Herb's Hotline: Beware Corporate Sleight of Hand

Coincidence of coincidences: My

column this morning about

Whole Foods

( WFMI) coincided (by pure coincidence!) with the

WSJ's

story about how retailers, in general, are trying to distance themselves from the losses of their Internet subs. The only difference, of course, is that Whole Foods has found a neat trick to offload the losses, while the others report losses legitimately by including them as part of their consolidated results.

But the

Journal

story touched on another sensitive point that is becoming increasingly common: In an effort to make themselves look better than they really are, companies are taking it upon themselves to steer investors to look here when they really ought to be looking there. (The ultimate in corporate sleight of hand, no?) The argument in this case is that, by breaking out the core stores from the Internet biz, analysts can get a better feel for how the main biz is doing. The subtle message, however, is to ignore the losses, and that's just plain misleading because the losses are the losses are the losses. You

can't

ignore them. That's no different from the way companies guide analysts to look at earnings before interest, taxes, depreciation and amortization.

Or the more recent trend among tech companies is to present their financial performance in their earnings releases

before

goodwill, noncash earnings and other charges. In the end, those losses can make or break a company, and they separate the good managers from the bad. (Sure you're going to have losses with a start-up, but they can't last forever; either the concept works or it doesn't.)

Moreover, "Once you get into the game of letting a company pick and choose what to include or exclude, you get into the game of letting the inmates run the asylum," says Howard Schilit of the

Center for Financial Research and Analysis

. I was actually talking to him for

another

story when he brought that up. He added: "You can't allow companies to pick and choose how to describe their performance. Companies should not be in the business of telling investors how to analyze their performance, they should simply provide the facts." And that's just what they do in their

SEC

filings, although regulators

do

let companies explain why they do what they do in the management discussion and analysis section. (After all, isn't that what

that

section is all about?! Indeed it is, but in the end, the numbers don't lie.) Now that I got

that

off my chest ...

Hotline Hit List

Debt spiral: The

Playtex

(PYX) - Get Report

news late yesterday that higher rates will hurt its profits should be a reminder of what happens when companies with lots of debt, or those that need to raise additional debt, face when rates rise. (Nobody cares, of course, until the warning!) ... That's just like

MCI Worldcom

( WCOM) and

Sprint

( FON): If you dared mention the risk the

FCC

could move to quash that deal, people looked at you like you were looped. Look who's looped now! ... And now hear this (or I'd rather not!):

Lisa Schreiber

writes that she was forced to listen to an advertisement before the receiving phone would ring, when she made an

AT&T

(T) - Get Report

long-distance call to a friend. Is that true? Anybody else with similar experience? ... Home sweet depot (cont'd.):

Ernie Tarwater

, from Topeka, isn't worried about whether

Home Depot's

(HD) - Get Report

strategy of opening stores within miles of one another will hurt Home Depot. His question: "What is going to happen to the

Ace

,

Westlake

and other chain stores that have to compete with HD?" Now that a HD is closer, that's where he spends the bulk of the hardware dollars that for 35 years he used to hand over to the Ace in Overland Park. Maybe that

is

the story. (If so, good thing Ace ain't public!) ... Regarding recent stories here on

Amazon.com

(AMZN) - Get Report

: Got to give its investor-relations folks credit for taking my calls (and being cordial, at that) even

after

a series of items

here that questioned the company's accounting, business model and financial performance. That's just plain professional ... And this interesting Amazon point: Very little reaction to

any

items here on Amazon, which tells me its days as a cult stock are over (at least for now!)

Finally,

yesterday I used the word Shazam! in connection with a hillbilly item regarding Jethro Bodine (of

Beverly Hillbillies

fame for those of you not yet in your 40s!). That prompted one reader to write, "Why bring Gomer Pyle into this?" Because Goober was busy! And so am I, which means this brings to an end another edition of ... The Hotline.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.