Misunderstood Same-Store Sales Surge Offers Opportunity for Short Investors

Oversight Misled Retail Stocks Tuesday

An important calendar difference was missed by major media and expert analysts alike Tuesday. The oversight, and the later promotion of the wrong message by pundits, looks to have inflated same-store sales growth and provided a special opportunity for short investors over the near-term, especially in retail industry stocks.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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A Misunderstood Same-Store Sales Surge Offers Opportunity for Retail Stock Shorts

Loyal Wall Street Greek readers have gotten used to our regular debunking and uncovering of anomalies behind what can appear as strong economic data. Once again Tuesday, we uncovered an important and deflating detail that was overlooked and left out by every major business media outlet and even Wall Street's most respected retail sector stock analysts. This is a reminder of why you read the expert authored blog, Wall Street Greek.

When the International Council of Shopping Centers (ICSC) reported same-store sales Tuesday at a level that marked the best growth for the entire holiday shopping season, economists, strategists, analysts and portfolio managers alike got on television and radio and proclaimed the American consumer alive and well. Indeed, even I was left scratching my head, wondering why… for a second or two. After all, for the period ended December 18, same-store sales marked 1.7% growth, week-over-week, and 4.2% growth against the prior year comparable period. Redbook concurred, showing 3.8% year-to-year growth for the same period. The S&P Retail SPDR (NYSE: XRT) was up fractionally on the day, but Macy's (NYSE: M) moved 1.5% higher, while Target (NYSE: TGT) jumped 1.9% and Nordstrom (NYSE: JWN) gained 1.2%.

After researching the subject, I almost bought into the conclusion offered by some high-level industry folks. The big idea was that shoppers came out in force last week, packing in a good portion of their shopping during the period. The ICSC Index and report released Tuesday seemed to concur with this assumption, given that it showed 74% of consumers had finished their holiday shopping through December 18, which was up from 56.6% the week earlier. That surge in shopping activity could be behind some of the week's extraordinary growth. According to a Bloomberg article on the subject, Oppenheimer Analyst, Brian Nagle, seemed to agree. However, based on one important fact that most if not all of Wall Street and the business press missed, we have to disagree.

What Had Happened...

What the pundits and speak-easies missed was an important calendar difference between 2009 and 2010. Bloomberg Radio Host Kathleen Hays almost stumbled upon it when she asked an expert guest if the reason might be seasonal. He quickly and sternly stamped out that truth, saying it couldn't be seasonal, given that the growth was measured on a year-to-year basis. WRONG!!! Wrong! Wrong! Wrong! And shame on you Mr. Expert for leading Bloomberg's audience in the wrong direction by sounding like you knew what you were talking about. Kathleen, "The Greek" should have been your guest Tuesday. I know from my experience as an analyst, and from the advice given to analysts by a seasoned talking head back at my old firm, that it is widely believed that giving any answer to a television or radio interviewer is better than giving no answer. Wrong and unethical! Thus, many of the talking heads you see on TV answer confidently, when sometimes they are just regurgitating what they have read or heard somewhere else, or they are simply spewing out their best guess. In other words, sometimes the well articulated and seemingly sound advice of experts is completely baseless and hazardous for investors to buy into.

Super Saturday is the second most important shopping day of the year after Black Friday, with Cyber Monday and Christmas Eve likely on their heels. Super Saturday is the Saturday immediately preceding Christmas, but it does not always fall on the same calendar date each year, and this year a slight differential misled the entire market.

Christmas falls on Saturday this year, but it fell on Friday in 2009. Thus, Super Saturday fell on December 18th this year, and was measured in the latest week's same-store sales. However, last year, Super Saturday fell on December 19th, and so it was absent from this latest prior year comparable that the 4.2% growth climbed over; its impact will instead be seen in next week's report. Therefore, next week's same-store sales growth result has a good chance of falling short of expectations and disappointing investors, if our analysis does not restore market efficiency sooner than that. Given this week's message, or false message, investors who might have been misled into buying retail stocks Tuesday could regret their action shortly on market correction.

Other data and expert analysis seem to point toward trouble for the whole of the holiday shopping period. The National Retail Federation Survey released in the middle of the month noted that 62% of adults surveyed said they would spend the same amount of money or more this year than in 2009. This fact also seemed to enthuse a few fools Tuesday, especially while complementing the 4.2% inflated period growth. However, those of us who have a bit of math proficiency remind readers that if this is true, then 38% of shoppers will be spending less this year. That second bit of information, characterizing a large number of people who usually spend about the same amount every year, likely plays more importantly for retail revenues and profits… but not for headlines.

Retail guru, Jay Margolis, pointed out that consumers were following deals this year, and staying home if there were none. He noted desperate retailers' broad store-wide discounting late in the season but well ahead of Christmas, as shop managers seek to ensure the movement of inventory. Otherwise, retailers would be faced with excess, and need to discount even further post Christmas. This is a bad sign, and it means shop-keeps will be turning inventory, but at a lower ticket. That little ditty should keep revenues soft and profit margins tight come quarter end. Therefore, assuming the week's 4.2% growth doesn't coincidentally correlate with the direction and state of the sales season, then this potentially mistaken surge in retail shares could offer opportunity for short investors of retail sector stocks.



This article should prove interesting to investors in NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE, NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: MS, NYSE: C, NYSE: PNC, NYSE: WFC.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.