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Therefore, we can only presume that the disclosure of the company’s online sales would greatly disappoint the investment community.

Below, you’ll find the various ways WMT management artfully dodges making specific quantitative disclosures about the U.S. Division’s online channel.

Note to WMT management… tomorrow’s earnings recording would be a great opportunity to (finally) provide investors some insight into your online channel’s top-line growth rate. Otherwise, given your penchant for pointing out all the positives, investors may be left to believe that WMT is one of the select few retailers that are not currently delivering year-over-year sales growth via the web.

Q1 2011 Earnings Recording
May 17, 2011

“Our Walmart.com online business remains strong, with an increase in traffic and order size. Electronics remained a strong category, including televisions, wireless and home office. In hardlines, tires and automotive categories are strong. And, in home, we’re seeing ongoing strength of sales in furniture. We’re also pleased with the ongoing momentum of our site to store business.”

“And finally, our multi-channel integration is an important focus for our long-term growth strategy. We’re testing several programs to help us better integrate the stores with our website. Our expanded “Pick Up Today” program is currently rolled out to 2,800 stores and doing well. While it’s early for data, we’re pleased with the customer response. The program will be in 3,000 stores by the end of the second quarter. We expect to see continued growth in this service, as we make more items available on Walmart.com for immediate pick-up.”

“Walmart Express will also include our site to store program so that customers can take advantage of Walmart’s broad online merchandise assortment.”

Q2 2011 Earnings Recording
August 16, 2011

“We’ve spoken often about multi-channel retailing, allowing customers to shop on their own terms. We’re now moving towards a strategy called continuous channel shopping, recognizing the continued integration of customers using web-based devices to shop our stores, and to research and shop online as well. Today, roughly 60 percent of Walmart.com sales involve the stores through services such as site to store and pick up today. In fact, some of our highest volume site to store sales come out of large metropolitan areas, such as New York City and the San Francisco Bay Area.”

Q3 2011 Earnings Recording
November 15, 2011

“We’re reaching out to customers on social media. Store-specific maps on Facebook will help our customers plan their shopping trip. There will be no doubt that Walmart is ready for the holiday season. We have the assortment our customers are looking for, both in store and online. We have the inventory they need. And, we have the prices that can’t be beaten.”

Q4 2011 Earnings Recording
February 21, 2012

“Our online business continues to grow, driven by strong sales in tablets, computers and toys. We saw increased customer activity across our various multi-channel initiatives. Programs like Site-to-Store and Pickup Today, which together generated double-digit comps during the holidays, continue to provide customers with various shopping alternatives that are unique to our retail store footprint.”

Each week, we’ll challenge “managerial spin” and offer some news and commentary about the retail industry. You are encouraged to provide any feedback to info@RetailGeeks.com.

Click to Open PDF

Markdown Reserve “Claw-Back” Week?

This week, JWN, KSS and M reported their Q1 2012 earnings. For each of these retailers, there likely was little in the way of markdown reserve that could be “clawed-back” in Q1 2012 as they each reported relatively flattish GPM% in Q4 2011 versus LY.

But, keep an eye on retailers that reported MASSIVE GPM% declines in Q4 2011 versus the prior year (primarily specialty retailers). Not only is the calculation of a markdown reserve highly subjective, but the timing of the “unwinding” of that markdown reserve is equally subjective.

Therefore, we suspect that there may be some ‘surprising’ GPM% results in Q1 2012 (AEO and ANF come to mind). Or, at minimum, many retailers that took a large-scale markdown reserve hit in Q4 2011 may ‘save’ the year-over-year “claw-back” for Q4 2012.

Macy’s (M – $37.98)

Last quarter, M’s CFO made the following statement:

This week, M’s CFO highlighted the continuation of in transit woes:

After raising its annual EPS guidance range each quarter in FY 2011, this week’s simple reiteration is cause for concern. While we suspected it at the time, M’s CFO made the following statement during the Q&A session:

Nordstrom (JWN – $50.96)

Strong sales, but weak earnings results as profitability was challenged.

Now, JWN management has shifted its managerial talking points to achieving the “highest EBIT dollar performance in the history of the company.” Yet, profitability is declining and we suspect that the company’s EBIT margin will decline in FY 2012 versus LY.

After JWN management continues to tout its sales growth at HauteLook. But, the projected sales growth in FY 2012 has now been adjusted to “50% to 60%” versus the 60% growth that was suggested three months ago (per conference call disclosures).

Also, JWN management has said nothing about HauteLook’s profitability… a key concern after the earn-out settlement and goodwill write-down in Q4 2011.

Kohl’s (KSS – $48.66)

We see little opportunity for KSS to achieve its $4.75 EPS guidance for FY 2012.

In our view, KSS management is clearly floundering. KSS management suggests that its current top-line woes are a function of too few private label units (the most aggressive price cuts thus far).

