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Analysis: Wall Street pans chains dropping monthly sales data

When it comes to sales results, investors and economists want more, more, more, but retailers keep giving less, less, less.
/ Source: Reuters

When it comes to sales results, investors and economists want more, more, more, but retailers keep giving less, less, less.

Three more U.S. store chains have dropped out of the monthly sales reporting frenzy on which many investors rely to trade stocks, further compromising indices used by some analysts as a gauge of the health of consumer spending.

On Thursday, teen clothing retailers Abercrombie & Fitch Co, Aeropostale Inc and American Eagle Outfitters Inc reported monthly sales for the last time, becoming the first public companies to stop since Wal-Mart Stores Inc decided in 2009 it had had enough.

As recently as five years ago, Thomson Reuters' Same-Store Sales index tracked 68 retailers. Starting next month it will only include 25 chains.

One by one in recent years, chains such as AnnTaylor Stores Corp, Dollar General Corp and even Starbucks Corp have dropped out.

By depriving investors of monthly updates that keep Wall Street expectations more closely aligned to reality, retailers can end up with even bumpier stock moves when they report quarterly results, investors warned.

"The lack of transparency just leads to speculation," said Walter Stackow, an analyst at Manning & Napier, whose holdings include Nordstrom Inc, Kohl's Corp and BJ's Wholesale Club Inc.

Many retailers have tired of seeing their shares take a beating when their monthly sales figures fall too far below Wall Street estimates.

Abercrombie last month said December same-store sales rose 15 percent, above analyst forecasts, and its shares rose. Conversely, American Eagle's same-store sales fell a worse-than-expected 11 percent, sending shares down.

"In order not to see that volatility, they would rather not report monthly," said Jharonne Martis, the director of consumer research at Thomson Reuters, who oversees the index.

Wal-Mart cited stock volatility when it announced in 2009 it would stop monthly reporting. Other retailers have tried to follow Wal-Mart's lead.

Macy's Inc had stopped monthly sales reports in February 2008. But when the economic crisis raged later that year, Macy's felt it better to reassure investors by checking in more frequently and resumed monthly reports.

"Deep down, they'd all like to be done with this," Nomura Securities analyst Paul Lejuez said. "It makes it harder for us to have fewer data points."

MONTHLY SALES INDICES IRRELEVANT?

Economists rely on the data and the overall same-store sales chain indices, which are weighted in relation to a retailer's size, to get a first glimpse of consumer spending, which accounts for 70 percent of the U.S. economy.

Most retailers that do report monthly do so on the first Thursday every month. Thomson Reuters and others use that data to compile indices of same-store sales.

The U.S. Department of Commerce comes out with its own broader figure a week later and includes public and private retailers, auto sales, grocery stores and a host of other merchants.

"In that broad, big picture, when you think of all the different retail channels and specialists, there are huge parts of retailing that are unaccounted for in the monthly numbers," Kantar retail senior economist Frank Badillo said.

Badillo said that department stores and apparel retailers -- even with the three latest defections -- are well represented in the Kantar index, which included 31 retailers through this month.

National Retail Federation spokesman Scott Krugman also argued that the reports are of limited value.

"It's great for analysts following a particular stock, but not so helpful for tracking overall consumer spending," Krugman said.

Analysts and economists have long quibbled how much monthly reports reflect the overall economy when big players such as Wal-Mart and Best Buy Co Inc do not provide data.

Wal-Mart alone, with expected fiscal 2011 sales of $423.7 billion, is nearly 25 times larger than J.C. Penney Co Inc and six times bigger than Target Corp, both of which still report every month.

Still, because the 25 remaining companies range from Saks Inc to J.C. Penney, the monthly reports tap a broad enough group of retailers to be useful.

"It's still an input into the wider picture so it's not completely irrelevant," Manning & Napier's Stackow said.