Rising inflation, labor shortages, and concerns over slowing consumer spending growth are impacting companies of all sizes, causing their profit and loss statements (PNLs) to shift under the weight of today’s changing economy. But how exactly? Most importantly, how can you look down their PNLs so you can invest smarter?
This was the subject of a recent webinar Envestnet | Yodlee participated in with BattleFin, an industry leader offering alternative data through their Ensemble SaaS platform. Titled “Moving Down the PNL - Navigating Consumer Spending and Wage Inflation Using Complimentary Payroll Data,” this webinar featured Tim Harrington, BattleFin Co-Founder and CEO, and Vinay Prasannakumar, Director of Data Products for Envestnet | Yodlee.
Using real-world examples from Fortune 500 companies, Prasannakumar showed how Envestnet | Yodlee Aggregate Payroll, its new core payroll data aggregation product, can be used together with Envestnet | Yodlee Aggregate, its core consumer spending data aggregation product, to better understand cost pressures and operating leverage to make better investment decisions.
Case Study Takeaways
1. Analyzing spend data to provide insights on company results in a dynamic market environment.
HomeGoods and TJ Maxx were experiencing nice, predictable revenue growth both on a one and two-year basis. These weekly growth rates, based on consumer spending data, initially continued during the holiday period starting November 2021. However, this same data showed that the post-Christmas period deceleration in sales was dramatically larger than expected – enough so that the company missed analysts’ consensus.
This weaker-than-expected revenue caused the stock to tumble, with a decline greater than the commensurate declines for retail benchmarks. The culprit was the outbreak of the Covid-19 Omicron variant, which impacted these retailers more than others because it didn’t have the online presence to offset the loss in foot traffic. The bottom line: Investors can use spending data to capitalize on inflections.
2. Using payroll analytics as an overlay to spend data to monitor changes in employment and identify potential red flags.
The high-end stationary exercise equipment firm, Peloton, experienced dramatic growth in 2020 and became one of the hottest stocks that year, as consumers began working out at home at the outset of the pandemic. Payroll data showed that as a result of this sales growth, as well as the launch of a new premium subscription program, the firm ramped up its hiring in October 2020 in anticipation of continued revenue acceleration.
However, this same payroll data, when overlayed with the same sales growth data (derived from de-identified consumer spending data) early in 2021 began to tell a very different story. Taken together, this combined data showed an inflection point in February, where the sales growth couldn’t support the higher employee count. Despite the firm’s efforts to trim prices, operating metrics continued to deteriorate and the cash burn worsen throughout 2021, as other elements added to margin and revenue pressures, including supply-chain issues and general inflation. The firm announced it was restructuring itself in February 2022. The bottom line: Sales and cost structure data together tell the story.
3. Tracking behavior changes among existing and new employees in terms of overall hiring as well as wage inflation
World-wide coffee powerhouse, Starbucks, posted strong sales for the first quarter of 2022. However, it had to reduce its annual earnings guidance due to inflationary pressure from labor shortages and the subsequent wage increases.
This fact wasn’t surprising given what’s happening in the economy in general, and to the restaurant industry specifically. But the real impact of wage inflation became clear with payroll data that was able to delineate the differences in wages between new employees and existing employees. That’s where you could see the hidden impact of employee churn. Going forward, it’s this kind of ability to track wage inflation versus sales data that inform margin pressure and pricing decisions, as well as offer any tangible indications that inflation is starting to abate. The bottom line: Inflation is impacting company outlooks.
Data That Means Business
Founded in 1999, Envestnet | Yodlee is recognized as a pioneer in financial data aggregation. By combining data with state-of-the-art analytics and machine learning, Envestnet | Yodlee enables building insights into an entire set of transaction patterns and merchant behaviors, both online and in-store. The scale of Envestnet | Yodlee’s Data Analytics Aggregate and Aggregate Payroll Products allow customers to make meaningful data-driven business and investing decisions.
For more details and additional insights, we invite you to view this 35-minute webinar in its entirety