Accounting & Tax

SEC Clears Stage Stores’ Inventory Accounting

When division margins at Stage Stores beat forecasts mightily, the company ordered a review of its valuation methods.
Stephen TaubMay 30, 2007

Stage Stores is reporting that the Securities and Exchange will not be taking any action against the company as a result of the commission’s probe of the specialty retailer’s inventory-accounting practices.

Stage said it received a letter from the commission’s Division of Enforcement stating that an investigation has been completed and that the division doesn’t intend to recommend any enforcement action at this time.

The SEC’s action doesn’t imply SEC approval of the company’s inventory-accounting practices, according to Stage. The company announced last August that it had learned from the SEC that it was conducting a non-public inquiry of Stage’s historical inventory-accounting practice. At the time, the company said it would delay the release of its second quarter results pending the completion of an internal review of the accounting issues.

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In the company’s announcement, Jim Scarborough, its chairman and chief executive officer, stated at the time: “In the course of reviewing our preliminary financial results for the second quarter, it became apparent that our Peebles division gross margins were significantly higher than our forecast.” Later, management decided to review the inventory-valuation methods used by the company to calculate its cost of goods sold, according to Scarborough.

On October 24, the company reported that it completed its review of inventory-valuation methodology and concluded that its historical use of the retail method to gauge its CGS and ending inventories was acceptable. Stage also decided that no restatements of the Company’s previously issued financial statements are required.

Stage is a specialty department store retailer that operates under the Stage, Bealls, and Palais Royal names in the South-Central states, and under the Peebles name in the Mid-Atlantic, Southeastern, Midwestern, and New England states. As of February 3, 2007, the company operated 655 stores.