Specialty Capital’s Weekly Thoughts 19th August

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This week we saw a flurry of data and earnings reports released. This new data helps us adjust the way we think about our underwriting approach. Specialty Capital believes that the current economic cycle is difficult to tread and it is integral to be data-dependent.  As we are a revenue-based finance company, we need to constantly adjust the way we look at certain industries and adjust for the competitive nature of the market. We also need to make sure we don’t go over our skis and become lackluster in our approach to underwriting small business merchants. We want to be around tomorrow.

A few weeks ago, we posted about Walmart’s earnings guidance. Walmart spooked investors when they lowered their profit outlook as food and gas prices cut shopper’s purchasing power. Surprisingly, on Monday (only three weeks after their original guidance) they forecasted a smaller profit drop for the fiscal year and a better than expected Q2. Moreover, Target released earnings yesterday and showed a net earnings drop of 90%. While this could be seen as a reason to be concerned, it was largely due to an inventory problem. This is something we’ve mentioned a few times in the past, but it seems that larger companies are managing this oversupply problem better. Target’s CEO, Cornell, said on the earnings call that they didn’t want to deal with the excess inventory for years and heavily discounted the inventory ($200mm impact from inventory reduction.)

 “Today the vast majority of the financial impact of these inventory actions is behind us,” he said.

  • T.J. Maxx also mentioned that inventory rose 39% in the second quarter, but the company is comfortable with its inventory levels going forward.  
  • Wednesday also saw US Retail Sales came out flat relative to June, excluding autos, sales increased 0.4% against expectation for no gain.  The US consumer is still spending and falling fuel prices are helping consumers use those savings for other items. 
  •  Energy prices remain relatively stable though gas futures are rising. One big development the market is waiting on is the Iran Nuclear deal, this could eventually lead to a boost in Iranian oil exports.

Lastly, the “Inflation Reduction Act” was signed by Biden yesterday. While we can talk about the semantics of how a spending bill of ~430bn will be inflation-reducing, what we really want to discuss is the portion of the bill that will be dedicated to fighting climate change. We believe that clean energy companies, Solar included, will reap many benefits from the dynamics of this bill. The IRS will be providing tax credits for clean energy projects, The current Solar & EV tax credits will continue into the 2030s. Specialty Capital will be using this information and be mindful in our approach to Solar Company financing.

We look forward to helping small business merchants achieve impactful results with our financing. 

#funding #sales #finance #revenuebasedfinancing #retail

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