All That Monthly Retail Sales Info? Overrated

by James Brumley | October 5, 2012 8:00 am

Let’s start with the good news: Target (NYSE:TGT[1]) reported pretty good September numbers this morning, with same-store sales up more than 2%. Hooray!

The bad news, though, is that this is the third from last month you’re going to be hearing those monthly sales updates from the world’s second-biggest discount retail chain. It’s following in the footsteps of bigger brother Wal-Mart (NYSE:WMT[2]), which also no longer shares monthly results.

In fact, there’s a rather large (and growing) group of companies no longer feeding top line results to investors every single month. Home Depot (NYSE:HD[3]), Lowe’s (NYSE:LOW[4]) and Dollar General (NYSE:DG[5]) discontinued the practice relatively recently, as did Sears Holdings (NASDAQ:SHLD[6]), Chico’s FAS (NYSE:CHS[7]), American Eagle Outfitters (NYSE:AEO[8]), Abercrombie & Fitch (NYSE:ANF[9]) and others.

So what gives?

As was the case when all other retailers stopped reporting sales figures every month, Target didn’t give a (real) reason. The market, of course, filled in the blanks with some admittedly reasonable assumptions.

The most common explanation offered so far is that it’s too much of liability, wreaks too much havoc, fosters a short-term mentality, and so on — they’re all the same basic idea. Investors are placing way too much weight on these numbers, and when they’re not good, the knee-jerk response is generally overdone.

And truth be told, though none of these corporations could ever actually come out and say so, that probably is the bulk of the reason monthly sales reports are becoming a thing of the past.

Fortunately, Target’s CFO John Mulligan was able to explain it in a less-dismissive manner by saying, “We believe aligning our sales guidance and reporting with disclosure of our quarterly financial results will create a longer-term focus and provide greater understanding of our sales results in the context of our overall financial performance.” It may be the obvious PR fluff, but it still sounds good.

All that being said, investors will survive without the monthly updates. Indeed, they’ve been surviving without the bulk of them for far longer than they may realize.

The Thomson-Reuters retail sales figure published each month — and the one so many analysts strive to predict — only uses 17 companies’ monthly sales results to come up with a number that many people use as a proxy for the strength of the entire sector.

That’s down from 68 retailers that were sharing monthly figures as of 2005 — a drastic cut in sample pool’s size in just a few years. And even when the index consisted 68 retailers, it was still well shy of the 200 or so retailers that could have (should have?) feasibly been included in the count.

Point being, drawing broad conclusions from the limited data set was never really a good idea, and it’s been a particularly bad idea in recent years. Investors may actually be better served by not digesting what could be meaningless industry-wide data.

For what it’s worth, retailing research outfit Retail Metrics reported that the 20 chains it tracks monthly sales for reported a 3.9% improvement in September. The pros were only looking for a 3.7% increase. The Thomson Reuters retail-sales measurement reported that the 17 remaining stores it follows monthly sales figures for saw a 3.6% improvement when excluding drug stores, which was right in line with forecasts.

It’s also important to bear in mind that these same-store sales results don’t consider the negative impact of store closures, though a shuttered storefront still acts as a comparative drag on a company’s overall top line. While some chains are adding net units, other chains may be at least partially offsetting that growth by shutting doors at some locales. Still, it’s modestly encouraging.

And, the National Retail Federation is predicting a total sales increase of 4.1%[10] for the November/December shopping period this year. That’s the largest forecast increase in Christmas sales the NRF has offered since the recession, yet (and this is more than a little confusing), it’s also less than the actual holiday sales increases we saw unfurl in 2010 and 2011.

Add that to the list of reasons we may want stop taking all these retail numbers to heart.

As of this writing, James Brumley did not own a position in any of the aforementioned securities.

Endnotes:
  1. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  2. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  3. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  4. LOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=LOW
  5. DG: http://studio-5.financialcontent.com/investplace/quote?Symbol=DG
  6. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  7. CHS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHS
  8. AEO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AEO
  9. ANF: http://studio-5.financialcontent.com/investplace/quote?Symbol=ANF
  10. predicting a total sales increase of 4.1%: http://slant.investorplace.com/2012/10/bah-humbug-chasing-holiday-sales-numbers-is-stupid/

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