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Operation Twist: Consumer Stocks in Trouble

Posted
9/26/2011 6:34:00 PM
By: Kapitall
Referenced Stocks:COLM;CRI;GIL;HBI;OXM;PVH;RL;UA;UNF;ZQK

(By Becca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Google Finance.)

Perhaps you've already heard about the "Operation Twist," a controversial new effort of the Federal Reserve to boost the economy by driving down long-term interest rates. The name comes from the 1960s when the Fed did the same thing under the Kennedy administration, and "The Twist" was a popular dance.

Many are arguing lowering interest rates will not have a significant impact on home or car buyers because struggling consumers don't care about interest rates as much as economists expect. Their evidence?

"Homeowners are relatively insensitive to mortgage rates when they are lacking confidence,” said Yale Professor Robert Shiller who famously predicted the housing bubble. “The dramatic thing that is happening now is that their job isn’t secure, if they even have one.” (via Business Insider)

Consumers lacking in confidence are worried about a recession or job loss, and the idea of taking on more debt - even with lower interest rates - is an absurd one. That's even if they are qualified for the loans.

"This may make it even more affordable for those few who can afford to buy," says Diane Swonk, chief economist at Mesirow Financial, a Chicago-based financial services firm. But it only helps a select group, she says, leaving most would-be homebuyers still unable to take advantage." (Via CNBC)

Retailers do not hold much hope for Operation Twist either. The consumer goods industry has suffered at length from dips in consumer confidence and interest rates may not have any immediate marginal impacts.

So, we were wondering, which consumer stocks are struggling to sell their products? For ideas, we looked at inventory trends, and identified a list of consumer stocks that have seen inventories grow faster than revenues during the most recent quarter.

This is often an indication that the company can't sell its products, and that they have excess inventory that might have to be marked down in the future.

Of course, this is one of many financial ratios to check out, so only use this list as a starting point for your own research.

Inventory trends suggest these companies are struggling to sell their products--do you agree that they're in trouble?  Do they stand to gain from the Fed's Operation Twist?

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1. Polo Ralph Lauren Corp. (RL): Engages in the design, marketing, and distribution of lifestyle products. Revenue grew by 32.35% during the most recent quarter ($1,526.4M vs. $1,153.3M y/y). Inventory grew by 42.36% during the same time period ($896.3M vs. $629.6M y/y). Inventory, as a percentage of current assets, increased from 29.13% to 35.63% during the most recent quarter (comparing 13 weeks ending 2011-07-02 to 13 weeks ending 2010-07-03).

2. Phillips-Van Heusen Corp. (PVH): Designs and markets branded dress shirts, neckwear, sportswear, footwear, and other related products worldwide. Revenue grew by 20.95% during the most recent quarter ($1,334.44M vs. $1,103.27M y/y). Inventory grew by 26.46% during the same time period ($877.45M vs. $693.87M y/y). Inventory, as a percentage of current assets, increased from 41.63% to 50.4% during the most recent quarter (comparing 13 weeks ending 2011-07-31 to 13 weeks ending 2010-08-01).

3. Under Armour, Inc. (UA): Designs, develops, markets, and distributes a range of apparel and accessories using synthetic microfiber fabrications in the U. Revenue grew by 42.26% during the most recent quarter ($291.34M vs. $204.79M y/y). Inventory grew by 73.64% during the same time period ($311.07M vs. $179.15M y/y). Inventory, as a percentage of current assets, increased from 38.32% to 50.07% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

4. Gildan Activewear Inc. (GIL): Gildan Activewear Inc. manufactures and sells T-shirts, activewear, underwear, and socks to wholesale screen printers, embroiderers, and retailers in North America, Europe, and internationally. Revenue grew by 34.01% during the most recent quarter ($529.78M vs. $395.32M y/y). Inventory grew by 60.41% during the same time period ($519.72M vs. $323.99M y/y). Inventory, as a percentage of current assets, increased from 44.96% to 56.43% during the most recent quarter (comparing 13 weeks ending 2011-07-03 to 13 weeks ending 2010-07-04).

5. Hanesbrands Inc. (HBI): Engages in the design, manufacture, sourcing, and sale of apparel essentials in the United States and internationally. Revenue grew by 13.88% during the most recent quarter ($1,225.23M vs. $1,075.85M y/y). Inventory grew by 26.6% during the same time period ($1,640.23M vs. $1,295.62M y/y). Inventory, as a percentage of current assets, increased from 61.2% to 65.56% during the most recent quarter (comparing 13 weeks ending 2011-07-02 to 13 weeks ending 2010-07-03).

6. Carter's, Inc. (CRI): Designs, sources, and markets branded children's wear. Revenue grew by 20.64% during the most recent quarter ($394.49M vs. $327.01M y/y). Inventory grew by 75.75% during the same time period ($458.11M vs. $260.66M y/y). Inventory, as a percentage of current assets, increased from 40.57% to 64.53% during the most recent quarter (comparing 13 weeks ending 2011-07-02 to 13 weeks ending 2010-07-03).

7. Columbia Sportswear Company (COLM): Engages in the design, development, sourcing, marketing, and distribution of outdoor apparel, footwear, accessories, and equipment in the United States, Latin America, the Asia Pacific, Europe, the Middle East, Africa, and Canada. Revenue grew by 20.83% during the most recent quarter ($268.03M vs. $221.83M y/y). Inventory grew by 35.9% during the same time period ($422M vs. $310.52M y/y). Inventory, as a percentage of current assets, increased from 33.29% to 42.18% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

8. UniFirst Corp. (UNF): Provides workplace uniforms and protective work wear clothing in the United States, Canada, and Europe. Revenue grew by 11.61% during the most recent quarter ($291.57M vs. $261.25M y/y). Inventory grew by 76.22% during the same time period ($66.84M vs. $37.93M y/y). Inventory, as a percentage of current assets, increased from 10.52% to 15.23% during the most recent quarter (comparing 13 weeks ending 2011-05-28 to 13 weeks ending 2010-05-29).

9. Oxford Industries Inc. (OXM): Engages in designing, sourcing, and marketing apparel products primarily in the United States and the United Kingdom. Revenue grew by 26.35% during the most recent quarter ($180.65M vs. $142.98M y/y). Inventory grew by 35.82% during the same time period ($77.73M vs. $57.23M y/y). Inventory, as a percentage of current assets, increased from 26.33% to 38.19% during the most recent quarter (comparing 13 weeks ending 2011-07-30 to 13 weeks ending 2010-07-31).

10. Quiksilver Inc. (ZQK): Designs, produces, and distributes branded apparel, footwear, accessories, and related products. Revenue grew by 14.01% during the most recent quarter ($503.32M vs. $441.48M y/y). Inventory grew by 34.7% during the same time period ($364.83M vs. $270.85M y/y). Inventory, as a percentage of current assets, increased from 30.73% to 38.48% during the most recent quarter (comparing 3 months ending 2011-07-31 to 3 months ending 2010-07-31).