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- Inflation Is Heading Down
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Welcome to the Bean Breakdown. Have a great week!
HEADLINES
What You Need To Know
Inflation rose less than expected in February, offering some relief as tariff concerns loom. Consumer prices increased 0.2% for the month, bringing the annual rate to 2.8%, while core inflation hit 3.1%—both slightly below forecasts. Shelter costs, a major driver of inflation, rose 0.3%, while food and energy prices each climbed 0.2%. Egg prices soared 10.4%, pushing the yearly increase to 58.8%. Meanwhile, used car prices jumped 0.9%, but airline fares fell 4%. Wage growth barely outpaced inflation, rising 0.1% in February and 1.2% year-over-year.
Russia signaled support for a U.S.-led ceasefire plan but stopped short of committing, with President Putin calling for further talks. He suggested discussing the deal with President Trump and emphasized the need for enduring peace. Putin questioned whether the 30-day ceasefire would be used to rearm Ukraine and how violations would be monitored. Kyiv has backed the deal, contingent on Moscow’s agreement. Trump acknowledged progress but said a final outcome remains uncertain.
American Eagle warned that consumer spending is slowing, with the first quarter off to a weaker-than-expected start. CEO Jay Schottenstein cited less robust demand and colder weather but expects improvement as spring approaches. The company is taking steps to boost sales, manage inventory, and cut costs amid economic uncertainty. Retailers across the board have issued cautious outlooks, signaling a potential slowdown in 2025 as inflation and tariff concerns weigh on shoppers. Despite the weak forecast, American Eagle reported mixed holiday results, with comparable sales exceeding expectations.
Southwest Airlines is ending its long-standing free checked bag policy, a major shift after decades of using the perk to set itself apart. Starting May 28, most passengers will have to pay, though elite frequent flyers and credit card holders will still get at least one free bag. The move follows pressure from activist investor Elliott Management, which recently won board seats and pushed for revenue-boosting changes. Southwest hasn’t announced pricing yet, but major rivals charge $35 per bag. The airline now joins competitors in tapping into the $5 billion baggage fee industry.
UPCOMING
What You Need To Watch
On Monday, February retail sales will be released, offering a key look at consumer spending and economic momentum.
On Wednesday, Nvidia CEO will deliver a keynote speech, offering insights into the company’s strategy, AI advancements, and industry outlook.
On Wednesday, Fed Chair Jerome Powell will speak, providing insights into monetary policy and the economic outlook.
On Thursday, Nike will hold its earnings call, with investors closely watching its forecast numbers for consumer demand.
TIP
Profit Margin
A company’s profit margin is one of the best indicators of its financial strength. Businesses with high margins can generate more profit from every dollar of revenue, giving them flexibility to invest in growth, withstand economic downturns, and return value to shareholders.
For example, software companies often have high margins because their costs remain low after development, while retailers typically have lower margins due to inventory and overhead expenses. Consistently strong or improving margins can signal a competitive advantage, while shrinking margins may indicate rising costs or pricing pressure.
CHART
Ray Dalio’s Portfolio
Source: @bean_wealth
TERM
Cash Conversion Cycle
The Cash Conversion Cycle (CCC) measures how long it takes a company to turn its investments in inventory into cash from sales. It combines three factors: how quickly inventory is sold, how fast customers pay, and how long the company takes to pay suppliers. For example, if a retailer takes 50 days to sell inventory, collects payments from customers in 30 days, and pays suppliers in 60 days, its CCC is 20 days (50 + 30 - 60). A shorter CCC means the company cycles cash more efficiently, while a longer CCC can signal cash flow issues. Investors use CCC to assess operational efficiency and liquidity.
See you on Wednesday!
Cheers,
Matt Allen
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