For an industry that's supposed to make shopping easy, retailers can sure make analyzing retail stocks hard. The good news is, despite the sector's surplus of investing metrics, the task gets easier once you know which ones really matter. Here's a๊ nine-point checklist for sizing up a retail stock.

1. Visit the Stores

An investor can learn a lot by getting out from behind the desk and into the shopping aisles. A store's layout, the availability and appearance of merchandise, and the prices charged can provide crucial information about a retailer that can't be gleaned from a balance sheet. Like shoppers, investors favor well-lit stores with fashionable merchandise attractively displayed. Unlike consumers, they hate to see so much good stuff it must be discounted.

A savvy investor will also note the 澳洲幸运5官方开奖结果体彩网:foot traffic. Is the store crowded? Are there lines at the registers? Are shoppers buying big-ticket items in bulk or hovering around the discount racks? Not least, how does what one sees stack up against the consensus view of the 澳洲幸运5官方开奖结果体彩网:company's health embedded in the share price, as best 🅠as that 🧔can be determined?

If the company has a strong online presence or is strictly an online retailer, perform the same 澳洲幸运5官方开奖结果体彩网:due diligence on its 澳洲幸运5官方开奖结果体彩网:e-commerce site. "Walk" the virtual aisles. Note the appeal of the 🍃web layout, the prices, the ease of the check-out process, and the quality of customer service. Find third-party reviews online.

2. Analyze Promotional Activities

Is the company cutting prices and running sales to unload overstocked merchandise? Or is the lack of promotional activity the result of inadequate inventory that's costing it sales? A retailer's pricing trends can be an important 澳洲幸运5官方开奖结果体彩网:leading indicator for investors.

Visiting stores and examining weekly circulars or online ads can help uncover any undue discounting likely to hit margins and earnings.

3. Examine Gross Margin Trends

Investors want to see sequential and year-over-year growth in 澳洲幸运5官方开奖结果体彩网:gross margins, keeping seasonality effects in mind. Most retailers see a sales surge in the fourth calendar quarter amid the holiday shopping season. In any case, gross margin trends will give the investor a better idea of how profitability is evolving and what the market's expectations might be in that regard for the near future.

Investoဣrs should be wary of retailers registering a decline in gross margins, either sequentially, holiday seasonality aside, or year-over-year. Those companies may be experiencing a decline in revenue or foot traffic, an increase in pr♏oduct costs, and/or heavy markdowns of merchandise.

4. Focus on Sales-Per-Square-Foot Data

This metric, revealed by some companies in conference calls and others in their 10-K or 10-Q filings, is a reliable indicator of how efficiently management is using its stores and▨ allocating resources. The higher the sales-per-square-foot the better, when comparing direct competitors with similar businesses.

Keep in mind that the number will vary widely depending on the retailer's market niche. For its fiscal year 2021 ended Jan. 29, 2022, Target (TGT) reported 澳洲幸运5官方开奖结果体彩网:sales-per-square-foot of $437, while Lululemon Athletica Inc. (LULU) had sales of $1,443 per square foot in its fiscal 2021 ended Jan. 30, 2022. That's not surprising considering Target sells moderately priced goods out of enormous super-centers, including men's sweatpants for about $20, compared with about $108 for lower-end full-price ones at Lululemon's online store. It makes more sense to compare Target's sales per square foot to its own $388 in sales per square foot the prior fiscal year, or to the $535 in sales per square foot for Walmart Inc. (WMT) in its fiscal year 2022 ended Jan. 31, 2022.

5. Examine Inventory/Receivable Trends

Investors should examine sequential and year-over-year trends in both inventories and 澳洲幸运5官方开奖结果体彩网:accounts receivable (AR). If all is well, these two accounts should be growing on pace with revenue. However, if inventories are growing faster than revenue, it could indicate a retailer's merchandising strategy isn't working. When this happens, companies are left with an unappealing choice between discounting the overstocked product or 澳洲幸运5官方开奖结果体彩网:writing off the merchandise altogether. ꦛEarnings would suffer in either case.

If receivables are growing faster than revenue, this may indicate the company is not getting paid on a timely basis and faces a sales slowdown in the future. In short, 澳洲幸运5官方开奖结果体彩网:changes in the i🐻nventory and recei❀vable accounts should be closely monitored, as they can anticipate the tr𝄹end in revenue and earnings.

6. Examine Same-Store Sales Data Closely

This is the most important metric in retail sales analysis. 澳洲幸运5官方开奖结果体彩网:Same-store sales measure sales i✱n a retail chain's stores open at least a year compared to sales at the same stores a year, a quarter, or a month earlier. By excluding the sales added by the new storesဣ opened since the comparison period, same-store sales better illustrate trends at established stores, controlling for the growth from expansion in the number of outlets.

Investors want to see strong same-store sales growth, whether from quarter to quarter or year to year. That suggests that revenue growth is not dependent on a rapid pace of new store openings that's unlikely to be sustainable.

7. Calcul😼ate and Compare P/E Ratios vs. Expected Earnings Growth Rates

An investor evaluating retailers should calculate a company's current 澳洲幸运5官方开奖结果体彩网:price-to-earnings ratio♌ (P/E ratio) and compare it with the company's expected rate of earniꦡngs growth. Companies trading at an earnings multiple below the expected growth rate may warrant further research.

Other, less quantifiable factors, from the quality of management to the state of current market expectations, are likely to matter more to future returns, making 澳洲幸运5官方开奖结果体彩网:retail P/E ratios and projected growth rates ꦏmostly useful as initial screening criteria.

8. Tabulate Tangible Book Value

A company's 澳洲幸运5官方开奖结果体彩网:tangible book value per share shows what its assets are worth and what investors are getting for their money. To determine this number, investors should take the total "stockholder equity" number from the company's balance sheet and then subtract any intangibles such as goodwill, licenses, brand recognition or other ass🅠ets that can't be readily defined or valued. The resulting number should then be divided by the total number of outstanding shares. Or you could just plug the stock's ticker into an online calculator like the one from . Companies trading at or near tangible book value per share may be attractively valued.

9. Examine the Geographic Footprint

All other factors being equal, invest in the retail chain better diversified geographically. Consider the case of the pharmacy chain Duane Reade, which in 2010 became a subsidiary of the Walgreens Boots Alliance (WBA). In 2001, Duane Reade had a huge presence in New York City, and its sales suffered in the wake of the Sept. 11 terrorist attacks. Rival Walgreens was less concentrated in a single metro area, and its sales wereܫ affected less.

The Bottom Line

To analyze a retail stock, investors need to know how the chain's stores look and feel, what the market expectations are of the company, and how the chain is performing based on 澳洲幸运5官方开奖结果体彩网:the metrics that matter most to institutional traders. Or you could buy a 澳洲幸运5官方开奖结果体彩网:broad market ETF and go fishing.