Banc of America Securities says it believes that a report in the New York Times that clothing retailer Gap Stores (GPS) was aggressive in its inventory accounting is mistaken.
BofA analyst Dana Cohen says the San Francisco-based company, which is the name behind stores like Gap, Banana Republic and Old Navy, uses cost method of accounting, which recognizes markdowns at time product sold, vs. retail method, which recognizes markdowns when "hard markdowns" are taken.
Cohen feels that the difference between the two methods is less important than how companies operate. Cohen notes that there is no holiday inventory in Gap stores, meaning the company has not carried over markdowns from one fiscal year to the next. Cohen believes the company recognized markdowns in a timely fashion. While she thinks that the management continues to deal with the balance sheet, signs of merchandise improvement are not quite evident yet, she says.