Retail stocks update: If February same store sales were so strong, how come the S&P Retail Index (RLX) is only up 0.8 percent and is LAGGING the rest of the market? So I have been asked. Here is the answer:
1) February is the first month of the first quarter, and the least important month in terms of sales (it's usually below 30 percent of sales for the quarter). Also remember that Easter is late this year, so companies will have a tough time guiding for the quarter until close to the end.
2) not a single management team has dealt with the commodity inflation we are seeing now — we haven't seen commodity inflation like this in 20 years. No one has a clue how much they are going to raise prices, or how much a, say, 10 percent rise in blue jean prices is going to affect sales. "There is a black hole of modeling profitability for these companies for the back half of the year," one trader told me.
On the surface, the retail sales reports were good this morning. February retail same-store sales were up 4.3 percent, according to RetailMetrics, well above expectations of a gain of 3.8 percent.
This is good news, but there's a problem: there's fewer and fewer retailers reporting monthly numbers.
This month, three big retailers have stopped reporting monthly comp store numbers: American Eagle , Abercombie & Fitch , and Aeropostale .
They join a list of retailers that long ago stopped reporting monthly numbers:
Big Lots ,
Christopher & Banks ,
Citi Trends ,
Dollar Tree ,
Family Dollar ,
Dress Barn and
How bad is it? One veteran trader in retail stocks told me that in 2003, sixty companies he covered reported monthly same store sales. Today, there are about twenty — a drop of 66 percent! Admittedly, a small percentage of the companies have been bought, but you get the idea.
Why? 1) It requires work to compile the numbers, but it requires even more work to deal with the army of analysts and consultants constantly asking for guidance; 2) it adds to volatility around the stock, and 3) skeptics will argue that they stop doing it when the numbers aren't as strong as they want.
We are getting less and less data in general. CEOs and CFOs seem more reluctant to talk, and when the SEC starts making noises that imply that simple "channel checks" (like talking to a store manager) might constitute insider trading information, you can be sure that sell-side analysts — not exactly known for their original thinking — will also have less and less analysis.
You are seeing less commentary of the type: "I spent the afternoon with the CFO, and I came away impressed with his body language."
What does this mean? Less information means — well, that people will be trading with less information. Duh. But think about it: if people trade when there is more information...less information implies there will be....less trading.
Another implication: there will be more creative ways to parse what's going on, in a desperate effort to get some kind of edge in the vacumn. I met with one strategist yesterday who quit his job to create a hedge fund. His angle: the fund will trade based on computer analysis of the language used in the company 10Qs, as well as any comments made by company officials during the quarter.
I kid you not: computer analysis of the language, he insists, gives indications of what is really going on above and beyond the actual numbers.
That's where we're going. This will not make it easier for CEOs — they will have to "stick to the script" for an entire quarter, unless they put out a press release announcing some change.
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