NEW YORK — Despite quick inventory turns in 2004, which lead to expanding gross margin rates, specialty retailers found themselves sitting on fatter inventory levels for the first quarter of 2005, according to an analysis by WWD.
Bad weather was the most likely culprit for the heavier year-over-year inventory levels.
The balance sheet and income statement analysis revealed that the inventory-to-sales ratio for the specialty apparel retailers tracked by WWD was 54.8 percent in the first quarter, up from 51.7 percent in the same period last year.
More than half of the companies in the specialty channel saw their individual ratios increase. The average ratio was 50.1 percent, up from 49.5 percent last year.
Still, several of the top-performing specialty retailers worked hard to keep inventories lean this year by maximizing supply-chain efficiencies. As a result, markdowns were kept in check.
American Eagle Outfitters, for example, finished the quarter with an inventory-to-sales ratio of 33.9 percent, which is down from 44.2 percent in the prior year.
But adjustments in the quarter by other retailers were not always done to lean inventory levels.
Abercrombie & Fitch, for example, recalibrated its inventory to meet higher consumer demand. The specialty retailer felt a low inventory level last year had negatively affected the company’s business results. Likewise, Aeropostale tweaked its inventory to slow its turn rate, but its ratio stayed constant as sales also increased.
In the current quarter, lousy weather may again play a key role in how much inventory retailers are left holding.
“Many retailers have already begun to take summer markdowns, but the recent boost in temperatures may provide some markdown relief and allow retailers to slow down their promotional cadence,” said Merrill Lynch analyst Mark A. Friedman in a research report last week.
Friedman went on to say that, despite the more favorable selling conditions, “we believe the lack of fashion excitement may hamper sales. Summer essentials should see a pickup, but we still believe it will be the retailers who offer constant newness and novelty that will come out on top.”