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Wednesday, February 15, 2012

Trying to Make Sense of Jos A. Banks Inventory Accounting Disclosures

TDL Research

An examination of Jos. A. Bank Clothiers, Inc.s (JOSB) 10-Q report for the quarter ended April 30, 2011 and we found multiple inventory related disclosures that seem to directly contradict each other. For example, on page 13 of the 10-Q report, the company disclosed: 120 basis point increase in gross profit margins mainly as a result of higher initial mark-ups driven primarily by retail price increases in certain product categories and improved sourcing; What does the company mean by improved sourcing? The rational conclusion, when discussed in the context of profit margins, is that they were able to get a better deal. Seems simple enough, except JOSB also stated on page 18 of the same 10-Q report: Cash used in our operating activities of $12.9 million in the first quarter of fiscal year 2011 was primarily impacted by an increase in operating working capital and other operating items of $38.0 million, partially offset by net income of $17.8 million and depreciation and amortization of $6.2 million. The increase in operating working capital and other operating items included the following: an increase in inventory of $28.6 million primarily as a result of the replenishment of units sold in fiscal 2010, new store openings, continued sales growth and higher inventory sourcing costs; On page 13 of the 10-Q report, the company claimed that its gross profits improved, in part, because of improved sourcing . However, on page 18 of the same 10-Q report, the company seems to contradict itself by claiming that it had higher inventory sourcing costs which should decrease gross profits. Jos. A. Bank needs to clarify its disclosures to avoid confusing investors and alleviate concerns about its financial reporting. It should answer the following question: Are the referenced sourcing costs are the same or different? How can I tell as they both seem to impact accounting items with similar if not the same effect? With their 10-K report due soon, Jos A Bank should clarify its inventory disclosures, and alleviate potential concerns.

In Focus:
Inventory accounting disclosures do not add up?

Trying t o M ake S ense o f J os A . B anks I nventory Accounting D isclosures P a g e | 1