A senior industry executive said not long ago that “nobody wants to own inventory except the consumer-and thats sometime in doubt as well”.
The industry certainly seems to be taking the position to heart as we analyze the data gathered from the latest barrage of quarterly reports from public companies.
Both retailers and vendors alike took aggressive measures over the last year to reduce inventories as senior executives anticipated a slowdown at retail. The result is improved margins and bottom-line results even as sales slow at the retail level.
While many of us expected to see the obvious improvements in the costs associated with building and maintaining this inventory, the improvements that many companies have made in supply chain management have also resulted in a reduction of inventory exposed to markdown and close out. This will impact Gross Margins in a positive way for vendors, but may hurt some retailers that count on off-price goods to build top-in traffic.
A quick look at Gross Margin and Inventory reveals a telling correlation between the two that should not be ignored.
This week, we have reviewed the most recent quarterly reports for the vendors and manufacturers we track on a weekly basis. The results are grouped by Apparel, Footwear or Hardlines & Accessories. While many of these companies also sell product in the other classifications, we grouped each by the predominant product category.
Its remarkable that many of these companies were able to cut inventory levels even as they report that retailers have cut back on futures commitments in favor of at-once and auto-replenishment programs.
We will review retailer results next week.
SportsNewsSource tracks a total of 130 public companies on a weekly basis with the highs and lows of the week reflected in the “Market Movers” box below.
The following chart on page three reflects the results of eight predominantly apparel companies. All but two showed improved earnings results for their most recently reported quarter and only one, Ashworth, saw its inventory increase faster than sales or backlog. The main reason for the change in inventory position at ASHW is the support of the new Callaway apparel product line that is fueling future growth.
Only Russell saw total sales dip for the quarter, while Columbia was the only company that showed a U.S. sales decline. Quiksilver saw U.S. sales reduced as a percentage of total sales, but this was due in large part to the acquisition of its Asia-Pacific partners in early Q4 that adds accretive direct sales.
Gross Margin improved across all companies except for Everlast, where GM dropped twelve percentage points.
On the footwear side, where we track 14 predominantly athletic footwear companies, we found that only Nike and Vans had lost sales in the U.S. market in their most recent quarter. Granted, both were reporting figures for the quarter ending February where others reported numbers through December. We wonder if this is a sign of possible issues for the others when they report 2003 first quarter numbers. Other companies like Timberland and K-Swiss did see International growth outpace U.S. growth in the quarter, but K-Swiss in particular looks to be positioned for a nice 2003 first half increases with backlog running 43% ahead of last year.
Puma is the clear winner in the footwear category on a percentage basis, with both U.S. and Worldwide sales surging in the 2002 fourth quarter. Total sales were up 46.5% while U.S. sales jumped close to 70%. Puma reported a 47.5% backlog gain at the end of the year as well.
Higher inventory numbers at KSWS may be required to service its backlog and the expanding Foot Locker Quick Response program. We see some concern with the A/R increase at both Converse and K-Swiss given the percentage of their sales tied up in the Foot Locker business. Reebok and Nike both saw inventories rise against the backlog rate.
Skechers and Vans are both losing across the board and are not providing any positive guidance in the near-term. Look for both to move lower before any possible turnaround.
Fila, on the other hand, may be down in many of the key indicators, but could face a brighter future with the recently announced sale of the company to a U.S. private equity firm and very respectable 7.0% growth in U.S. order backlog.
Earnings dipped more widely in the Hardlines and Accessories category, with six of the 17 companies covered reporting negative earnings growth for their last quarter. Many saw margins shrink even further in an already tight margin business, while Oakley continued to see margins reduced due to increased sales in the lower margin footwear and apparel categories. Oakley is also losing in the U.S., with the domestic business off 7.4% while total sales grew 14% in the 2002 fourth quarter.
We saw bright spots with three companies turning year-ago losses into profits for the most recent quarter as Cybex, K2, Inc. and The Hockey Company all posted gains to the bottom line.
>>> The Wall Street figures look ugly when compared against almost everyones 52-week high, but we have seen some solid moves that bode well for our industry as executives tackle the operational issues to deliver bottom-line results
