Eckerd Corp. executives are counting on 100 new replacement stores to begin lifting the drugstore chain's lagging sales performance by the end of this year. But some analysts aren't buying it.
They say the Largo drugstore chain should not be adding new and bigger relocated stores in its reporting of so-called "comparable store" sales gains.
Fitch Ratings joined the crowd Tuesday, citing the expected continuing weakness of comparable sales at Eckerd and its parent J.C. Penney Corp. through the rest of this year in downgrading its outlook for Penney's bond ratings.
"They are facing issues deeper than building new stores," said Phillip Zahn, an analyst with Fitch. "It's more about execution."
Eckerd follows generally accepted accounting practices, but there is little uniformity among retailers these days in defining what a comparable store is.
"There are various approaches, and we've been reasonable and fair in the way we define ours and consistent about it for several years," said Joan Gallagher, an Eckerd spokeswoman.
The issue underscores how two of the nation's four biggest drugstore chains account for sales gains of comparable stores in two different ways. Eckerd has trailed the industry in same-store gains for several years partly because it has not been opening replacement stores. On Tuesday a Wall Street Journal Heard on the Street column questioned whether any lift Eckerd got from new replacement stores would mean much.
It's a big deal because comparable store gains, or same-store sales, are a key measure of a retail chain's hold on existing customers. Fast-growing chains can post strong sales growth just by adding new stores in new markets. So experts look to sales growth from existing locations to gauge whether a retailer's success is fleeting.
The big drugstore chains have been racing to close old stores in old shopping centers and flooding the market with new roadside, stand-alone stores.
New Eckerd stores are bigger than those they replace. They are in more convenient spots on major highways. They are easier to shop because they have wider aisles and less clutter. As a result, a new Eckerd does 30 percent to 40 percent more business than the one it replaced.
Eckerd and rival Rite-Aid include replacement stores in their tally of comparable store sales. Chains such as Walgreens, CVS and Wal-Mart do not. They wait until a store has been open a year, which analysts see as more meaningful in judging customer loyalty.
The different definitions have made retailing analysts wary of judgments based on often apples-to-oranges figures.
"Typically this is a measure of the stores you had, excluding new markets you tried to enter for the first time," said Cheryl Holland, associate director of the Center for Retailing at Texas A&M University. "To me a replacement store qualifies as a comparable store as long as it's in the same general location."
Many chains break out sales gains in stores that have been open more than a year. A few such as Winn-Dixie Stores Inc. report both comparable store gains, which includes new replacements, and identical store gains, which do not.
"Everybody defines comparable stores a bit differently. Usually it's in the way that makes them look best," said Michael Niemira, a Bank of Tokyo Mitsubishi economist who tracks sales on more than 80 chains. He has been on a National Retail Federation panelthat discussed creating uniformity.
"Nobody seemed interested in doing much to change it then, but I think that is changing," he said.
