INVENTORY INSANITY 1Q26: Inventories Disciplined While Demand Accelerates

Research evidence excerpt

INVENTORY INSANITY 1Q26: Inventories Disciplined While Demand Accelerates

USA | Consumer EquityJulyResearch14, 2026

Retailers Continue to Build Inventory...INVENTORY INSANITY 1Q26: Inventories

5.3% 5.6%

4.4%Disciplined While Demand Accelerates 3.1% 3.7% 3.0%

Inventory growth accelerated in 1Q26 but sales growth accelerated even (2.4%) 1.2%

faster as demand proved resilient and spending, traffic & full-price selling (5.6%)

strengthened, driving I-S spreads to their healthiest in over a year. Tariffs still 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 3Q25 4Q25 1Q26

pressure margins, but the rate of compression has stabilized, setting up a better .Source: Company data,CoverageFactSet,Group InventoryJefferiesGrowth

backdrop into 2H26. SN & YETI remain top picks, with healthy I-S spreads,

...But Demand Is More Than Keeping Up...

accelerating demand trends & margin upside creating strong setups into 2H. Our Coverage Group's YoY I-S Spread

250 bps

Inventory Growth Continues to Accelerate, but Sales Are Growing Faster. Inventory growth across 38 bps

our ~80-company consumer discretionary coverage universe accelerated to 5.7% in 1Q26, the (186) bps (82) bps (251) bps (124) bps (285) bps

highest level in two years. Importantly, however, sales growth accelerated even faster, to 8.4%, (416) bps

driving the group's I-S spread to -285bps. The increasingly negative spread indicates inventories

remain well aligned with demand, suggesting retailers are building inventory in a disciplined manner (814) bps

rather than chasing slowing sales. .Source:1Q24 Company2Q24 3Q24data,4Q24FactSet,1Q25Jefferies2Q25 3Q25 4Q25 1Q26

Consumer Demand Is Holding Up Even Better. Management commentary through 1Q26 pointed ...While Gross Margins Stabilize Ahead of