Wednesday, December 17, 2008

The Readers Vote

I’ve been writing this blog for about 18 months now and being a trained MBA, thought it would be a good exercise if I went back and reviewed the statistics around what people preferred to read.  After all, “If you can measure it, you can manage it”.  Besides, I thought some of my readers might find it interesting as well.  Additionally, if you are relatively new to the blog, there might be something I’ve written in the past that may be useful.

After 18 months of building up a readership base, Investor Relations Musings draws between 800 – 1,300 readers per month, which when you consider that there are only approximately 6,500 publicly traded companies in the U.S., isn’t bad.  More surprising to me, is that during those 18 months, I’ve had visits from 77 different countries, with any given month drawing from 30 – 35 different countries.  Although the vast majority of readers come from the U.S., 5 of the top 10 countries visiting the blog come from India, China and the Far East.  

When I examined the most popular posts, I found that the interests of readers were evenly split between humor, practical advice and the disaster of the moment.  Herewith a look at the top 10: 

1.  Essential Life Skill for the Investor Relations Professional, September 18, 2007.  A humorous look at what you need to survive in the profession, with tips about how to learn to talk with your mouth full.

2. Starbucks Grande Mistake, January 31, 2008.  My take on Starbucks decision to stop disclosing same store sales.  It turns out that people love to read about brand name companies.

3.  Why Not Just Tell Us Why You Fired Him?, October 14, 2008.  When Walgreens CEO was dismissed by the Board but it was gussied up as a “retirement”, my thought was that investors deserved better information about why he was fired and what it meant for the future of the company.

4.  Road Shows and Hedge Funds, November 12, 2007.  A look at the practicalities surrounding why sell side firms set up road shows with lots of hedge funds on the guest list.

5.  How Many Investor Relations Officers Does It Take to Change a Light Bulb?, June 8, 2007.  This one combines humor with thoughts on what it takes to be good at investor relations.

6.  How Not to Run a Conference Call, December 20, 2007.  Commentary on Sallie Mae’s disastrous conference call.

7.  What is Investor Relations Worth?, August 20, 2007.  The first of a series of posts pointing out the research that attempts to quantify the value of investor relations.

8.  Principle Based Disclosure for Investors, September 5, 2007.  Some thoughts on how to simplify the maze of regulations surrounding disclosure.

9.  How to Read 10K and 10Q Reports, September 10, 2008.  CVS Drugstores was a poster child for how investors can use the year over year change in language in 10K and 10Q reports to raise interesting questions.

10.  Blogging and Investor Relations, June 16, 2008.  Every IR officer wants to know about blogs, but nobody wants to do one (except Dell). 

If you haven’t had a chance to read these posts, I hope you’ll give them the once over.  As always, I will strive to be interesting, informative, opinionated and occasionally humorous. 

Friday, December 5, 2008

Starbucks and Disclosure of Same Store Sales

Last January, Starbucks announced that it was no longer going to provide same store sales numbers to investors as it executed its turnaround strategy.  At the time I said it was a mistake (see my post “Starbuck’s Grande Mistake” January, 31, 2008) and I still continue to think so.  But it’s been almost a year and I thought I would go back and see what Starbucks has done on this single, but important, disclosure item.

On a quarterly basis, they’ve been true to their word.  In the third quarter of 2007, before the ban on disclosing this metric, Starbucks’ press release mentioned comparable store sales 11 times, including citing the percentage increase as a highlight.  The 10 Q report for the same period mentioned comparable store sales 16 times.  (Lest anyone out there think that I am a geek sitting here counting words, let me assure you that my computer performs this task much better than I can.  It’s extremely useful when comparing one period’s reporting to another.  See my post “How to Read 10 K and 10 Q Reports, September 8, 2008.  I may be a geek when it comes to investor relations, but I’m not a total geek.)

Now move forward a year to the third quarter of 2008.  Starbucks’ press release only mentions comparable store sales twice.  The first time, in discussing sales results, they say: “The company’s lower than expected revenue growth was driven by continued slow traffic trends in the U.S., which resulted in a mid-single-digit decline in U.S. comparable store sales, and was a slight deterioration from the second quarter.”  So now Starbucks has taken away a lot of discussion and precise numbers from a year ago and replaced it with ambiguity.  If I’m an analyst and I hear “mid-single-digit”, my reaction, fair or otherwise, is that the decline is in the upper end of that range.  In the same release, of even more interest, is the way Starbucks phrases things when discussing their targets: “These targets reflect the company’s current assumption that fourth quarter company-operated comparable store sales trends will remain relatively stable with the third quarter.”  As someone who has written his share of press releases, I’ve got to admire the way Starbucks took a trend of mid-single-digit declining comparable store sales and made it sound stable.  In a fashion similar to the press release, the 10 Q report for the same period only mentions comparable store sales 3 times without citing a specific amount.

