May 8, 2009
Wal-Mart Ends Monthly Same-Store Sales Report
Wal-Mart
is not the first retailer to decide against reporting monthly same-store
sales numbers but being the biggest means it is going to get a lot of attention
for doing so.
Tom Schoewe, executive vice president
and chief financial officer for the company, explained the decision in
a press release. “At the start of this fiscal year, Wal-Mart revised
its approach to providing guidance for sales. We went from providing guidance
for monthly sales to forecasting a guidance range for our U.S. businesses
for the full 13-week period. Moving forward, we will no longer report monthly
sales. We will provide comparable store sales results on a 13-week
basis, along with guidance for the upcoming 13-week period. And, we will
release this information during our scheduled quarterly earnings calls.”
“Wal-Mart
was built on a foundation that manages for long-term success,” Mr.
Schoewe added. “This decision aligns investors with the long-term
view we take to build shareholder value. We feel this also will reduce
the intra-period volatility related to events such as calendar shifts.
Reporting sales quarterly also places us in line with most other large
retailers.”
While
Wal-Mart laid out its rationale for the change, not everyone was happy
with the decision. An opinion piece on TheStreet.com, referred to the decision
as “yet
another abuse of investors” by a large publicly traded company.
Peter
Brown, vice chairman of consulting firm Kurt Salmon Associates, called
Wal-Mart’s decision “a loss of a very important indicator.” He
told Dow Jones, “They (Wal-Mart’s monthly same-store numbers)
are the best gauge of what is going on with general consumer spending in
America.”
Brian
Sozzi, equity retail analyst at Wall Street Strategies, told Dow Jones,
that Wal-Mart’s move makes sense and he expects “others to start falling
under the umbrella.”
Mr.
Sozzi said reduced reporting by Wal-Mart will make it more difficult for
investors to get information on the company, “but a little extra footwork
on investors’ parts will help make up for it.”
Discussion
Questions: What are the ramifications of Wal-Mart Stores decision to
not report same-store sales on a monthly basis? Does reporting monthly
adversely affect retailers that do it?
Discussion Questions
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I guess at minimum you could say that not reporting every month will save some resources that could be back into the sales floor (I’m dreaming here, aren’t I). We’ve become so reliant on Walmart as a barometer that all the analysts must be crying about this.
I don’t think it’s a big deal. It’s better to worry about what’s in your own backyard than anything else. I just hope that this doesn’t affect their internal lines of communication. Last thing you want is your employees in the dark especially during tough times.
Most other retailers that have stopped reporting sales on a monthly basis, such as Macy’s and Sears Holdings, have been roundly criticized for it. In fact, Macy’s reverted to monthly sales reporting last year when it became apparent during the stock market free-fall that investors wanted more transparency. In this case, Walmart may be “too big to care.”
The world’s largest retailer–and second-largest company of any kind–may feel that monthly reporting reflects short-term changes in the calendar, but most analysts who pay attention to the retail sector understand the impact of the Easter switch from one year to the next. Walmart may also feel that monthly reporting puts too much pressure on short-term thinking, but is quarterly reporting of sales and earnings really any different?
Bottom line: Taking Walmart out of the monthly sales data presents a very incomplete picture of how the retail sector in general is doing. This might give other public companies the “cover” they need to stop reporting monthly sales, but it does a disservice to shareholders.
The stock market is legalized gambling. And any numbers that a company provides is fodder for the gamblers. Wal-Mart is right in taking a long-term view of sales and earnings. Whenever they don’t get the numbers they need to gamble, Wall Street cries “abuse of investors.” We need to remember that these are the same “masters of the universe” that are responsible for getting the world economy into the mess that we are all living with.
Given the benefits Wal-Mart realizes from its transparency with its suppliers, one would hope they would see the parallels with their reporting to investors. Having to stand up and say “my comps were down by X% last month” means they will have to constantly be asking themselves *why* they are seeing those trends (after all, it’s the first thing an investor would ask). That level of forced introspection can only be good for the business. The question is, is using the forum of public investor reporting the best way to enforce that introspection?
I’d like to second Max’s comment and, at the risk of going slightly off on a tangent, say that I think a philosophy of encouraging investors to do more long-term research makes sense.
The other day, I heard an interview on Bloomberg Radio concerning the calls to put controls on short-selling. The interviewer asked, “But if investors can bet on a stock doing well, why shouldn’t they be able to bet on it doing poorly?” It really rubbed me the wrong way. Investing should be about putting your money into a company that you believe in. It should be about supporting worthwhile efforts, not playing the odds that a company is going to take a dive. If less short-term info puts investors into more of a long-term mindset, I’m all for it.
