Nomura Securities Retail Weekend Reading: You Can‟t Take Gross Margin to the Bank
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Rating Summary:
5 Buy, 25 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
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Nomura Securities Retail Weekend Reading: You Can‟t Take Gross Margin to the Bank
Analyst, Paul Lejuez, said, "Analysis of gross margin vs. gross profit dollars. The investment community (ourselves included) often focuses on gross margin as one of the key drivers of a retailer’s profitability. But you cannot take gross margin to the bank. If we think about the drivers of earnings growth, we should pay just as much attention (if not more) to gross profit dollars. While gross profit is more important than gross margin as a driver of earnings growth, increasing gross profit at the expense of margins is a slippery slope. This is important as we think about how 2012 may unfold. For many retailers that managed to use promos to successfully drive gross profit higher in F11, what is the encore in F12 to motivate consumers to buy – 50% or 60% off the entire store vs. 40% off in F11? We believe this issue will challenge the teen sector (Aeropostale (NYSE: ARO), American Eagle (NYSE: AEO), Abercrombie & Fitch (NYSE: ANF), Pacific Sunwear (Nasdaq: PSUN)) in F12."
Analyst, Paul Lejuez, said, "Analysis of gross margin vs. gross profit dollars. The investment community (ourselves included) often focuses on gross margin as one of the key drivers of a retailer’s profitability. But you cannot take gross margin to the bank. If we think about the drivers of earnings growth, we should pay just as much attention (if not more) to gross profit dollars. While gross profit is more important than gross margin as a driver of earnings growth, increasing gross profit at the expense of margins is a slippery slope. This is important as we think about how 2012 may unfold. For many retailers that managed to use promos to successfully drive gross profit higher in F11, what is the encore in F12 to motivate consumers to buy – 50% or 60% off the entire store vs. 40% off in F11? We believe this issue will challenge the teen sector (Aeropostale (NYSE: ARO), American Eagle (NYSE: AEO), Abercrombie & Fitch (NYSE: ANF), Pacific Sunwear (Nasdaq: PSUN)) in F12."
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