The Relationship Between Abnormal Inventory Growth and Future Earnings for U.S. Public Retailers.

Kesavan, Saravanan; Mani, Vidya

In this paper, we examine the relationship between inventory levels and one-year-ahead earnings of retailers using publicly available financial data. We use benchmarking metrics obtained from operations management literature to demonstrate an inverted-U relationship between abnormal inventory growth and one-year-ahead earnings per share for retailers. We also find that equity analysts do not fully incorporate the information contained in retailers' abnormal inventory growth in their earnings forecasts, resulting in systematic biases. Finally, we show that an investment strategy based on abnormal inventory growth yields significant abnormal stock market returns.

UNITED States; INVENTORY control; RETAIL industry; ECONOMIC development; CORPORATE profits; BUSINESS forecasting; INVESTMENTS; STRATEGIC planning; ECONOMETRICS

Manufacturing & Service Operations Management (M&SOM), 2013, Vol 15, Issue 1, p6

1526-5498

Academic Journal

10.1287/msom.1120.0389