not so Great Expectations

Tomorrow morning at a time that is so early it doesn't belong on any civilized person's clock the monthly onslaught of information known in retail land as comps (comparable store sales) will be released for our viewing pleasure.

These numbers can be both a huge help and a pain in the tush when analyzing retailers. The numbers themselves don't matter to the stock prices as much as how they differ from analyst expectations. Numbers may be not just negative but very negative, but as long as they're better than expectations, everything's hunky dory. And conversely, positive is good, but if they don't beat expectations, all bets are off.

One of tricks is sorting the wheat from the chaff in the releases. Is a company blaming weather for poor performance? (They almost never give the weather credit for good sales.) Is anyone else blaming the weather too? Where are their stores concentrated? How's the economy (or the weather) in that area of the country? Are they up against easy comparisons from last year, or will last year be hard to beat? In March and April, you also have to take into consideration when Easter was last year... a change from month to month can also affect sales significantly.

Oh, and don't forget to look for clues about earnings. Sometimes the company will come right out and adjust earnings expectations up or down. Sometimes they'll just hint that margins are weak or strong, which may affect the quarter's earnings, even if they don't say so outright.

Getting back to tomorrow's numbers: expectations aren't very high. It should be happy days for the usual suspects selling food (see my post two days ago) such as Costco and Wal-Mart. The department stores aren't expected to do much at all... negative numbers should abound, although Nordstrom moved a big sale from June into May, so their comps should be good. In specialty and apparel stores, don't expect much there either. It's tough days at the mall.