One look at the earnings press release of quickly expanding retailer Jos.A. Bank (NASDAQ:JOSB) tells you that the company is smitten with its income statement performance. As usual, the sales and earnings performance was quite impressive, so it's understandable.
On the flip side, in the press release there's not one mention of the balance sheet or the statement of cash flows, which are equally important to investors. In fairness, investors can easily get this information themselves, but it is something that I find interesting. That said, at least Jos. A. Bank was nice enough to equip its release with a balance sheet and statement of cash flows.
Since all three statements are there, and Jos. A. Bank already talked up the income statement, I'll focus on the balance sheet and statement of cash flows, where the interesting pieces of Jos. A. Bank's performance usually lie.
The best news I saw in Jos. A. Bank's earnings release is an improvement in its cash-conversion cycle, which shrank by 30 days versus the same quarter a year ago. To be blunt, Jos. A. Bank's cash-conversion cycle still needs improvement before it can approach those of competitors Syms (NYSE:SYM) and Men'sWearhouse (NYSE:MW), but any trend that shows a reduction is a welcome one. The primary driver of Jos A. Bank's cash-conversion cycle improvement was an increase in its days payable outstanding and a slight decrease in its days inventory outstanding.
The last time I wrote about Jos. A. Bank, a handful of folks wrote in to mention that the company's inventory increases are easily explained by the need for inventory in the company's new stores. I don't disagree with that comment one bit. But as the company added inventory, it became much slower in converting that inventory into cash. I find that troubling.
Growth that greatly slows a company's cash performance over an extended period of time simply isn't sustainable. That's what makes Jos. A. Bank's improvement in its cash conversion cycle so important. Now we just need to see whether this is the start of a trend.
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Nathan Parmelee has no financial interest in any of the companies mentioned.
