A Checklist for Profiting From Retail, Restaurant Stocks

4. Constant Currency Sales

Some retail and restaurant companies will operate in several countries and as such will generate revenue in one or more currencies other than U.S. Dollars (USD). McDonald's (MCD - Cramer's Take - Stockpickr), a restaurant, and Wal-Mart (WMT - Cramer's Take - Stockpickr), a retailer, are great examples of multinational companies that generate sales in many foreign currencies. Generating revenue in foreign currencies creates a complication in reporting sales data to investors because the foreign revenue streams have to be converted into USD.

Say, for example, total sales in Japan were JPY 100,000,000 in September 2006 when the JPY/USD "cross rate" was 120. Converted to USD, the sales were $833,333 (100,000,000 divided by 120) at that time. In September 2007, let's pretend that sales in Japan remained the same at JPY 100,000,000 but the JPY/USD cross rate is now 100. This would equate to sales of $1,000,000 (100,000,000 divided by 100). It would appear that sales rose 20%, when actually, sales in Japan remained unchanged. To rectify the discrepancy caused by foreign exchange fluctuations, a company will use last year's exchange rates when reporting same store and total sales changes. This is called "constant currency reporting."

Where investors can find this data: Constant sales data can de found via the same sources used for same-store sales and total sales.

5. Traffic

Traffic represents the number of transactions, tickets or checks that are processed by the retailer or restaurant. Put simply, the more people shop at a retailer or restaurant, the more likely total sales will increase. Just keep in mind that "traffic" refers to the actual store transactions, not foot traffic or number of window shoppers.

Where investors can find this data: Traffic data is not usually published, but it is sometimes available in company press releases and on quarterly conference calls.

6. Average Sales

Average transaction, ticket or check size is the average amount spent by each customer or table of customers at a retail or restaurant establishment. The average check increase or decrease expresses the total change in per transaction sales. As people spend more money for each purchase, the average sales amount will increase.

Average sales can be influenced by several factors:

• Change in general spending habits.
• Price changes in the menu (in the case of restaurants) or the unit (in the case of retailers).
• Change in product mix. (Product mix is the combination of different products with varying price points. For example, in a restaurant, average sales can increase if more people buy steaks rather than salads.)

Where investors can find this data: Like traffic, average sales is not widely published, but is sometimes available in company press releases and conference calls.