I did a quick look at a few other retailers that post their actual sales returns in their SEC filings (WSM, AEO, and NILE). The pattern among those three is that sales returns as a percentage of revenue fluctuates very little. The rapidly-growing online retailer NILE shows the most variation of the three, ranging from 9.11% to 10.60%. RH’s range is from 4.43% to 7.47%. Without the error disclosed in RH’s latest 10-K, the range is from 10.22% to 11.14%.
On LinkedIn, a Restoration Hardware employee states that their department (ocean freight operations) has a consistent annual growth of 12%. This is much lower than the company’s reported revenue COGS growth (20%+). I would note that RH has been increasingly sourcing more and more of its product from overseas:
Adjusting for the lower domestic sourcing would suggest that RH’s total overall buying may have grown at less than 12% annualized.
Restoration Hardware’s financial statements paint a picture of very high growth. In the past, the financials were more or less internally consistent. Numbers with a relationship to revenues (taxes paid, contingent rent, actual sales returns, employee count) largely tracked the growth in revenue growth. What’s curious in the latest 10-K is that actual sales returns no longer track reported revenues due to an error identified for FY2013 and FY2012.
From the press release filed on EDGAR [emphasis mine]:
SHENZHEN, China, March 24, 2015 /PRNewswire/ — China Information Technology, Inc. (the “Company” or “CNIT”) (Nasdaq GS: CNIT), a leading provider of integrated cloud-based platform, exchange, and big data solutions to the Chinese new media industry, today announced that the Company has completed its acquisition of Shenzhen Biznest Internet Software Co. Ltd. (“Biznest”), a leading cloud computing hardware and software company in China. As previously announced, the total consideration of the transaction is approximately $15 million, consisting of approximately $7.5 million to be paid in cash and 1,543,455 ordinary shares to be issued by the Company. The transaction consideration has been fully paid by March 18, 2015 and the modification registration of Biznest with the competent administration for industry and commerce has also been completed.
Now I think that CNIT has figured out its identity as a hot cloud technology company. And now there is no reason for me to be confused about why Biznest’s domain name registration listed a chinacnit.com email address. (See my previous post on CNIT’s multiple personality disorder.)
*Disclosure: No position. I swing trade in and out of stocks. This may be a mistake on my part… who knows.
EDIT (3/27/2015): As of 3/27/2015. I am short CNIT. I may cover my position without updating my blog.
Avid sells its software through different pricing structures. For some products, Avid offers support contracts. Deferring revenue makes sense for those contracts. However, Avid also sells software for one-time payments. In my opinion, deferring some of the revenue from such sales creates a major accounting distortion. Avid already has the customer’s money so it does not make much sense to defer the revenues and profits on such sales.
Here’s what I would looking at shorting among mining stocks. Currently, the two stocks I am most interested in shorting are UUUU ($105M market cap) and NG ($1.08B market cap).
After Conn’s released its earnings, the stock fell by roughly two fifths from $35.09 to $20.83. The market was presumably spooked because credit losses were fairly high relative to expectations. While management has previously stated that the aspirational goal for static loss rates was 8%, it looks like Conn’s may exceed that for 2013 and 2014 vintage originations. Refer to the static loss tables in the 10-Q (page 32) and make your own extrapolations.
