The market is a funky thing. Take its spazoid assessment of the state of "teen denim." A few weeks ago, some analysts suggested we drop our shares and head for the hills because inventory would be too high at retailers such as Abercrombie & Fitch
Last week, the analysts' worries seemed to completely flip-flop. Fear the China embargo! Beware the lack of inventory for the all-important fall and winter quarters! Guess?, bebe
My suggestion? Fear overactive analysis.
The bearish thesis is this: With an embargo on certain types of clothing items such as cotton pants, companies that haven't already gotten their late-year ducks in a row will be scrambling for product, perhaps paying more to get it from other sources.
Does that make sense? It's not as if the impending embargo was a big secret to anyone in the clothing business. Should we believe it simply snuck up on them and gave them a big bite in the margins? "Whoa! Embargo? Where in the heck did that come from?"
When I spoke with him Friday, Guess? CFO Fred Silny chuckled at that suggestion, telling me, "Well, we do this for a living." He explained that Guess? had seen "the writing on the wall" and that the fall season's goods were already in the U.S. before the embargo took hold. "In terms of the China embargo," he said, "it's a non-issue."
While I haven't had a chance to speak with the rest of the downgraded denim crowd, I'd be willing to bet they'd offer similar assurances.
Suppose I'm feeling uncharitable and assume that Silny sugarcoated things for me just a bit. (Don't hold it against me, Fred. I've got to play Devil's advocate.) I'd still guess that any near-term sourcing problems won't last long. All of these firms get their products from a mix of Asian nations, not to mention Mexico, all of which are clamoring for the business.
In other words, don't overthink. Now's the time to concentrate on the forest instead of worrying about the trees. If margins come in softer than expected for the short term, and panic selling ensues, I'll consider it a buying opportunity. That's because I'm pretty sure that companies with a record for getting things right will continue to find ways to do so. Sticking with them -- instead of trying to outmaneuver the Street on short-term predictions -- is how you beat the market over time.
We've sewn up further Foolishness:
- Take a look at the success of recent analyst predictions for Guess?.
- Jeans glut at Guess? Not so far.
- Good news, trouser fans. There may be another investment idea in your pants.
Seth Jayson is a big fan of those crazy, Italian-cinema-looking Guess? ads. At the time of publication, he had shares of Guess? and Aeropostale but no position in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.