So when I went to this year’s Fourth Quarter Press Release and Annual Report on Form 10 K, I expected to see a similar dearth of discussion surrounding comparable store sales.  To my surprise, I found that this year’s 10 K actually has more mentions of comparable store sales this year (22 vs. 20), while the Press Release saw a moderate decline in mentions from 13 a year ago to 9 this year.  Not only that, but both the release and the 10 K filing mention specific numbers when discussing comparable stores sales. It was one of those moments when you lean back from your computer screen and go, “Huh”.  It also meant a lot more work, because now I had to go through the 10 K filing in detail to try and figure out what was going on. What I found was that this year’s Management’s Discussion and Analysis contained slightly more mentions of comparable store sales than in last year’s report, while everything else in the filing was pretty much the same year over year.  It was as if Starbucks had never changed its mind on disclosing the metric.

Obviously, I’m not privy to the internal discussions Starbucks has when preparing their securities filings, but, in my opinion, one of two things happened: either the accountants and the lawyers simply marked up last year’s 10 K and nobody else paid any attention to the filing (unlikely given that the 10 Q reports had significantly fewer mentions of comparable store sales) or the lawyers finally got some backbone and said something along the lines of, “Look, this number is so important and the trend is so significant, that you have to disclose it and talk about it.”  I wish I could have been a fly on the wall during those discussions.  Whatever the reasons, I am glad to see that the company is disclosing such an important number.  It would also appear that the company is continuing to discuss comparable store sales, as they discussed them at an analyst conference yesterday.

The takeaway for investor relations professionals for all of this is that you can’t hide important metrics about your company when the trend turns bad.  When Starbucks stopped disclosing same store sales numbers it was just as the numbers were headed south after many years of strong positive sales growth.  If the numbers were important when they were good, they are important when they are bad.  All Starbucks did was postpone the inevitable to the end of the year.  It was very short-term thinking on their part to think that they could spin the issue when it revolved around such a key number.

Monday, December 1, 2008

Some of My Favorite (IR Website) Things

Now that Thanksgiving is over, I thought that I would get in a Christmas holiday mood by listing some of my favorite (IR website) things. (Obscure fact of the day: The song “Some of My Favorite Things”, was sung by Julie Andrews in the movie The Sound of Music during a Summer thunderstorm, although it is now mostly associated with the holidays due to its optimistic lyrics.)  I’ve been working on a project lately that scores investor relations websites and it’s given me the opportunity to view many companies’ efforts in this area.  Overall, it seems as if investor relations web sites are becoming more robust.  I’ve been impressed with the variety and ingenuity exhibited on some of the sites I’ve seen.

As you might expect, not every site does everything, so for the benefit of those investor relations officers that don’t have time to conduct a review of other web sites, I thought I would list some of my favorite features:

Charting – there are lots of charting sites available, but some things can be done better on the company page.  For example, interactive charts with links to events and press releases are very helpful.  Many times I’ve stared at a stock price chart with a big dip or rise and wondered, “What happened here?” An interactive chart that leads you straight to the event saves a lot of time and effort.  Another helpful feature is being able to specify an exact time frame for your chart.  After all, most investors don’t invest on the exact day necessary to fit into the standard time range specified on most web sites.  I also found that charts that let you specify other companies to chart against very useful, although I’m sure many companies are not thrilled about having their competitors charted on their site.

I also found sites that provided a glossary helpful.  Every industry has its acronyms and special catch phrases and to the extent these can be explained and accurately defined, a lot of questions and head scratching can be eliminated.  In retail, for example, a common measure is same store sales, but many companies calculate it slightly differently.  A clear definition of how the measure is calculated can save IROs a lot of heartburn.  Along similar lines, another interesting feature I came across was a page that discussed other, non-company indicators as they may affect the company.  An obvious example, (I live in Houston) is the link between the price of oil and the performance of the oil companies.  Other companies have exposure to things such as inflation, commodity prices and consumer spending to name a few, and a page where companies gather the data and discuss their outlook on these trends is quite useful not only as a data source, but also as an additional insight into how the company thinks about how it is linked to the greater economy.

Finally, while most companies today provide links to their recent earnings conference calls, very few provide a transcript of the call.  Although you miss the tenor of the speaker’s voice when you rely upon a transcript, it is a more time efficient way of reviewing a conference call.  It would be fairly simple for most companies to post a transcript and save us all the additional hassle of going over to the Seeking Alpha web site to get it.

There are still plenty of IR sites out there that look as if the task was simply handed off to a third party provider with the lowest price option selected (frequent readers of this blog will know that I am generally incapable of writing a post without saying something critical), but overall my assessment is that the amount of data being presented is increasing and the ease with which investors can use the information is getting better.  So, from an investor relations standpoint, things are improving.  Now, if we could only say that about the economy…