World Monitor Mag WM_June 2018 web - Page 100

additional content credit: Allan Swart / Alamy For one thing, companies have to explain what they’re doing to counter disruption. Valens has been sounding alarms about retailers losing steam to Amazon, for example, since around 2012. The firm’s analysts noted several retail companies they thought had more potential to thrive than most, including L Brands, the parent company of Victoria’s Secret and Bath & Body Works. When Valens was hired by investors to use its audiogram in the company’s first- and second-quarter earnings calls this year, it found further confirmation of its belief that the company was going to be able to, as a Valens research report put it, “streamline operations, while still driving innovation that consumers wanted.” But it turns out that 2017 hasn’t been a great year overall for L Brands. Sales dropped after Victoria’s Secret stopped selling swimwear and apparel to concentrate on its flagship lingerie, only to find that Amazon was undercutting that business. 96 world monitor When the company convened its second-quarter earnings call in August 2017, the stock was falling. However, in an answer to an analyst’s question about inventory, Stuart Burgdoerfer, chief financial officer of L Brands, said, “It is up a little bit but not significantly, and there’s a little bit of timing involved. But our commitment to manage inventory in line with sales was as strong as ever.” The CFO didn’t deny that there was a challenge. More to the point, his voice pattern as detected by Valens’s audiogram indicated that he believed what he was saying. The company’s stock has since started to rebound. A coincidence? Possibly. But Litman’s investor clients are looking for an edge that comes from an analysis of whether all the measures of a company’s financial health — equity value, debt, and a senior management team that has a firm grasp on reality — come together. Rittenhouse believes it’s more important than ever for corporate leaders to be forthcoming in times of significant disruption because managers who are honest about what they’re doing — honest with themselves and their shareholders — will be compelled to develop a clear strategy. “Delusional speech creates a cognitive dissonance that, in some sense, shuts down the brain,” she says. The good news is that companies can turn around a habit of obfuscation. Examining Walmart’s latest annual report, Rittenhouse found the letter a big improvement over last year’s. It contained clear language about factors the company could actually control, such as, “In the U.S., we’ve delivered positive comp store sales for 10 consecutive quarters and we’re hearing from our customers that their experience continues to improve.” You don’t need a computer program to detect the realistic confidence in that statement. Based on: strategy &