With month after month of bad news and declines in the retail channel, the trend finally seems to be turning, and it may be just enough to surprise a few analysts out there. Many analysts are building models with retail declines in the 28% to 35% neighborhood, but recent NPD data seems to be painting a different picture.

Tabulated for the entire first quarter, NPD tracked sales show that sales for the SDARS sector are down 23% on a year over year basis. This figure, should it hold true, beats estimates of most analysts covering the sector. If the companies are still having strong sales themselves, the retail channel could offer the best surprise in the coming subscriber numbers.

While retail sales are still not setting the world on fire, the steep declines seem to have been abated, and more friendly year over year comparisons may well be on the horizon.

One oft cited metric when looking at the retail channel is NPD data. Investors need to be aware of several things when considering NPD data.

1. NPD tracks actual retail sales at participating retailers. Within the scope of NPD retailers the data is very accurate.

2. NPD does not track non-participating retailers, or the sales of radios by Sirius or XM directly. When a consumer buys a radio directly from Sirius or XM, the sale is not within the market share scope of NPD.

3. Because XM breaks out gross retail numbers, we can determine the level of sales covered by NPD for XM. In 2007 NPD captured the following for XM:

Q1 2007 - NPD picked up 39% of the Gross retail number

Q2 2007 - NPD picked up 46% of the Gross retail number

Q3 2007 - NPD picked up 38% of the Gross retail number

Q4 2007 - NPD picked up 62% of the Gross retail number

FY 2007 - NPD picked up 47% of the Gross retail number

4. Typically NPD captures a larger percentage of Sirius' sales than they do for XM. Part of this is because Radio Shack sells Sirius exclusively, and Radio Shack is included in the NPD numbers. However, the delta between XM and Sirius in NPD numbers is much greater than Radio Shack alone would account for.

5. Sirius indeed has an advantage at brick and mortal retail even if Radio Shack's number were to be backed out of the equation.

6. XM typically outsells Sirius on non-NPD sales. The bulk of these come from direct sales by the company.

7. NPD tracks sales not subscribers. This distintion is important to remember.

8. In an "all-in" blended basis, Sirius has seemed to maintain an advantage in the retail channel, but the split is closer than what NPD reports on their sales data.

Specific to Q1 2008 there are some things to consider for those that want to break down metrics between the companies. If we were to assume that NPD captured 40% of XM's sales in the first quarter, then NPD would have to have captured 68% of Sirius' retail channel in order for retail to arrive at a 50/50 split.

I think that NPD capturing 68% of Sirius’ retail sales is a real stretch, and thus it would appear that for the first quarter Sirius will have the retail advantage.

If you were to assume that NPD captures 40% of XM’s sales and Sirius’ sales at:

60% - then the "all-in" retail split would be 53% SIRI and 47% XM

55% - then the "all-in" retail split would be 55% SIRI and 45% XM

50% - then the "all-in" retail split would be 57% SIRI and 43% XM

There are many factors involved. Sirius hardware tends to be at a higher price point at brick and mortar retail stores. This could impact consumer decision. The direct sales of the companies vary, the level of rebates vary, and the promotions vary. This could also impact the numbers. Clearly at brick and mortar stores Sirius is outselling XM. Clearly XM has historically done more direct selling than Sirius.

Setting aside the individual company comparisons, and looking at the sector as a whole, the positive news is that retail sales trends are improving, and year over year comparisons are better than many have expected. In order to see that there is an end to the retail slide, a couple of more months of data may need to be considered, but the recent trend is better than most analysts were predicting. If SDARS can come in with low teens or even single digit declines through Father's Day, analysts will have to begin to consider revising their retail projections.

One key factor that may need consideration is how fast a merged company can get new devices into the retail channel. After no real hardware developments over the past year, SDARS has a need to get new and exciting hardware to the marketplace if they want to remain relevant. An A-La-Carte radio has been promised within a year of the merger. SDARS may well want to pull out all of the stops and ensure that they get one out for the 2008 holiday season.

Retail matters a great deal to SDARS, and recent trending is beginning to be more positive.

Position - Long Sirius, Long XM