We all know that same-store sales have been hurting for a couple of months for the industry. And some retailers have been posting weak figures for even longer. So what are some, including Macy's, thinking of doing as a response? They want to stop reporting the figures.
The way I always understood it is that same-store sales were the most reliable metric in understanding a retailer's health. It is more accurate than total sales because same-store sales show growth year-over-year on a stable base of stores. Total sales can grow even if same-store sales drop if a retailer opens a ton of new locations. But that would hide the fact that either the company is cannibalizing its own sales or that other troubles may be lurking with customers beginning to turn away from the brand.
Without same-store sales, what will the next best metric to look at be? I don't think total sales will satisfy anyone. But does this just mean we look at net income per share and nothing else?
When Macy's Inc. decided this week to withhold its monthly same-store sales, the department store chain joined a growing list of publicly traded companies going mum over one of the most commonly used yardsticks for measuring a retailer's health.
Sears Holdings Corp. Chairman Edward Lampert stopped reporting monthly sales for Sears and Kmart after he took control of the company, calling the metric "vastly overrated." Home Depot Inc. did the same in 2006, arguing that since its supply business was expanding, it no longer was a pure retailer and, therefore, the measure wasn't as relevant.
"With Macy's dropping out, we've got fewer than 50 companies now," said Frank Badillo, senior economist at TNS Retail Forward, a Columbus, Ohio-based market research and consulting firm that tracks monthly retail sales. "That list was 60 or 70 a few years ago. We track it because it does provide some monthly gauge of what is happening in retail, but you have to take it increasingly with a grain of salt."
Some of the retailers that recently withdrew from reporting monthly sales are CVS, Pier One, Talbots and Dress Barn. Karen Hoguet, Macy's chief financial officer, told analysts that its decision "could be misconstrued as trying to cut back" on information, but, she said, "our hope is that you will find the information we do provide going forward will be just as meaningful."
When asked why Macy's and Sears abandoned their long-standing practice, economist Peter Morici said: "The reason those guys don't want to report same-store sales is because they're in a lot of trouble. They have a broken business model, and they would sorely wish analysts would pay less attention to what they're doing. They're trying to hide."
The debate over whether same-stores sales is overrated has been around for many years. Wall Street likes the monthly number because it provides a window into how consumers are spending during key periods, such as the holidays or back-to-school. Retailers often get frustrated reporting the monthly figure because, taken at face value, it doesn't give a full picture of what is going on.
Easter falls in March this year, for example, and occurred in April last year. That means shoppers are going to spend more in March this year, making it look better, and spend less in April, making it look worse.
"Unless you look deeply, people make snap judgments," said Carleen Kohut, chief financial officer at the National Retail Federation, a trade group in Washington.