Cows: The best hedge against inflation

Inflation, Macro

Last week I read an article in The Economist that caught my attention. Given the known issue with inflation in Zimbabwe, a businessman there has created a company that allows investing in cows in order to get a pension in the future.

I found it relevant because, if in anything Zimbabwe is among the top, is in inflation. So they must know a little bit about this current environment that we are living.

The most relevant characteristic of this initiative is that at the time of getting the investment back, investors can choose whether to get their assigned amount in cash or in cows. In the end, investing in cows is not different than investing in other real assets. In western markets, we can similarly buy stocks of public companies which raise livestock and it wouldn’t be so different. But being able to cash them in cows makes this investment independent of short-term fluctuations in the market (in this case in the cows’ prices).

In any case, what really reaffirms to me is that the best way to hedge our savings against inflation is to invest in real assets. Assets that produce some benefit and are revaluated on time, especially if inflation is high.

David Makuen, CEO of Citi Trends, highlighted the company’s achievements in the fourth quarter and throughout fiscal year 2022. He emphasized the following points:

  1. The company achieved a healthy gross margin of 39.1% in 2022 and reduced operating expenses by 9% compared to 2021.
  2. The company managed its inventories well and ended the fiscal year with a better-than-expected cash position of nearly $104 million and no debt.
  3. Citi Trends has been investing in enhancing the in-store experience and its infrastructure, and now 13% of their stores reflect the improved CTX experience.
  4. Despite a challenging economic environment, the strong balance sheet enables the company to invest in key product categories to continue delighting customers with fresh, exciting products at affordable prices.

For 2023, the company will focus on four main priorities:

  1. Driving comparable store productivity, focusing on opportunities to capture market share in areas such as footwear, beauty, kids’ apparel, and juniors and missy ladies’ apparel.
  2. Managing inventory and maximizing margin, expanding select categories, recouping sales in specific categories, and broadening the brand’s appeal to new multicultural families.
  3. Controlling SG&A expenses and leveraging the balance sheet, using analytics to eliminate unnecessary costs and establishing solid controls for spending decisions.
  4. Executing technology enhancements, continuing to develop the technology infrastructure to improve operational efficiency across the business.

However, the first quarter of 2023 has had a slower start than expected due to unfavorable economic factors affecting Citi Trends’ customers. The company remains cautiously optimistic and expects an improvement in the economic situation throughout the year.

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