In its keys for retail success in 2011, Nielsen not only reiterated its cautious outlook for the year, but recommended retailers focus on internal productivity for growth since sales growth is still questionable.
Not exactly breaking news for those who follow the consumer products industry, eh? Everyone has their own investing strategies, whether it is Dogs of the Dow or something more complicated like options. I prefer to invest in companies with lots of cash on hand and limited debt, especially when it comes to retailers. Yes, I know it takes money to make money, and it's important for companies to spend in order to keep growing. However, it's also important to take a glance at a company's balance sheet to ensure that your investment isn't cash poor if disaster hits.
In order to make sure that you're not invested in the next Circuit City or Eddie Bauer, let's take a look at three retail and consumer products companies with interesting competitive situations but lackluster balance sheets.
Is Vera Bradley all that?
Her balance sheet, however, isn't as bright as those patterned purses. In its most recent results, the company held just $5.9 million in cash with $83.7 million in inventory on sales of $91.6 million. From May to October 2010, long-term debt ballooned by 157%, to almost $77 million. With a quick ratio of 0.8 and debt-to-equity ratio of 1.54, the company is taking on a lot of debt to reach its goals.
Some folks obviously have high hopes for Ms. Bradley, with a trailing-12-month P/E of 25. The stock was down a bit in December based on some confusion regarding earnings. For now, though, with her high debt and inventory coupled with non-standout results (including operating margin of 13.5%), Vera Bradley looks to have a lot of risk with not a lot of upside.
Since this company has recently gone public, we're just getting a picture of who Vera Bradley really is. Personally, I have been watching Coach
No lords a-leaping for LeapFrog
As my Foolish colleague Rick Munarriz outlined last week, LeapFrog
Although LeapFrog isn't burdened with any long-term debt, it is depleting its cash position with only $21.8 million in cash as of September 2010, a 65% decline in just nine months. Over that same time, inventory levels increased by 194%, to almost $83 million and accounts payable increased by 52%, to $88.3 million.
Will Barbie and her friends try to kiss the Frog and turn it into a prince? Hasbro
Wheel of Fortune for ACCO Brands?
Spun off from a company that I used to own, Fortune Brands
All of these companies will be reporting their post-Christmas results within the next month or so. Particularly, I'll be curious to see if any of these companies have made an improvement in balance sheet cash, inventory, and long-term debt. While these companies aren't broke, they surely aren't financially solid considering the shaky consumer products climate.
We Fools may not hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Fool contributor Colleen Paulson does not hold positions in any of the stocks mentioned in this article. Fortune Brands and Coach are Motley Fool Stock Advisor picks. The Fool owns share of Coach. For more investing strategies, take a look at the Motley Fool's newsletters via a 30-day free trial. The Fool has a disclosure policy.