Google Trends

Google Trends may be an interesting tool for investors.

1. It allows investors to gather data on a company that’s fresher than the last quarter’s earnings release.  This can be helpful in turnaround situations such as Aeropostale (ARO) and Cafepress (PRSS).
2. Having leading earnings indicators can be helpful for manufacturing companies (e.g. RGR, SWHC) where there is not much data on consumer demand due to fluctuating inventory at the retail and distributor level.
3. In rare cases where fraud is suspected, Google Trends may provide some indications about actual revenues.

Here is an example of Google Trends in action:

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RH may be a bad short in the near term

My theory is that RH’s capex guidance telegraphs what future earnings will be.  The latest guidance is for 27-45% higher capex than last fiscal year ($140-160M versus $110M).

1. If RH is the real deal, then the growth investments should generate high returns on invested capital.  If so, RH should rapidly grow earnings.  (Of course, anything can happen and RH may see poor or negative returns on its new investments.)
2. Suppose you believe that RH has been aggressively capitalizing costs that should more appropriately be expensed.  Such accounting practices would inflate earnings.  The high capex guidance may telegraph high reported earnings.

In either scenario, earnings will increase in the short term.  My theory (and it’s just a theory) is that short sellers may wish to wait until the company guides capex lower.

*Disclosure:  Short RH via common shares and put options.

RH sales returns Part 2: Do they make sense?

I did a quick look at a few other retailers that post their actual sales returns in their SEC filings (WSM, AEO, and NILE).  The pattern among those three is that sales returns as a percentage of revenue fluctuates very little.  The rapidly-growing online retailer NILE shows the most variation of the three, ranging from 9.11% to 10.60%.  RH’s range is from 4.43% to 7.47%.  Without the error disclosed in RH’s latest 10-K, the range is from 10.22% to 11.14%.