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The retail sector is a cash machine, unlike most businesses that tend to dry up cash reserves on overhead.
And the ability to generate cash is the elixir that has attracted private equity firms. Leveraged buyouts are easily structured because of a retailer's cash flow. Although not all retail businesses are the same, inventory and store openings can sap net cash in a hurry.
WWD calculated the cash-to-sales ratio of the top apparel retailers in the industry and found that slightly less than half had ratios greater than 100 percent, meaning their rate of cash generation outpaced their sales for the trailing 12-month period.
Of the 55 publicly traded retailers tracked by WWD, 24 had cash-to-sales ratios in excess of 100 percent, and 18 of those had ratios exceeding 200 percent. Thirteen retailers had ratios between 5 and 100 percent. Eighteen had negative cash flow.
The cash-to-sales ratio is a metric used by some analysts to compare the cash generation of companies. Its value is in comparing one company's ratio to another.
Guess, The Wet Seal Inc., Buckle Inc. and Tiffany & Co. topped the list of strong cash generators, with ratios of 561, 498, 484 and 433 percent, respectively. The average cash-to-sales ratio of all the companies was 211 percent.
The retailers with low ratios or negative cash flow...