Do Inventory and Gross Margin Data Improve Sales Forecasts for US Public Retailers?

Posted: 24 Nov 2008 Last revised: 19 Sep 2012

See all articles by Saravanan Kesavan

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management

Ananth Raman

Harvard University - Technology & Operations Management Unit

Date Written: May 4, 10

Abstract

Firm-level sales forecasts for retailers can be improved if we incorporate cost of goods sold, inventory, and gross margin (defined by us as the ratio of sales to cost of goods sold) as three endogenous variables. We construct a simultaneous equations model, estimated using public financial and non-financial data, to provide joint forecasts of annual cost of goods sold, inventory, and gross margin for retailers using historical data. We show that sales forecasts from this model are more accurate than consensus forecasts from equity analysts. Further, the residuals from this model for one fiscal year are used to predict retailers for whom the relative advantage of model forecasts over consensus forecasts would be large in the next fiscal year. Our results show that historical inventory and gross margin contain information useful to forecast sales, and that equity analysts do not fully utilize this information in their sales forecasts.

Suggested Citation

Kesavan, Saravanan and Gaur, Vishal and Raman, Ananth, Do Inventory and Gross Margin Data Improve Sales Forecasts for US Public Retailers? (May 4, 10). Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 1305304; Johnson School Research Paper Series No. #02-09. Available at SSRN: https://ssrn.com/abstract=1305304

Saravanan Kesavan (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Gaur/

Ananth Raman

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States
617-495-6937 (Phone)
617-496-4059 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,377
PlumX Metrics