One of the central storylines of first-quarter earnings has been how pandemic stars have been caught holding the wrong merchandise as the economy shifted away from the pandemic.

Last week shares of the US bellwether retailer Target dropped by a quarter — or $25bn of lost equity value — as its CEO said during its earnings call that misunderstanding the US consumer:

…led us to carry too much inventory, particularly in bulky categories, including kitchen appliances, TVs and outdoor furniture. And with very little slack capacity after two years of unprecedented growth, we faced elevated cost to store and had begun rightsizing our inventory position.

We can quantify the pile-up by looking at “days inventory” by quarter (90 days/inventory turns, inventory turns defined as cost of goods sold/average period inventory).

For Target:

First, note the cyclicality of the business through the course of any given year: Inventory piles up in the third quarter in anticipation of the all-important holiday season.

As for the disaster in the just-ended first quarter of 2022, the inventory unwind still only takes the company back to where the business was in 2019 even if the process is temporarily wrenching.

And then there is Peloton:

In the fourth quarter of 2019, there was a sharp drawdown in inventory during the holiday quarter — as expected. But for the following 15 months, inventory remained tight until mid-2021, when it becomes clear that demand for bikes has collapsed (days inventory goes from 70 days to 225 days in just six months).

The Peloton chief financial officer said on the company’s recent call that inventory will “turn from a use of cash to a source of cash in fiscal ‘23”. In the meantime, the company is desperate enough to be borrowing from Blackstone and Apollo, which speaks volumes.