Reporting monthly same-store sales could become a thing of the past.
Bebe Stores Inc. and Dress Barn Inc. on Thursday joined 8 apparel retailers — including Charming Shoppes, Guess, Gymboree, New York & Company and Talbots — that have discontinued reporting monthly comps over the past two years, in favor of reporting on a quarterly basis. Other retailers may follow.
Long a measure of the overall health of retail companies, Wall Street uses comparable same-store sales, or "comps," to compare sales of stores open for one year or more on a year-over-year basis. While advocates maintain that reporting monthly comps allow visibility into a company's current health, critics complain that reporting comps on a monthly basis tells little of a retailer's overall trends, disrupts operations and fluctuates stock price.
"I think we will see a big shift toward retailers reporting quarterly comps instead of monthly," predicted Eric Beder, specialty retail analyst at Brean Murray Carret & Co. "I use to be a big advocate of monthly comps, but now I think quarterly is the best way to go; there is too much noise associated with reporting monthly."
Beder and his peers say calendar shifts, promotional activity, inconsistent weather and changes in receipt flow can skew monthly comps results and create stock volatility that has little correlation to a company's actual vitality.
And since same-store sales are not subject to the rules of the Financial Accounting Standards Board, analysts say comps are not credible in comparing retailers even in the same sector.
"If investors don't understand how these components impact a company's monthly comp, they do not have a true meaning of the business and could be very surprised when quarterly earnings are reported," said Ann Poole, retail analyst at Nolenberger Capital Partners.
Same-store sales also ignore the role of direct-to-consumer and Internet sales, an increasingly significant portion of retailers' revenue, said Craig Johnson, president of consulting firm Consumer Growth Partners.
Dress Barn announced in February it would begin reporting same-store sales on a quarterly basis beginning with its quarter ending Oct. 27.
CL King analyst Mark Montagna said Dress Barn's change to quarterly comps should not surprise investors as it is in line with the company's overall strategy."Dress Barn has always managed for the long-term and investors are aware of that," Montagna said. "They're not going after monthly numbers — they are going after long-term growth."
However, Montagna noted that means less data for investors to evaluate when analyzing the company, and sees the overall trend of moving to quarterly comps as a negative for investors.
"Overall, it's a bad thing because companies should always be managing for the long-term anyhow and by not giving the monthly updates, it leaves more opportunities for investors to be surprised," Montagna said. "I think investors would rather have status updates along the way."
Plus-size women's apparel retailer Charming Shoppes decided to stop reporting monthly same-store sales in 2006 after the company acquired several online and catalogue divisions. Gayle Coolick, director of investor relations, said these acquisitions dramatically changed the company's mix of business, increasing revenue from online and catalogue sales, which now total about 15 percent of the company's revenue.
While not all feedback to the change was positive, Coolick said the overwhelming majority of investors understood that the change allows Charming Shoppes to focus on broader trends.
"We don't have to spend so much time explaining the nuances of holiday and calendar shifts," she said.
But moving to quarterly comps has not limited the company's visibility. "We are very open and frank between quarterly points if warranted," Coolick said. "If there is an update that's meaningful we will be out there with it."
While reporting monthly comps does provide investors a frequent update on business and reflects customer loyalty, it also creates volatility in the stocks, which sometimes is not justified and blindsides investors, Poole said.
This volatility has led many analysts to advocate shifting to quarterly comps.
"By only reporting quarterly comps, retailers reduce the impact of January, February and July, which in the grand scheme of things don't mean that much," Beder said.
Reporting only quarterly comps can also attract more long-term investors that do not want the instability that accompany monthly comps.
"Quarterly comps are usually reported at the same time as earnings, which gives investors a lot more information to digest and [with which to] evaluate the business. I think this eliminates some of the irrational weight that can be placed on a monthly comp," Poole said.Poole said companies could improve reporting under the current monthly schedule and cited American Eagle's approach to monthly comps. The company updates its quarterly earnings guidance each month when it reports same-store sales.
"By doing this, I believe they give more meaning to their comp, and investors have a better indication of how business is really trending," Poole said. "I think more companies should adopt this practice because it removes some of the irrational volatility and eliminates earnings surprises at the end of the quarter."
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