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How’s Business? More Retailers Say Wait Until the Quarter
- — 09 March, 2011 03:19
Among analysts and investors, debate has been growing about a retailer-reporting trend to stop publicizing monthly sales, and instead to offer results only quarterly. It's a trend some retailing experts see as robbing them of an important barometer in determining a business' fiscal well-being.
Monthly reporting of same-store retail sales "gives you a look into the health of a business," says Rob Samuels, managing director and senior retail equity analyst at Phoenix Partners Group, who is now in the process of analyzing the February monthly reports of some stores, and the fiscal 2011 fourth-quarter sales results of those that don't provide the monthly numbers.
Incidentally, quarterly and monthly sales figures both are generally strong -- indicating that recession-weary U.S. consumers are opening their wallets and shopping. Target, for example, saw a 2.4 percent increase in fourth quarter comparable-store sales, and for February, it reported a monthly rise of 1.8 percent. At Macy's, February same-store sales increased 5.8 percent, while the quarterly rise was 4.3 percent. "What we're seeing in shopper data is that consumers are looking to spend," said Doug Hermanson, an economist with research firm Kantar Retail. "For the most part, the sentiment to their financial situation has improved. We think it will support continued momentum in the retail market."
But the trend toward less-frequent sales reporting remains a subject of concern among those who follow retailing, and that's been the case since 2006, according to Kantar. Five years ago, the firm compiled the monthly sales reported by 37 retailers. This year, only 28 stores can be tracked on the basis of monthly reports.
Just recently, Abercrombie & Fitch, Aeropostale and American Eagle Outfitters (AEO) were the latest to stop publicly releasing monthly sales figures, with each chain ending the practice last month. They join an already lengthy list that includes Home Depot, Sears Holdings, and Wal-Mart Stores, as well American Apparel, Ann Taylor Stores, Pacific Sunwear and CVS/Caremark.
Few of the companies have much to say about the reasons for reporting sales less often -- or even for maintaining monthly reports, if they do.
"This shift enables AEO to align its reporting schedule with the company's long-term strategic focus, as well as provide substantive information that reflects meaningful trends and performance metrics to investors and analysts," Jani Strand, the company's vice president of corporate communications and public relations, said in an e-mail. Strand did not reply to questions asking how significant a role the retailer's CFO, Joan Holstein Hilson, played in its decision to end disclosing monthly sales figures.
Target, which does issue monthly data, says through a spokeswoman that it hasn't "announced any intent to change our practice of releasing monthly sales." She declined further comment. American Apparel and Wal-Mart did not return e-mails seeking comment, and the Gap, which releases some monthly store sales data, declined to comment, or grant an interview with CFO Sabrina Simmons.
Since 2008, the recession may have also swayed some retailers into reviewing the effect of offering monthly sales details, Kantar's Hermanson says. "I think economic volatility put pressure on retailers to look at it," he suggests.
Wal-Mart's decision to stop issuing monthly sales information may support this belief. The chain, which stopped reporting the data in May 2009, recently posted its seventh consecutive quarterly decline in monthly sales at its U.S. stores.
Analysts, most of whom like to have the monthly numbers to study, concur that emphasizing long-term goals motivates retailers to stop offering monthly sales data. (In a way, it is noted, the explanations of stores mirror the reasoning some companies offer to explain backing away from the quarterly earnings guidance -- now less-commonly offered by CFOs to the analyst community.) But the opinions of retailing analysts vary about how much insight monthly figures offer, and whether stores are right to shun doing the 12 reports a year, in favor of only four.
"It's an effort to try to focus investors on longer term trends," said Erika Maschmeyer, senior research analyst at financial services firm Baird. "There can be volatility in monthly comps. I think there is a view that it can create some volatility in the stock as well because there is the risk of looking at short-term trends." Indeed, he says he himself is "generally indifferent" to monthly sales figures, and he calls the trend at some non-reporting companies "a positive move" since it shifts the "focus on the longer term."
In addition, Maschmeyer notes, investors and analysts can access quarterly sales data during earnings reports. Quarterly figures, while "still a short amount of time," do adjust for monthly fluctuations and offer a complete set of results with a conference call to give additional context, Maschmeyer said. Kantar's Hermanson sees more value in monthly numbers. "I see the retailer's perspective that they don't want swings in judgment. I can see how they want investors to focus on long-term plans," he says. "But I still think there are tidbits in monthly data that let you see things sooner rather waiting for quarterly numbers to come out."
But if companies think that eliminating the monthly reports may "eliminate some volatility," Samuels believes that approach may have the very opposite effect. "Initially, I think you may get more because you are adding uncertainty," he explains.
Helping decrease that uncertainty actually prompted Macy's to return to publicly issuing same-store sales data, after stopping the practice at the start of 2008's fiscal year. "We really do believe that monthly sales encourage short-term evaluation," says Jim Sluzewski, senior vice president, corporate communications & external affairs. "Monthly sales are often misunderstood." After the "bottom dropped out of the economy," he adds, Macy's in October started providing the data again "to give investors clarity into the business given the huge macroeconomic shift." Macy's didn't reply to a request for information about the role of the company's CFO in its decision to stop, and then to resume, providing monthly sales information.
Although Macy's may have returned to the practice, Kantar's Hermanson doubts whether an improved economy will get other companies to follow suit -- unless the largest retailers making the first move.
"It's possible, but it might take Wal-Mart to get back into the game and pulling other competitors into it," he says. "The more retailers that stop reporting, the less other retailers feel pressure to report."