Yet, three months ago, KSS, management made the following statement:

In February 2012, it appears that KSS management was implying that its unit position would be stronger by Spring Break/Easter. Yet, KSS greatly underperformed its peer group in March/April 2012.

Therefore, do you think this is an inventory unit issue? We don’t.

Here’s the problem. During the Q&A session of this week’s conference call, KSS management may have been a bit more honest as to the company’s relative poor top-line performance of late.

Let’s also remember that three months ago KSS management talked about having to make “fundamental changes in the newness and the excitement level” of its merchandise content.

Which is it? A merchandising dilemma, or a “lack of units”? The conflicting storylines provided by KSS management suggest that the company’s current woes, at minimum, are likely to persist well into FY 2013.

China Wants Local Control of Foreign Auditing Firms Click to Open PDF

Estimates suggest that 90% of the senior positions are held by non-Chinese. That’s going to change. Fast. Don’t trust Chinese financial statements today? There will be one more reason to be dubious in the next few years.
Date Published: Thursday, May 10, 2012
Source: WSJ

Former SEC Head Slams Green Mountain Directors’ Borrowing Practice Click to Open PDF

It’s simple. Public companies should bar top execs from borrowing against their equity stakes. Beyond this particular margin call at GMCR, how many times does this happen when a regular trading window is open (i.e. when investors don’t know that the reason for the sale was to meet a margin call)?
Date Published: Thursday, May 10, 2012
Source: Reuters

U.S. Apparel Imports Down in March Click to Open PDF

Total apparel imports to the U.S. were down -4.8% in March 2012. But, apparel imports from China and Vietnam increased. Vietnam continues to gain share, but China rebounded in March. Apparel imports are down in India, Pakistan, and Honduras.
Date Published: Thursday, May 10, 2012
Source: WWD

Slowdown Expected in Asia-Pacific Growth Click to Open PDF

China is now expected to grow +8.6% in 2012, following +9.2% growth in 2011.
Date Published: Thursday, May 10, 2012
Source: WWD

Can Texting Save Stores? Click to Open PDF

Can retailers make the smart phone work for them instead of against them? Some interesting approaches detailed here.
Date Published: Tuesday May 8, 2012
Source: WSJ

Each week, we’ll challenge “managerial spin” and offer some news and commentary about the retail industry. You are encouraged to provide any feedback to info@RetailGeeks.com.

Click to Open PDF

Also, you can now follow us on Twitter! You can now find us at @RetailRobWilson and @RetailLVermulen. We’ll provide announcements of our published research notes and (occasionally) offer timely commentary about the companies and industry that we follow.

Following Heavy Markdown Reserves in Q4 2011 – Stronger than Expected GPM% in Q1 2012

The dominant story line that’s shaping up for the upcoming retail earnings season is the stronger than expected GPM%.

All you have to do is look at perennial under performers AEO and GPS. Both companies reported a dramatic GPM% decline in Q4 2011 versus the prior year (-534 Bps at AEO and -544 Bps at GPS). But, today’s EPS guidance for Q1 2012 (in our view) implies a +25 Bps GPM% improvement versus LY at AEO and a -100 Bps GPM% decline versus LY at GPS.

AEO’s and GPS’s relatively strong GPM% in Q1 2012 versus Q4 2011 is telling us that GPM% is likely to be much stronger than expected across the board when retailers report their quarterly results over the next few weeks.

It’s probable that many retailers that reported massive GPM% declines in Q4 2011 (e.g.AEO, ANF, GPS) provided for an over-sized markdown reserve at the end of the fiscal year. Yet, sales and margin were likely much stronger in Q1 2012 than management teams envisioned when they provided for the Q4 2011 markdown reserve in late-February or early-March. Check out our note on ANF from earlier in the week as they’re the only retailer we know that discloses their quarterly markdown reserve.

Following an ‘artificially’ strong quarter (weather, color tailwinds), retail management teams are likely feeling much more at ease with the promotional environment today than 3 months ago. Therefore, we’re likely to see much stronger GPM% trends in Q1 2012 than was contemplated 3 months ago as management teams began to unwind their markdown reserves.

Unfortunately, except for ANF, we’ll never know how much or how little a management team “unwinds” their markdown reserve in Q1 2012 (or any quarter for that matter) as the markdown reserve is not only subjective…but, it’s not disclosed.

Of course, now that the weather tailwinds begin to disappear, the promotional environment could return to the levels seen in the holiday season. But, we’re betting that most management teams will let the top-line and bottom-line tailwinds that boosted the last 3 months “go to their heads” when providing EPS guidance for Q2 2012.

Compology

This month we’re measuring relative top-line strength/weakness in April 2012 by comparing the month’s 2-year comp store sales ‘stack.’

Let’s keep things in perspective. Take a look at the 4-year comp store sales run rates for the following monthly sales reporters.