Why aren’t corporate profits affected by inflation?
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A few factors:
– They’re selling inventory at post-inflation prices, but paid for the inventory at pre-inflation prices when ordered months ago. As higher prices hit their inventory re-supply, they may see margins fall.
– Items are marked up on a percentage basis. 50% margin of $9 is more than 50% margin on $8. Say Old Navy paid $8 for a t-shirt and average sale price was $12 (marked up to $16 full MSRP, but sales, etc. drop average sale price) for a $4/unit mark-up. This year, they pay $9 for that t-shirt and 50% average margin means sale price of $13.50, or $4.50/unit mark-up.
– Larger than typical annual cost of living/wage increases for existing employees likely kicked in during Q1, so they don’t show up in Q4 earnings reports. Wages may reduce profits in coming months.
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