Channel Stuffing

No, we’re talking about an attempt to shop lift a lot of perfume here. (That's Chanel anyway...one "n.") We’re referring to companies trying to skew their earnings for a particular time period. In order to make expectations for a particular period (usually a quarter), a company might push customers to buy a bunch of stuff now and just leave it in inventory for later.

The company books a bunch of sales right away, goosing this quarter's revenue and earnings. All the analysts are happy, and the stock goes up. The problem is: the company just borrowed sales from the future. All the customers that stuffed the channel this quarter won't need to re-up as scheduled next quarter. Eventually, the company has to use other tricks to inflate their numbers or, somewhere down the line, book a really weak quarter. But by that time, maybe the executives in charge have already exercised their stock options and spent their bonus checks. Someone else's problem.