Teen Clothing Chains Nix Monthly Reports
Abercrombie & Fitch, Aeropostale and American Eagle
Outfitters will no longer announce monthly results. Publicly-traded companies
in the past have argued the monthly number puts too much emphasis on short-term
results.
"The shift enables American Eagle to align its reporting schedule with
the company’s long-term strategic focus," Jani Strand, a spokesperson
for American Eagle, told Bloomberg News in an e-mail.
Many analysts,
if not most, prefer chains stick to monthly reports.
Michael Baron, an analyst
for Baron Capital, told Bloomberg, "The
more information the better. More information helps us determine the true value
of the company."
Another analyst, Brian Sozzi of Wall Street Strategies,
called the practice of monthly reporting "archaic" and that having
three chains stop at once "makes it easier for others to follow."
Discussion Questions
Discussion Question: Does ending monthly reports make for better longer-term results for retailers or will it lead to masking problems that need addressing?
A blinding flash of the obvious. Way overdue. Good for these companies!
Our inability to think long term, to see beyond the immediate and to do only what will bring temporary reward today has done more damage than we know. At a car dealer this past week I was told I could get a great deal because it was “month end.” So I said “If you’ll offer me a good deal at month end, the kind of deal I’d get from you the other 28 days or so would be…? There wasn’t much of a response.
Month end or not, seems to me what you do is wisely serve your customers in the best way possible offering them the best value for dollar you can. The rewards will look after themselves.
Numerous publicly traded retail chains have shifted from Monthly Reporting to the Quarterly reports that are required of publicly traded companies. The shift that Abercrombie and American Eagle are making mimics what Walmart chose to do over 18 months ago.
Every department of well-run organizations has to continuously ask themselves what they should “Sustain” / “Start” / “Stop” in order to drive a more productive department. These organizations are going to continue to share comp store sales figures internally–with today’s POS systems, they can do it hourly.
Why tie up time to create added reports for the “fast traders” on Wall Street? Focusing the energy of financial and operations associates on a longer-term view will get their thinking geared to upcoming quarters, and making stronger decisions to build the company.
This move makes sense.
I’m with Mr. Sozzi on this one even though I have such great fun on the first Thursday of the month posting comps on Twitter! It’s difficult for chains to stay the course and execute long term strategies while enduring the monthly proctoscopic exam by Wall Street. Those in favor of this monthly event argue that the only thing in the way of them focusing on long term strategies is themselves. I see their point, but it takes a strong leader with a clear vision to stay the course and not be whipsawed by the inevitable swings in stock value.
So many times, comps look great but margins are a disaster. This change may force the investment community to take a deeper look at the fundamentals that drive each brand’s performance and hopefully help them make better investment decisions.
Quite simply, the best, most profitable retailers plan and manage their companies from quarter to quarter. For retailers to manage this way allows them to report trends across consumer seasons, which is only natural for the type of business we do. This makes complete sense for these companies.
Retailers need to wean themselves off of monthly reports AND same-store sales. It’s time to develop more reliable mechanisms to measure customer loyalty and company health.
This decision really doesn’t relate to the underlying operations of the retailer. Do sales results affect the stock price? Sure they do. Can they lead to bad operating decisions? Sometimes. This is the down side of being a public company–you have to periodically tell your investors what’s going on. I don’t know of a single retailer that doesn’t crash its inventories in the month leading up to their fiscal year end. This way they can report a better annual inventory turnover statistic. Does this help? Only the stock price, not the business. Hey, there are stock options to consider!
Monthly versus quarterly? If this move is going to change the day-to-day operations of a company, then this is a company in trouble.
I’m with Marge Laney on this one. In addition to investment community seeking new measures to evaluate retail performance, so should every senior manager within the retail sector. Long-term growth means profitable growth. Profitable growth is sustained by weaning ourselves off short-term lift. This only fuels the problem.
Monthly reporting is cumbersome and a waste of valuable time. What is the big deal? It is time this happened. I agree with an earlier comment that three brands announcing this at once will make it easier for others to follow.
I don’t know how cumbersome monthly reporting is, but it does create a certain mindset in the organization. Moving away from monthly comp reports (and paying less attention to analysts’ praise and shame) can only be positive.
It’s largely irrelevant whether retailers report comp sales each month. What really matters is whether the retailers’ management teams really understand what is driving their business (up or down) and their ability to positively effect their profit growth.
What is relevant is the reporting and transparency that comes with it, whenever it’s presented. For several years we’ve written about Comp Customer reporting and its value. It’s probably the best indicator of a retailer’s ability to manage its customer base and create profit growth. For more, click here.
Unfortunately, very few firms track such metrics and even fewer share the numbers with investors. Brokerage houses (existing client assets) and top performers like Amazon are the exceptions.
The answer to your specific question is “it depends.” On the positive side, monthly financial reporting forces retailers (and manufacturers too) to stay close to their business and take accountability for their actions with shareholders.
But this curse of monthly reporting drives short-term actions which in retailing can be deadly. There is enough pressure to promote. Retailers are better off without the artificial promotion pressure to hit monthly Wall Street calls.
To me the real significance of this move is to take the focus off of same-store sales and put it more squarely on profitability.
I’ve long felt that monthly reporting of same-store sales was a poor indicator of a retailer’s financial health. The obvious issue is that it’s too easy to buy sales with deep discounts that erode margins. But the deeper issue is the composition of the same-store base. A chain with a higher percentage of newer stores in the base will generally show greater increases, but those stores are generally not as profitable as more mature stores, nor are they assured of profitability.
To me, it’s really not an issue of short-term versus long-term perspective. Quarterly reporting forces its own imperatives. But quarterly reporting of financials puts the focus where it ought to be, on earnings, while retaining visibility to revenues. This is where management’s focus should be.
Every company pays a price for reporting. Getting the numbers are easy, just press the button on the computer. What takes time is writing up a meaning and answering questions.
Do we really need monthly reporting from retailers accounting for less than one half of one percent of retail sales? Many European companies report twice a year. Management should spend time running the company, not answering questions. Anything more than quarterly reporting is a waste of time and money.
It is nice to see companies that are realizing that the key is to run their business for long-term results, not short-term PR. This has been a long time in coming and is a good sign that retailers are thinking a little more about their business and a little less about Wall Street.