Consumer Discretionary Firms Under Increasing Pressure

As discretionary consumer spending gets squeezed, Audit Integrity expects companies in the sector with poor corporate governance characteristics to perform worse than those that are more transparently and conservatively managed.

Ironically,  consumer companies that have scored low on Audit Integrity’s corporate governance rankings have outperformed the top rank group over the past year.

For 1-year returns, companies in the top-ranked Conservative AGR and Equity Factor 5 category have been -30.7%, versus -13.6% for companies in the bottom-ranked Very Aggressive AGR and Equity Factor 1 categories. In addition to this current demarcation in returns, we expect lower returns from the Very Aggressive AGR category, in contrast with their higher ranked Conservative peers.

This leads us to conclude that the more opaque companies have managed to mask their problems to date.

The top-ranked consumer discretionary company CarMax (KMX) has shown a one-year decline of 27.3%, while the bottom-ranked Warnaco Group (WRC) was up 29.1%. Poorly rated Urban Outfitters (URBN) managed a 12-month return of 61.1%.

The top-performing “Conservative” company was Haverty Furniture (HVT), up 22.7%, followed by Buffalo Wild Wings (BWLD), up 12.8%.

Conversely, the worst performing “Very Aggressive” company was Starbucks (SBUX), down 44.9%, followed by eBay (EBAY) down 42.8%.

The full report is available here.

Comments

[o.c.d.colle...:]

Ebay has been masking their core business failure with paypal.All their antiques and collectibles sellers are leaving, or have already left, and are doing quite well elsewhere, where these types of products are recession proof. Not so for retail consumer products. Ebay now has a complete catalog of CD's and appliances just like Walmart. Maybe Walmart can buy them out, then JD can return to his home base.

2008 Oct 03 09:56 AM