Home Depot's New Reporting Policy: Leading Companies Astray? (HD, EXPD)

Sarbanes Oxley was meant to get companies away from selectively disclosing their performance to influential investors. One way around the problem would be to replace forecasts with more timely delivery of useful data. Retailers have done so for years with their monthly release of same store sales. By choosing to now discontinue that practice, we believe Home Depot (HD) is setting a bad example for other companies.

Every quarter companies and analysts play the guidance game. In fact, now many companies also engage in the mid-quarter update to guidance game as well. This provides an opportunity for frequent news flow and keeps short-term investors hopping, but whipsaws the longer-term investors most companies profess to court. Jack Ciesielski at the Analyst’s Accounting Observer shares our opinion that guidance was one of the factors that led to the bubble mentality of the late 1990’s.

Companies now have an opportunity to experiment with new forms of disclosure to investors, that enable the shareholders to judge the corporate environment without the hangup of a specific number to meet. One excellent example is Expeditors International (EXPD). Each month it publishes an 8k of various questions (and their answers) that have come in to their IR department. It is a refreshingly honest read.

The retail same store sales comparison was one such measure. Actual data, delivered monthly, as opposed to a forecast management may feel compelled to meet even if they need to cheat. And now a leading retailer is moving in the wrong direction. While the particular metric may be different for different industries, having actual data delivered on a monthly basis seems to us much more useful than a forecast for the whole quarter.