Mark Hasebroock

$47.61 for paper towels and TP at Target today. Absolutely insane example of corporate greed and price gouging. In fact, it made me so angry, I decided to do some analysis. Many prices have increased by 50% or more since COVID, so I decided to put on my investment banking hat and spread some financials back to 2018 / 2019. And man, was I ever surprised... I started by looking at Target's annual revenue: 2018: $75.4 billion 2019: $78.1 billion 2020: $93.6 billion 2021: $106.0 billion 2022: $109.1 billion 2023: $107.4 billion Last Twelve Months (LTM): $106.6 billion Couple things I noticed. First, revenue has slipped a bit since 2022 and is continuing to do so in 2024 - not a great sign for the broader economy. Second, there's been big growth since 2018. They must be price gouging! Well, I looked a bit deeper. Let's look at their cost of goods sold over the same period (the price they paid to buy the products they sold you). 2018: $53.3 billion (70.7% of sales) 2019: $54.9 billion (70.2%) 2020: $66.2 billion (70.7%) 2021: $75.0 billion (70.7%) 2022: $82.2 billion (75.4%) 2023: $77.7 billion (72.4%) Last Twelve Months (LTM): $76.8 billion (72%) Wow, so let me get this straight... Target is making less money (28 cents) on every dollar of sales today than they were in 2018 (29.3 cents). Hmmmm. That's weird. Maybe they're not so good at this price gouging thing. So, I decided to dig even deeper. They were prolly being evil and firing all of their employees so they could make up for the money they weren't gouging, right? So, I looked at their operating expenses (the amount they pay to run the stores and the overall business): 2018: $15.7 billion (20.9% of sales) 2019: $16.2 billion (20.8%) 2020: $18.6 billion (19.9%) 2021: $19.8 billion (18.6%) 2022: $20.7 billion (18.9%) 2023: $21.6 billion (20.1%) Last Twelve Months (LTM): $21.7 billion (20.3%) Hmmmm. Very unusual behavior for someone price gouging me. Let's sum this all up by looking at their operating cash flow: 2018: $6.3 billion (8.4% of sales) 2019: $7.0 billion (9.0%) 2020: $8.8 billion (9.4%) 2021: $11.3 billion (10.7%) 2022: $6.2 billion (5.7%) 2023: $8.1 billion (7.6%) Last Twelve Months (LTM): $8.1 billion (7.6%) So, what this all means is that Target's making less overall profit on every dollar of revenue today (7.6 cents) than they were in 2018 (8.4 cents). And revenue has grown at an average (CAGR) of 7.3% per year since 2018 and operating cash flow has grown at 5.1% per year - both of which are pretty much in line w/ the overall rate of inflation during that period. I guess I expected price gouging to be more profitable. ❌ NO PRICE GOUGING AT TARGET ❌ "Well Steve," you may say, "that's all fine and good, but even if Target isn't price gouging, Kimberly Clark and International Paper (both of whom are involved in the manufacture / marketing of paper towels and TP) sure as H3ll must be!" Well Yes! Surely they are! I'll spare you all the numbers, but here's the summary: Kimberly Clark: 5-year avg revenue growth: 2.0% 2018 Gross Margin: 69.7% LTM Gross Margin: 64.0% 2018 EBITDA Margin: 12.1% LTM EBITDA Margin: 15.6% "A-HA! Look at that EBITDA margin!" you say, "They must be gouging!" Well, the gross margin clearly says otherwise, and the five-year EBITDA CAGR is 6.6% - pretty much in line with inflation. Again, management is clearly bad at gouging. ❌ NO PRICE GOUGING AT KIMBERLY-CLARK ❌ "Well ok," you say, "I'm sure International Paper must be capturing all of that extra profit because they're the ones gouging then." Let's take a look: International Paper: 5-year avg revenue growth: 0.8% 2019 Gross Margin: 30.8% LTM Gross Margin: 27.8% 2018 EBITDA Margin: 16.1% LTM EBITDA Margin: 11.6% Wowza, I guess IP is the worst price gouger of all since, well, they've basically been destroying value since before COVID began. You would think price gougers would be gouging to, I don't know, make more money and all. Well, IP made almost $3 billion of EBITDA in 2019, and a little over $2 billion over the last twelve months. Sigh. ❌ NO PRICE GOUGING AT INT'L PAPER ❌ So, maybe this means the inflation we've been dealing with hasn't been about corporate greed and price gouging after all. Maybe it has had something to do with, oh, I don't know, government spending and stimulus run amok or something. So, rather than going on populist rants about implementing price controls for the greedy corporations (which, you know, have never worked out so well in the past), maybe we should consider some price controls for government spending. That's a novel idea. 🤔 p.s. And for those of you who say "Hey, wait a minute, your receipt says "Bounty" - that's not Kimberly Clark, that's P&G! They must be price gouging!" Procter & Gamble: 5-year avg revenue growth: 4.4% 2019 Gross Margin: 48.6% LTM Gross Margin: 51.4% 2019 EBITDA Margin: 20.4% LTM EBITDA Margin: 23.7% Gross margin up? Yep. EBITDA margin up? Yep. Good management? Yep. Price gouging? Nope. ❌ NO PRICE GOUGING AT P&G ❌