Earnings Reveal Creeping Inflation

Read earnings reports today, and you can see how inflation is starting to creep into consumer prices. Companies as diverse as Coach, Kimberly Clark and Sherwin Williams all noted higher costs impacting margins.

Coach , for example, reported terrific comp stores sales (up 12.6 percent!) but leather and labor costs are up, and gross margins are flat. How serious are the cost pressures? Coach officials, on their conference call, noted that they were "looking to migrate a substantial amount of production across countries out of China" and into countries like Vietnam and India, which are perceived to be even lower cost providers.

Sherwin Williams saw paint sales improve, but also raised prices. In its conference call, they noted that "raw material cost inflation is likely to remain a challenge."

Kimberly Clark noted higher costs (offset by cost savings). Sales were up, but mostly due to higher prices: they raised average prices 2 percent last quarter (Consumer Tissue prices were up 5 percent in the U.S.! — think Kleenex, Scott, Cottonelle), but not enough to offset all the cost increases. Adjusted gross margin dropped 110 basis points to 32.4 percent.

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