Wal-Mart Does the Right Thing Dropping Monthly Estimate

Wal-Mart should be congratulated and not just on posting good numbers in January but also on eliminating its monthly comparable store sales estimate.

Monthly estimates in retail provide superficial figures that are as likely to misinform as to inform. For one thing, retailers can easily manipulate them. By engaging in a deep discount in a given month, a retailer can boost its comparable store sales, but the increase comes at the expense of profits. Because profits are reported quarterly, the move is disguised, potentially for several weeks.

Retail also is deeply affected by the calendar and weather. If a holiday such as Easter shifts from one month to another, two monthly results are deeply distorted. This year, Thanksgiving shifted a couple of days further into the holiday season and had an impact that went largely unremarked because of the economic slump, but one that was responsible for some of the strength seen in Black Friday sales. Blaming the weather is an old retail dodge, but sometimes it has a foundation. Look at Hot Topic and its recent results, for example. In January, Hot Topic had positive comparable store sales in every region of the country, which was true of December with the exception of the Northwest. The region had lousy weather in December and that was reflected in the monthly comp.

The real problem with monthly reporting is that observers, particularly on Wall Street, look only at the number and not the circumstances. The result can be unjustified volatility that is a management distraction and may even prompt operational decisions that anticipate investor response to a number that isn't reflective of actual operations.

Folks affiliated with Wall Street will complain that the Wal-Mart decision creates a lack of transparency and forces investors to guess more in their buying. A lot of complainers, though, make money by jumping on every figure companies report. Wal-Mart's decision to end monthly comparable store sales estimates at least assures that its contribution to the market conversation determining share price better reflects operational performance rather than manipulation or incidental occurrence. If Wall Street gets jumpy between quarters, that's its business.