A Checklist for Profiting From Retail, Restaurant Stocks

Mid-November. One of the most active periods of the year for the retail and restaurant industries has begun. Last week, a slew of retailers issued their same-store sales data for October and many restaurant companies reported their third-quarter earnings . This week, many retail companies report their third-quarter earnings. Then next week, the really big retail hype begins as we converge upon Thanksgiving.

As Macy's M Thanksgiving Day parade makes its way through Manhattan, the market braces for the annual retail milestones known as "Black Friday" and "Cyber Monday." From there, Hanukkah and Christmas are just around the corner. Restaurants also find this to be a stimulating time of the year as company parties, personal entertaining and retail shopping-related dining tends to increase restaurant sales.

Retail and restaurant stocks have very similar characteristics. Thus, developing a skill set for investing in one will greatly benefit investors when researching the other. This installment of The Finance Professor kicks-off a two-part look at retail and restaurant stock investing. Part one: 10 things to look and listen for, when researching retail and restaurant stocks.

1. Same-Store Sales

This is the most ballyhooed of retail and restaurant metrics. Same-store sales represent a comparison of sales at stores for an individual month vs. that same exact month in the prior year. For example, sales for one store in the month of September 2007 will be compared against the sales for that same store for the month of September 2006. A company will then aggregate all its same-store sales to derive same-store sales for the entire organization. This is important because it provides investors with a gauge of how a company is growing with its existing store base.

There are important prerequisites when making this calculation. The stores included in the count must be opened for at least 13 months. This insures that there is no break in service which could provide some bias to the comparison. Furthermore, stores which have moved during the last year may also be excluded. Thus, even though a store in "Anywhere, U.S.A." may have been open for business from September 2006 to September 2007, the fact that the store changed its location to another building, only a block away, might prevent inclusion in same-store sales.

Where investors can find this data: Same-stores sales are typically disseminated by a company in a press release, which is readily available on the company's Web site (usually in the "Investor Relations" section) or via an Internet-based business news sources. Additionally, for the more active investor, there are third-party subscription services that provide and analyze same-store sales data.