Limited Brands (LTD), owner of popular brands including Victoria's Secret, Pink and Bath & Body Works is scheduled to report February same store sales this Thursday. As the company projected same store sales growth in the mid-to-high single digit range, when it reported earnings on February 23, 2012, investors in LTD may require less guess work to come up with their own sales projections than investors in other retailers.
The availability of same store sales information is not as widespread as it used to be as retailers ranging from retail giant Wal-Mart (NYSE:WMT) to smaller retailers like teen apparel retailer Aeropostale (NYSE:ARO), have decided to report sales on a quarterly basis instead. Of the retailers that still do report monthly sales, those scheduled to report February sales this Thursday include Target (NYSE:TGT), Costco (NASDAQ:COST), and the Gap (GPS).
It is understandable why some retailers don't want to report monthly same store sales, as they may not want investors to focus on too short a time horizon, especially if analyst expectations are off actual results leading to potentially higher monthly stock volatility. Using LTD as an example, this past January, same store sales rose 9% over the comparable prior year period, beating analyst expectations of 2.4%. Those results followed a December comparable store sales beat of 7% vs. analyst expectations of 5.7%.
While regular investors may lack the resources of analysts to try to predict monthly sales trends, perhaps free information available on the internet may offer a few clues to assist investors in predicting results.
Potential Clue #1: Various sites offer details of web traffic. For example, Alexa.com, a site owned by Amazon (NASDAQ:AMZN), allows people to add a toolbar to their browsers that allows Alexa to gather information from Toolbar users such as page views and average load times. Alexa also uses this information to rank traffic of major web sites. Here is a link to the statistical information that Alexa provides for victoriasecret.com. If you click on "reach" above the graph, you are given an estimated percentage of global internet users who recently visited the main Victoria's Secret web site. You can also click on the time period "max" to see how web traffic has varied over the past two years.
Based on the graph currently being displayed at the time of writing this article, Alexa estimated a higher reach for Victoria's Secret in December 2011 vs. the prior year. As indicated earlier in this article, December same store sales were up at LTD, beating analyst expectations. With the benefit of hindsight, one could be tempted to conclude that Alexa's higher reach estimates for Victoria's Secret in December foreshadowed higher sales. Specifically, one might have hypothesized that as LTD sells its products online and in stores, that an increase in web reach meant an increase in web sales, and also perhaps an increased interest among consumers in visiting the company's stores to make purchases.
However, even if the estimates accurately represented the global web audience, web traffic does not necessarily translate into sales, and there are countless other explanations as to why traffic may have been higher. In LTD's case, sales are for more than one brand, which would require looking at Alexa statistics for the company's other brands' websites to try to get some insight into how popular the entire company may be in a given month. In addition, if we look closer at Victoria's Secret's results, in the last conference call, the company stated that during the first two weeks of December it had high promotional activity in its direct-to-consumer (e-commerce) segment. For the quarter, direct-to-consumer sales increased 3% vs 13% for store sales, and 12% for same store sales, while gross profits were down as a percentage of sales at the direct-to-consumer segment. So while it would have been easy to jump to conclusions based on Victoria's Secret estimated higher web reach at the end of last year, we can see that there's more to the story, and in this example, looking at web reach might not have been as helpful in predicting results beyond online sales as one might have guessed.
That said, there may be other instances where changes in web traffic provide greater insight to how a company may be performing. For example, declining web traffic during back to school season may be a bad omen for the popularity of a teen retailer. Or using a current example, 1-800FLOWERS.COM, Inc. (NASDAQ:FLWS), a florist and gift shop that earns revenues primarily through e-commerce, but also through franchise stores, appears to have had a lower reach and slightly fewer page views in the 2012 February Valentine's Day season, based on the current Alexa graph, than prior years. Investors of that company may want to look further to try to determine whether the Alexa results can be explained for company-specific or other reasons. In this example, there could be a variety of positive or negative potential explanations, i.e. it could be as simple as fewer pages are being viewed because customers are able to better navigate the site to determine what they want to buy.
Further, when looking at this kind of information, it's important to note that companies that do business outside America may have country specific web sites. For example the Gap has a different web site in Canada (gapcanada.ca) than America (gap.com). So investors looking at this information should be aware of which countries a company operates web sites, and also whether the sites are merely for marketing purposes, or actual online sales.
Potential Clue #2: Social networking sites indicate changes in brand popularity. Fanpagelist.com also offers web site traffic information, along with details of Facebook "likes" and Twitter followers for various brands. It also shows daily changes in likes and fans, which investors can use as a clue as to whether their favorite companies are increasing in popularity relative to their competitors. At the time of writing this article, Fanpagelist indicates Nike (NYSE:NKE) had the greatest number of increase in Facebook (NASDAQ:FB) likes on February 28, 2012 of any brand. The site also indicates at the time of writing this article that Nike's Converse brand is the most popular retail brand on Facebook, followed by Converse All-Star, Victoria's Secret, adidas Originals, and Wal-Mart. Of course, Facebook fans or Twitter followers do not necessarily translate into sales, but they do indicate which brands Facebook users are willing to identify themselves with to others, and also which companies may be doing a better job at engaging their customers through social media. The latter point is important as online sales are expected to increase significantly in the U.S. and Europe by 2016, according to this article in Mashable citing market research firm Forrester.
Shorter-term investors may miss the days when every company reported monthly sales. However, investors may want to consider the value of other information available to them online, especially as shoppers increasingly make purchases online instead of in bricks-and-mortar stores. This information should be considered in context of all available information. Although it may appear to provide clues as to sales results, many other factors could lead to apparent popularity online that do not necessarily translate into sales or higher earnings.
Disclosure: I am long LTD.