2025 REI Financials - A breakdown
On May 4th, REI released its 2025 Financial Results. The landing page highlighted disciplined investment, $3.54B in net sales, and various improvements. Let me break down the Financial Statements, first with a quote from the CEO:
“This past year showed what’s possible when we stay grounded in our Peak 28 strategy and true to who we are,” said Mary Beth Laughton, president and CEO of REI Co‑op.
Bottom line:
-REI is funding itself right now by monetizing real estate and drawing on cash reserves while operations bleed. REI is a real estate business. They are a cooperative with no shareholder pressure, so they can continue to absorb losses. Comp sales are declining, operating cash flow *turned negative*, and auditors put $224M valuation allowance on their tax assets. They are in significant, and deep financial trouble despite the story of turnaround.
Let's break it down with highlights:
-Net loss of 54.3M - cumulative 4 year loss?
-The optical improvement of 155M to 54M is 25.9M due to from a sales leaseback. Strip it out, and the net loss this year is 77M.
-Reported sales are perfectly flat. FY25 was a 53-week year. On a comparable 52 week year, slight sales decline. The business is shrinking organically.
-Operating cash flow flipped negative +28M to (7M). Even with 92M of D&A add-back and the $25M sale gain helping reconciliation, operating cash flow went backwards. This is a major sign the business is deteriorating.
-**Valuation Allowance** - this one requires a bit of financial literacy, pay attention: Deferred tax assets grew to $224M. KPMG the auditor even states in the notes that REI has "significant objective negative evidence." So what does this mean?
--> Auditors don't believe REI will generate enough future taxable income to use 89.8M of NOLs sitting in the books. They are telling a story of a company that will not grow.
-Sales Leaseback: A liquidity event. This was a smart move to put REI on life support, but they keep gaslighting their employees with synthetic figures from these. 229.8M of proceeds in, but 186.6M is now a financial liability - and the DCS become a recurring lease expense forever - the P&L now absorbs this.
-Members Equity dropped 21M. Retained earnings fell 129M to 75M.
Others:
-CAPEX dropped to 50M from 71M, net PP&E declined to 56M - What does this mean? They're under-investing in the store base while monetizing the asset side which is another survival technique but not sustainable.
Ok now the positives:
-Gross Margin expanded, COGS declined on flat revenue. This shows merch and markdown discipline. This is really the only shining metric in this entire Financial Statement.
If you squint your eyes it looks positive:
-539M in cash and investments. 300M revolver undrawn. No debt. Good - but the many negatives outshine.
-Goodwill at Zero.
Reality:
REI is focused on the wrong things. They have been failing as a company for far too many years. This year, no exception. This has been a four year, deepening problem with small edge-cases of turn around. Luckily, the Financials don't lie.
Objectively, this Financial Statement would be serious doomsday if REI were held accountable to shareholders. REI continues to be in trouble.