The biggest corporate red herring of the past year ❌

Inflation has done limited damage to profits despite warnings 💰

Merriam-Webster defines “red herring” as “something that distracts attention from the real issue.“ (Source: Getty Images)

Nike reported quarterly earnings Monday that exceeded analysts’ expectations.

The global athletic apparel brand (and member of the Dow Jones Industrial Average) said the company’s gross profit margin¹ increased to 46.6%, up 100 basis points from the prior quarter.

When a company’s gross profit margin is increasing, its sales are rising at a faster pace than costs, which means profitability is increasing.

This is interesting news, because companies have been complaining recently about how cost inflation is having a negative impact on business. It was a key discussion point of Q4 earnings season.

According to a FactSet analysis of S&P 500 earnings releases and conference calls, the number of companies citing “inflation” is at its highest level in at least 12 years.

(Source: FactSet)

Back in May 2021, I began writing about how inflation became a top concern among investors. In June, FactSet first reported that citations of “inflation” on quarterly earnings calls jumped to their highest level going back at least 2010. CEOs across Corporate America were sounding the alarm.

However, the concern that rising costs would crush corporate profit margins has — so far — proven to be a gigantic red herring.