Same-Store Sales, Good - Stock Market analysis

 

If you follow the retailing industry, you know about same-store sales (3S) num bers. Some analysts call them comparable or existing store sales. They are sales from stores open longer than a year (but sometimes 2 years). The difference between 3S and regular sales is store openings. If a retailer opens new stores without closing old ones, expect sales volume to rise, perhaps substantially. Thus, year-to-year comparisons for fast growing retailers are difficult. Using 3S, the comparison is easier. If same-store sales rise by 8% this quarter com pared to the same quarter last year, then that is better than if the retailer added 25% more outlets and total sales climbed by 8%. The sales climb might be due entirely to the new store sales volume even as existing stores suffered. Thus, same-store sales numbers are important to investors.

The Results Snapshot paints a picture of carnage. When a retailer announces monthly or quarterly 3S, the stock price can move up, down, or go nowhere. This chapter excludes the latter two possibilities. In fact, I only include above average price moves on the day of the announceme or the nes day, or those with a discernible price gap on the announcement day. Thus, this chapter looks at positive surprises. The reason for using only positive surprises is to find tradable patterns. If a 35 day looks like any other day, do we care to trade the event?

Since I only included patterns with upward breakouts, the 3S pattern usu ally acts as a short-term continuation of the prevailing bullish price trend. The break-even failure rate is very high, at 20% in a bull market and a massive 27% in a bear market, with 20% being the threshold for awful. By comparison, well-behaved bullish chart patterns have break-even failure rates in the single digits. The average rise is a weak 23% and 14% in bull and bear markets, respectively, as measured from the breakout price..

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Say you buy a stock showing a 3S pattern. What happens? Price rises, sure, but only for a few weeks. Half the patterns reach the ultimate high in 2 to 4 weeks. Then what happens? The drop is breathtaking-a 28% drop in a bull market and 31% in a bear market. Do you want to risk that size loss? If you are an experienced trader who loves risk, a 31% decline is mouthwatering. Short the stock and I explain what to look for later.