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Saks’ days in inventory (DSI) metric (fourquarter average) is unacceptably high at 160 days, and its cash conversion cycle (fourquarter average) is 126 days. As a highend retailer, Saks places great emphasis on customer service. Its customers will pay higher prices as long as they receive the extra attention they feel is warranted by the higher price points. Nonetheless, it takes a long time to move inventory out the front doors. Saks’ general and administrative expenses are quite high, forcing operating and net income lower. This is counterintuitive, as one would expect higher prices at the register to translate into higher margins. Saks’ cash flows are obviously affected by lower margins. As a result, operating cash flow minus net income is negative about half of the time, which underscores the company’s problems managing its cash.
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