pump. And so we have taken kind of actions across the board with understanding that our input costs, everything from materials to labor, have gone up. We have tried to pass along those costs so that we're able to execute on our business plan. And we pay attention to elasticity of demand, and we pay attention to what's happening out there. But suffice it to say, we don't see it sequentially going up by 10%, but we also don't see it going down. I think we feel like we're at a relatively high level. And signs we're seeing is that it will be relatively plateaued for at least the next several months.
CarMax (Ticker: KMX) - Used Car Retailer
This quarter reflects widespread pressure the used car industry is facing. Macro factors, including vehicle affordability that stem from persistent and broad inflation, climbing interest rates and low consumer confidence, all led to a market-wide decline in used auto sales. In addition, wholesale values were affected by steep depreciation in the quarter.
We've also seen on the wholesale side and just from a depreciation standpoint just a continuation of that depreciating environment that we saw in the first quarter as well. So that has continued into September
Brian William Nagel: Great. Can I ask a follow-up? I'll make it quick, I apologize. But just -- so you're talking about the depreciation in the wholesale. I mean, should that lead then to more attractive prices in the used car business and potentially undermine what has been a significant challenge for consumers?
William D. Nash: Yes. I think you're thinking about it the right way, Brian. In fact, I believe this is probably the first quarter where the gap between used and new got a little bit wider in, gosh, probably 6 or 7 quarters. So it will take some time. But I think depreciation and prices correcting on used will absolutely benefit the used market over time. But I think we got to keep in perspective, this quarter was challenging. I mean we haven't seen $2,500 in depreciation. That rivals -- in absolute dollars, that rivals back what we saw at the height of the Great Recession, that rivals what we saw at the peak of Omni. So it's a very unusual thing and brings challenges, but I think that we've proven over time that we've been able to navigate those and that we'll do it better than pretty much anyone.
Nike Inc. (NKE) – F1Q23 Earnings Call – Footwear and Apparel Manufacturer
This quarter, it became clear to us that conditions in North America are shifting once again. Earlier ordering by retailers, driven by strong consumer demand and less predictable delivery time lines, had led to elevated inventory levels broadly across consumer goods. Then transit times began to rapidly improve with signals that further improvement may be coming. At the same time, consumers are facing greater economic uncertainty, and promotional activity across the marketplace is accelerating, especially in apparel. As a result, we faced a new degree of complexity.Demand for NIKE, Jordan and Converse continues to be uniquely strong with positive consumer response and high full price realization on fresh seasonal assortments and key product franchises. In September, month-to-date retail sales are up double digits versus the prior year, following a strong back-to-school season. However, our North America inventory grew 65% versus the prior year, with in-transit inventory growing approximately 85%. This reflects the combination of late delivery for the past 2 seasons plus early holiday orders that are now set to arrive earlier than planned and a prior year that was impacted by factory closures in Vietnam and Indonesia.As a result, we are taking decisive action to clear excess inventory, focusing on specific pockets of seasonally late products, predominantly in apparel. While we expect this to have a transitory impact on gross margins this fiscal year, we believe this cost will be far outweighed by the benefit of clearing marketplace capacity to align seasonally relevant product, storytelling and retail experiences for the consumer.
In North America, in particular, we saw in-transit growth of 85%, and in-transit inventory now represents approximately 65%, so almost 2/3 of North America's total inventory. And that's really being driven by a couple of factors. The first 1 is the disruption that started over a year ago when our factories closed for almost 15 weeks in Vietnam, and for a lesser extent in Indonesia, and the decisions that were taken after that with regards to inventory that was in process to be made. Secondly, we've seen quite a bit of volatility in transit times. We saw an increase in the second half of last year. And then most recently, this quarter, we saw a significant improvement in transit times after we and many others had made the strategic decision to buy the holiday season earlier because of the longer transit times.
So we see strong consumer demand in North America currently, right? There's no signs of any softness. It was relatively promotional in August but strong, strong into the first couple of weeks of this quarter.
Yes, Alex, we again will repeat some consistent things. We're coming off a strong quarter and we feel very good about our competitive position, and we have not yet seen any signs of slowdown.
And to give you an example, we've seen double-digit growth in retail sales in EMEA in Q1 and in -- sorry, not in Q1, in September season to date. But we're seeing some softness in the U.K., and it's being more than offset by strength across the rest of the EMEA portfolio, in France, Germany, Italy, Spain, et cetera.
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