No. of Recommendations: 8
The other thing to worry about, as if the above wasn't enough, is their high levels of debt. They ran up a lot of debt in 2020-2022, much of it from repurchasing shares at over $200 a share. Now that their shares are at $83, they have $18b in market cap and $18b in debt, with about $1b in interest to pay every year, regardless of their level of sales. With just $2b earnings before interest and taxes, it would only take another 2.5% margin loss to mean they use all their EBIT just to finance their debt load. Perhaps they should suspend the dividend? That might be the smart thing to do, and that might also be the smart time to invest...
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You're collapsing lease obligations with cost to carry the long term debt. Long term obligations are at $6.2 billion.
They paid $167 million in interest the first 26 weeks, or about $334 million annual. Not 1 billion interest on $18 billion debt.
FWIW, a "normal" year for them is net profit AFTER tax of, say, $1.6bn to $2.6bn. The $1.6 being anomalously low recent results which may or may not last. I was a little startled to see that their interest costs in the first half were actually lower than in the first half last year, but we'll see what happens when they roll more debt.
There is of course a bear case to be made. But personally I don't think their debt is anywhere near unsupportable since I have confidence in their ability to make a good buck in the normal year in future. The most rational worries do seem to be about labour costs, as they have traditionally run a very lean operation at the store level, to say the least.
Jim
