Monday, August 1, 2011

SuperValu's Gross Margin: The Lower The Better?

Rising gross margins are almost always cheered by market action. But a myopic focus on this figure can get a company and its investors stuck in a short-term mentality. Yes, increasing gross margins can signify pricing power or cost advantages. But higher prices and lower costs can also make short-term profits look good while actually hurting the business in the long run. (For example, a company could cut its service levels, raising gross margins now, but resulting in customer losses in future periods.) Consider SuperValu (SVU), which is using this phenomenon to its advantage.
Read More...

No comments: