A horse is a horse, of course, of course,
And no one can talk to a horse, of course,
That is, of course, unless the horse is ...
... the management of the company you're investing in.
And when one estimate of that company's first-quarter earnings comes straight from the horse's mouth, and another comes from a mere stock jockey, which of these two should you listen to? Fools already know the answer. And all investors learned it yesterday, when Dress Barn
On Tuesday, Dress Barn reported $0.30 per share in fiscal Q1 2008 profits on $363.7 million in sales -- down 25% and up 1%, respectively, but in line with the guidance management gave us in its Nov. 1 8-K filing with the SEC. How did the store manage to turn slightly higher sales into such a huge plunge in profits?
Basically, the story goes like this: Autumn has been a long time coming in 2007. Cool-weather fashions that Dress Barn stocked up on in anticipation of, well, cool weather, have hung unwanted and unbought on the rack. And now that autumn's finally found us, Dress Barn finds itself stocked to the rafters with more stuff than it can sell before it comes time to switch to selling honest-to-goodness cold-weather merchandise.
Just how bad are things looking at Dress Barn? I took a gander at the firm's balance sheet, and it's even worse than last time we looked. With sales up the aforementioned 1%, inventory today stands 11% higher than at this time last year. In an effort to move some of that inventory, management has "increased promotional activity" (industry-speak for "put stuff on sale") -- meaning profit margins are suffering as a result. What's more, CEO David Jaffe warned that despite "some recent improvement in the sales trend," we should probably "expect an increased promotional retail environment for much of this holiday season."
That means that not only is Dress Barn now dressing down in the single-digit operating margins of rivals like Ann Taylor
How the mighty have fallen. Track Dress Barn's rise and fall in:
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