Wednesday, July 22, 2009

‘Chic’ Accounting Tricks Boost Sales at Swank Inc.

As retailing continues to face the weakest consumer-spending environment in decades, Swank Inc (SNKI-$2.49), a men’s accessories supplier of leather goods and jewelry collections, reaches deeper into its fashion bag of accounting tricks to boost annual sales.

Distributing its namesake Swank, and well-known brands (like Claiborne, Kenneth Cole, Guess?, and Tommy Hilfiger) primarily to national retailers, such as Macy’s, Kohl’s, and TJX, the New-York marketer continues to demonstrate how to offset year-on-year declines in belt and jewelry sales and increases of in-store markdowns (associated with slow moving or discontinued merchandise) by manipulating period-end adjustments of customer returns.

Net sales in 2008, 2007, and 2006 were favorably affected by over-estimating the annual returns adjustment made during each prior year’s second quarter, according to
regulatory filings:

"Each spring upon the completion of processing returns from the preceding fall season, we record adjustments to net sales in the second quarter to reflect the difference between customer returns of prior year shipments actually received in the current year and the estimate used to establish the allowance for customer returns at the end of the preceding fiscal year."

As the actual returns experienced during the spring of 2008, 2007, and 2006 were less than the reserves established at the end of the preceding fiscal year, the subsequent adjustments increased net sales by $872,000 in fiscal 2008, $637,000 in fiscal 2007, and $1.25 million in fiscal 2006!

In 1995, the late Swank chairman Marshall Tulin (who died in 2005) passed the leadership reigns of president and chief executive officer to his son, John, stating his belief in the 1995 chairman's message that "it was time to let younger minds handle daily operations."

I wish I had it back again
The urge to sip from every mountain stream
Where every season promises
A host of golden, open-ended dreams
And every morning's joyful
With the prospect of days and nights to come
I love it most of all
The wisdom of the young
~ Saw Doctors (
“Wisdom of Youth” / youtube video)

Given John Tulin’s nimble use of the aforementioned accounting estimates – albeit within guidelines provided by generally accepted accounting principles – the 10Q Detective can only caution investors that youthful leadership might not profit Swank shareholders so much as what can be lost without the wisdom of age.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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