Signs of higher inventory levels might signal trouble for the retail sector.
Although today’s retail sales report showed strength in the specialty store segment, department stores experienced a 0.8 percent decline. And sales in “general merchandise” stores (which includes department stores and discount retailers) saw a 0.5 percent decrease.
The weaker sales come at a time when wholesale inventories are bulging up, and sector inventory-to-sales ratios are inching higher each month. The total U.S. business inventory-to-sales ratio for June came in at 1.37 — significantly higher than the 1.30 reading in the same month last year.
Total apparel inventories jumped up 2 percent in June from May. And the segment’s inventory-to-sales ratio for apparel climbed to 2.07 from 2.03 in May — the largest reading since 1996. Not good news for retailers, especially department store operators.
Earlier today, Dillard’s said its inventory rose 3 percent in the second quarter. And its inventory-to-sales ratio gained 67 basis points. Also reporting today was Kohl’s Corp., which delivered a 0.6 percent gain to the top line. But its merchandise inventories rose 9.1 percent, and its inventory-to-sales ration bulked by 774 basis points. Yesterday, Macy’s posted a 3.8 percent gain to its inventory levels, and a 568 basis point gain to its ratio.
Analysts and investors are keeping a close eye on inventory levels, and will look for signs of excessive markdowns to clear it out, which will impact earnings.