I believe this will have a positive effect on investors and analysts alike. Changing the focus on Wall Street and “main street” from short to longer term must be done for the economic health of our country.
Wal-Mart discontinuing its reporting of monthly same-store sales is problematic for a number of reasons, but indicative of two fundamental truths:
1. In spite of Sarbanes-Oxley, companies are increasingly reticent to provide external transparency into their business performance. E.g., just look at the banks and our banking system. And Wall Street.
2. Same-store sales, while a good measure of macro retail activity, is very limited in terms of reflecting management performance.
There are so many factors affecting same-store sales that as a metric it provides very limited visibility into what drove the performance. How many times do we hear comp sales performance attributed to external, uncontrollable factors such as weather?
While it might sound cynical (and to an extent this is…), unless or until a retailer starts reporting same-customer sales (“Comp Customer” sales… http://tinyurl.com/6x8k3o ) in addition to same-store sales, the degree of insight into that retailer’s business and its management performance is absolutely limited.
One day, hopefully within the next year, we will have a retailer reporting this number! And others will, quite naturally, follow.
This is a long-term positive move for the company, the market and the investors. We need to get out of looking at every situational change and begin to focus on structural changes. Data shows that companies that focus on the long run win. Those who are forced to focus on the short term have too many distractions.
I hope more companies go along with reporting only quarterly results.
I’ve never been a big fan of same-store sales, for a couple of reasons. First, as has been well documented, same-store sales are not always a true indicator of bottom-line results. It’s too easy to buy sales in the short term (or not buy sales, as A&F has demonstrated in the last nine months). Second, my experience has taught me that same-store sales can also be significantly impacted by the composition of the same-store base. One of the factors in same-store sales results is the level of new store openings in the prior two to four years, new stores that are now impacting same-store results. For these reasons, as well as the vagaries of month to month business, I’ve always focused more on quarterly results than monthly same-store sales snapshots.
Great points and perspectives all. I’ll throw in that Walmart’s same-store sales are most often paired with Target’s. When Target continues to report monthly same-store sales, Walmart’s absence will be magnified.
Why would less information provide a better indicator of the health of a business?
The problem is in the value attached by Walmart and investors’ analysts to short term information. Dumbing down results and fogging transparency seems silly.
Bravo! American’s fixation with short-term results are counter-productive to building a solid business. Too often I see companies doing dumb things to make the numbers look good. I think quarterly earnings reports are counter-productive as well. This silly game Wall Street plays projecting earnings and then companies trying to beat the projection (but not by tooo much) is ludicrous. One of the reasons we are in the economic mess we are in is that we spend way too much time manipulating numbers and not enough time building fundamentally sustainable businesses. Good for Wal-Mart!
I think this pretty much kills same-store sales as a metric for the industry. As other retailers have ceased reporting this (either because they’ve shut down or opted out) and Wal-Mart has continued to grow, it’s had greater and greater influence on the overall numbers. Furthermore, because Wal-Mart has done better than other firms, it’s propped up the overall figure. For example, according to ICSC’s stats, same-store sales were down 2.4 percent in November. But without Wal-Mart, same-store sales would have been down 7.7 percent.
There are only between 30 and 40 retailers left reporting this metric anyway. A few years back it was double that. With Wal-Mart going this way, I think it’s only a matter of time before everyone else adopts.
From my perspective, I’ve always looked to same-store sales as a gauge (rather than the Commerce Department’s monthly figures). But now the same-store sales figure will have less meaning. Perhaps a quarterly figure is a better guide? Or should we just look at retailer earnings rather than sales–which is what Eddie Lampert argued back in 2006.
I agree with most, in terms of our fixation on short-term quick fixes for the all-too-powerful (and often wrong) securities analysts instead of on long-term, intelligent growth. Bravo to Wal-Mart!
If you really want to know how a business is doing look at a rolling 52 weeks. A rolling 26 weeks will give you a reasonably good picture. 13 weeks, less so. The variables that affect any monthly period (or 4-week or 5-week as many retailers break their months into 4-4-5 week months) are numerous and often times misleading.
Wal-Mart is not running its business on a week to week or even month to month basis. Wal-Mart did not get to be the 2nd largest company in the world looking at month to month numbers. Wal-Mart’s success has been in executing a great long term strategy.
