Friday Tutorial: Examining the "Calendar Shift" Phenomenon

Yesterday, we had a few questions from clients regarding the "calendar shift" mentioned in our April Sales Review and reported by a number of media outlets, so we figured it would be a good time to introduce a quick tutorial on the subject.

Most retailers report results using the National Retail Federation 4-5-4 calendar to report monthly, quarterly, and annual results. Under this convention, the year is divided into 52 weeks, with each quarter having 13 weeks. The first month a quarter features four weeks, the second month contains five, and the final month of a quarter has four weeks. Each annual, quarterly, and monthly period has the same number of Saturday and Sundays (typically, the busiest shopping days) to keep year-over-year results somewhat consistent. Easy enough, right?

However, the retail calendar isn't as straightforward as it sounds. The first issue is the problem of the "53-week year. " We'll let the The National Retail Federation FAQs 4-5-4 Calendar explain:

"Due to the layout of the 4-5-4 Calendar (52 weeks x 7 days = 364 days), which results in one remaining day each year, and the occurrence of Leap Year, it is sometimes necessary to add a 53rd week to the end of the calendar for sales reporting purposes only. This occurs approximately every five to six years, though this is not always the case. 1995, 2000, 2006, and 2012 are all 53-week years."
Obviously, having an extra week can have a significant impact on a retailer's sales and expense growth rates. Fortunately, there will not be another 53-week year until 2012, so we'll skip over the impact that this can have on investment decisions for now.

The second issue, and the one we believe that is more pertinent to retail investing, is the effect that a calendar shift can have when using year-over-year comparisons. When a company reports results for a given period (i.e., monthly or quarterly sales), there can be several inconsistencies in the reporting periods from one year to the next. A period may contain a significant sales holiday one year - Easter and Christmas, in particular - only to have it "shift" out of period the following year (or vise versa). This can create situations where year-over-year growth figures are inflated or deflated, and can have a material impact on the price of the stock.

Let's take April 2008, for example. According to the National Retail Federation, April 2008 was four weeks long starting April 6th and ending May 3rd (April was the final month of the first quarter for most retailers), while April 2007 ran from April 8th to May 5th:

Source: National Retail Federation
Note: Green shaded boxes indicate a Sales Release Date. Black boxes indicate a Holiday.

The black box in April 2007 (April 8th) represents the Easter holiday, a day that most retailers are have reduced shopping hours or are closed altogether. This means that April 2008 had one additional shopping day than April 2007, which likely inflated growth rates in monthly sales reports. Many retailers will disclose how much of an impact this day had on results (for instance, Children's Place (NASDAQ: PLCE) reported same-store sales of 15% for April 2008, but noted that 3% of the increase was due to having an extra shopping day in the period on its pre-recorded monthly sales call), but many investment decisions are made based strictly on the headline sales growth number. Clearly, if the headline number looks strong, even if it was aided by an extra shopping day, the stock will likely trade to the upside during that day's trading session.

Generally speaking, you should not make an investment decision (either long or short) based solely on the timing of a calendar shift; long-term fundamentals are much more important for making an investment decision. However, it is amazing how often calendar shifts are forgotten (or altogether misunderstood) among the investment community. Before making your next retail stock investment, make sure you have a firm understanding of the calendar for upcoming reporting period. If the current period features a beneficial calendar shift, it may be time to make that investment now. However, if there is a negative calendar shift, you may be able to purchase that investment at a lower price following the next reporting date.

If you have any topics you would like for us to examine in future tutorials, feel free to e-mail us at

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