The trendline for inventory sales over a longer duration is definitely positive for retail in aggregate (see this afternoon’s post). But let’s not forget where we are in the current sales/inventory and margin cycle. 2H08 looks good. Period. We’re seeing sales growth 4-6% in excess of inventory growth (better yet, we’re seeing inventories erode 4-6% less than sales), which is a good margin event. But this spread can’t remain positive forever – in fact it’s never been positive for more than 5 quarters in a row in the history of modern apparel retail. Consensus estimates are calling for a 35bp improvement in ’09 – a year I think we’ll see another 50bp hit to margins.
My point here is that retail is trading at 7.3x EBITDA. Yes, that seems cheap at face value if we look back 5 years. But taking a historical view I can easily argue anything between 4-6x.
This remains a stock-picker’s space. I like RL, FL, LIZ, TBL, KSWS, PSS and ZK. I don’t like GES, WRC, SKX, GIL, DKS, PVH, and VFC.
My point here is that retail is trading at 7.3x EBITDA. Yes, that seems cheap at face value if we look back 5 years. But taking a historical view I can easily argue anything between 4-6x.
This remains a stock-picker’s space. I like RL, FL, LIZ, TBL, KSWS, PSS and ZK. I don’t like GES, WRC, SKX, GIL, DKS, PVH, and VFC.