Many companies, retailers or not, have very good strategies that get thrown out the window with one poor month. The best performing companies in the world do not look at their business on a month-to-month basis. And if they don’t, why should they report their business on a month to-month basis?
One of the great problems today with American business is the microscope and reaction that accompanies short-term numbers. One wonders how much General Motors and Chrysler’s long-term strategy was denigrated because they were busy trying to beat month-to-month and quarter-to-quarter measures.
Bravo to Wal-Mart. Perhaps this will be a bit sanity for the investing public.
No doubt this will lend legitimacy to similar efforts at other companies, though their motives may differ. (Note: WM made this decision after they had come in above estimates…however low those estimates may have been.)
But is this effort to save us from ourselves good or bad? It’s hard to know; few would disagree that “short-termism” is a problem, but might this retrenchment cause a refocusing on even more frivolous indicators and outright speculation? If too much info is bad, wrong info is even worse.
Wal-Mart continues to over-perform compared to other retailers. They continue to build sister stores that will affect existing stores while their competitors close stores. So it would really be unfair to compare same store sales of a growing company cannibalizing sister stores while its competitors are closing stores at the same time to improve their same store numbers. I’m not too worried about it.
These are some great comments/views everyone, what a wonderful read. Regarding Wal-Mart, as my quote in the WSJ indicated, I am very supportive of this decision. In fact, it’s a decision I have been calling out for a long time not just on Wal-Mart but for all retailers. Now, don’t get me wrong; I am all for transparency, especially considering all the shenanigans of the past year plus. But, a move such as this gets investors to think about the business from a long-term perspective. For example, Wal-Mart shares sold off about 6.0% from the March comp release (company missed consensus) to late April, despite trends in the business being quite favorable. Why should shareholders be punished for shifts in the calendar, among other vagaries that always seem to pop up in the retail sector?
I would also add this tidbit. Let’s consider what Wal-Mart is at this juncture and where the focus should be. Wal-Mart is no longer a growth stock; the company is going to report low-single digit percentage earnings growth on average and pay a dividend. Wal-Mart is a strong holding in a long only fund, mutual funds, etc, and taking a hit due to a comp miss in March seems a bit overdone to me. I am much more concerned, at this point in its lifecycle, about Wal-Mart’s growth from within. What is it doing with suppliers? How are they controlling store level costs? How is merchandise being received by consumers? How are international expansion efforts tracking?
Thanks again for providing this type of forum ladies and gentlemen at RetailWire. Happy investing everyone!
I hope these dominoes fall throughout the retail industry, helping to relieve pressure on short-term, monthly sales goals. Perhaps it will modify marketing strategies in a good way. A few years back, Wal-Mart stopped reporting category and brand movement. The great hue and cry was that we would lose an absolutely necessary metric. But, somehow we still have sufficient knowledge to move forward.
I love the way Wal-Mart focuses on merchant issues over Wall Street concerns. In the end, it always pays off. They know from experience that keeping an eye on selling stuff to people is the remedy for any investor hiccups. The relaxation of monthly reporting will help WM management devote more attention to selling stuff to people. It’s called marketing.
I applaud the move. The addiction to monthly results by both shareholders and Wall Street pundits detracts from any retailer’s focus on the long term viability of the business and on improving the customer experience. I’ve watched too many retailers make terrible short term financial decisions simply to prop up monthly comps and even quarterly earnings per share results. While it would be more difficult for the casual investor, I would like to see focus on quarterly comps (which Wal-Mart is doing here) and semi-annual earnings per share in order to allow the retailer to focus on strategic long-term results.
Some people may not like it, but internally, month to month sales strives can be a road to problems. Always thinking short-term to hit the monthly goal.
Reminds me of my past jobs where everyone is scrambling in the last week to make sales…getting approval for last-minute discounting for that PO so everyone breathes easy the following week.
Oops. That customer loaded in 3 months of deals, so now they won’t buy anything for 12 weeks!
(Repeat cycle.)
Progressive Insurance has been reporting monthly profit and losses to the public for years. Any business with a computer can do the same. Investors are owners and it’s in the owners’ best interest to maximize their knowledge. Walmart’s reluctance to report same store sales monthly hurts their shareholders. You can bet that if comp sales were expected to be excellent, Walmart certainly would be happy to tell the world. Since every chain store polls its registers at least once daily (if not continuously), publicly-held chains should report their sales every day. Shareholders are owners and owners should have the facts, promptly.