Earlier this week I took a look at Jos. A. Bank's (NASDAQ:JOSB) earnings report and came away skeptical about the quality of the company's growth because of its ever-expanding cash conversion cycle (CCC) and lack of cash flow.
This is no small expansion. Jos. A. Bank is now taking a full two months longer -- 226 days in total -- than it did two years ago to convert its expenses into cash, and the numbers two years ago weren't anything to crow about, either. That said, I held off on giving a final opinion until I could compare Jos. A. Bank with a couple of competitors.
Before we get to the data, I recommend checking out Bill Mann's "Show Me the Money" to learn more about how to calculate the CCC yourself.
The CCC has three components:
- Days Sales Outstanding (DSO) -- Average Accounts Receivable / (Sales/365)
- Days Inventory Outstanding (DIO) -- Average Inventory / (Cost of Sales/365)
- Days Payable Outstanding (DPO) -- Average Accounts Payable / (Cost of Sales/365)
You can then combine these three numbers to determine the cash conversion cycle:
DSO + DIO - DPO = CCC
The competitors I chose are Sym's (NYSE:SYM) and Men's Wearhouse (NYSE:MW), and just to see how some other retailers do, I added The Gap (NYSE:GPS), Costco (NASDAQ:COST), and Dell (NASDAQ:DELL). For all companies, I used the most recent 10-K or press release covering annual earnings.
| Company | DIO | DSO | DPO | CCC |
|---|---|---|---|---|
| Jos. A. Bank | 304.6 | 4.4 | 82.6 | 226.4 |
| Sym's | 160.6 | 8.3 | 31.4 | 137.5 |
| Men's Wearhouse | 153.8 | 4.6 | 48.3 | 110.0 |
| The Gap | 64.9 | 8.2 | 44.6 | 28.5 |
| Costco | 30.3 | 3.4 | 29.2 | 4.5 |
| Dell | 3.6 | 29.9 | 73.6 | -40.2 |
Wow. It's truly amazing how many days' worth of inventory Jos. A. Bank is carrying and the havoc it is wreaking on its cash management, particularly when compared directly with competitor Men's Wearhouse.
What about Dell? How is it that Dell has a negative cash conversion cycle? Dell accomplishes this amazing feat by paying its vendors after it has received payment from customers. And just for the record, Costco is no slouch, either.
Fool contributor Nathan Parmelee owns shares in Costco but has no financial interest in any of the other companies mentioned.
