It's Clearance Sale Time
11 April 2023
After spending several months cooped up, consumers let loose once the pandemic was over. With their pockets full of money, they began to spend lavishly (on clothes, computers, furniture, etc.). This had the effect of skyrocketing the results of certain companies to record levels and, in turn, pushing these same companies to restock goods at levels more than necessary.
But the pockets eventually emptied. Inflation came back stronger than expected. Consumers changed their behavior: they now scrutinize the bill before paying, wait for special offers to make purchases, and no longer have an urgent need to renew all these purchases.
Even the smartest CEOs didn't understand the temporary effect of this boom caused by the health crisis.
As a result, many of these companies (Target, Nike, Boss...) found themselves at the end of the year with very high inventories.
And there is no miracle solution to empty the warehouses; destocking needs to be done through promotions and sales.
That's what we can observe from recent publications. It's clearance sale time.
Levi announced its results for the first quarter of 2023 - ending in late February - last Thursday.
Inventories reached a record level at the end of the 2022 fiscal year (23% of sales compared to 15% before the pandemic).
To reduce these inventories, as the CFO himself stated, they had to take deliberate actions, which were further aggravated in a highly promotional environment. In doing so, they maintained and even increased sales (+9% year-on-year without any impact from currency fluctuations). But at what cost? We now know the answer: at the cost of a significant decline in profits!
And it's not over yet. The liquidation of inventories will continue throughout the year, putting even more pressure on margins!
You can imagine the market's reaction.
The share price closed at -16%.
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