A 16-Week Quarter? An Explanation of Supersized Quarters.
Recently, I was preparing to host one of our free monthly labs, How to Listen to an Earnings Call. For this specific webinar, we were featuring Kroger (watch the recording here), the largest supermarket by revenue in the United States. At Acumen Learning, these webinars are a continuing education opportunity we provide for graduates of our business acumen course, as well as other interested parties. Throughout the lab, I will walk through a process and a tool that we use to help the listener understand and know what to look for during an earnings call.
As you can imagine, diving into a deep analysis of these companies requires a lot of prep work. So, to begin I quickly searched the Kroger Investor Relations website and located the Earnings Press Release, a transcript of the call, and the quarterly financial statements. I immediately noticed that Kroger’s fiscal year-end is sometime at the end of January, not specifically January 31. This wasn’t too surprising because a lot of companies don’t have their year-end date fall on December 31. Other notable examples include Walmart whose fiscal year-end is January 31 and FedEx who closes out its fiscal year on May 31.
Next, I began to review Kroger’s quarterly financial statements, comparing Q1 of this year to Q1 of last year. I thought it was odd that their 10-Q (quarterly filing document) wasn’t filed with the Security and Exchange Commission until June 25, because my assumption would have been that their quarter closed at the end of April. I did some quick finger counting… February, March, April, May…wait a minute. Something seemed off. Then I looked at the Income Statement and realized the quarter end date was May 22, and they were comparing their Q1 2021 results to May 23, 2020. So, the rough math reflected three and two-thirds months. Hmmm… curious. I looked at the calendar and realized that they have a 16-week quarter in Q1, and after reviewing their financials for previous years, I realized that this was their standard. Now, I’ve reviewed a lot of financial statements throughout my career, and until this time I had never seen a 16-week quarter. After that, each of their subsequent three quarters was each only 12-weeks.
Now my challenge had shifted, not only was I going to research Kroger, but I also needed to determine why Kroger had a 16-week quarter. Do other companies have similar quarters? Is Kroger the only one who reports in this manner? Why do they have one 16-week quarter and three 12-week quarters?
I started with Investopedia, a great resource for accounting and finance questions. They define a quarter as a three-month period on a company’s financial calendar that acts as a basis for periodic financial reports and the paying of dividends. Welp, dead-end there. But, after some additional research, I discovered that the Securities and Exchange Commission (SEC) requires three quarterly filings and one annual filing - but it doesn’t require quarter lengths to all be the same, just consistent. Now we’re getting somewhere!
So, now that I knew this was a legitimate thing, I still had a big lingering question…why? I continued my search for more information about odd quarter sizes. Honestly, there isn’t much out there. What I did find was that there are less than 40 companies who use this strategy, and interestingly most are affiliated with the food business in some way – restaurants, grocery stores, food/beverage organizations, hotels, and auto parts stores. Ok, Auto Parts stores aren’t in the food business, but one was owned by a Grocery company at one time. The other has used the system for a long time and never changed.
It still isn’t clear to me exactly why these companies use this system.
Based on my research for Kroger, it appears to even out the “quarters”. For example, in 2020, if you average out their quarterly revenue by weeks it comes out to: Q1 = $2.6 billion/week, Q2 = $2.5 billion/week, Q3 = $2.5 billion/week and Q4 = $2.6 billion/week. In other words, as you would imagine their 16-week quarter should be higher than their 12-week quarters … and it was about $10 - $11 billion higher. But when you average out the other three quarters by week it levels out the game. The reasoning for other companies was not so obvious.
Bottom line (no financial pun intended) companies use different ways to measure their quarters. Some use the 16 / 12 / 12 / 12 method (very few), some stick to the traditional three-month quarters, and some use 13 weeks per quarter. It is difficult to determine why companies use different methods. Some might do it to take out the seasonality, some for inventory purposes, some because “it’s how we have always done it”. Typically, a company 10k might explain something like this, but the companies I reviewed did not have an explanation for their 16-week quarter.
Now that my curiosity has been peaked, I’ll continue to search – and I will be sure to keep you posted!
Kelvin Brents, Senior Consultant - Acumen Learning