Collective Brands (NYSE: PSS), operator of Payless ShoeSource and owner of the Stride Rite brand, reported Q1 earnings on Wednesday. Revenues increased 28% to $932 million. Pretty cool increase. Adjusting earnings per share for a litigation charge and an inventory issue, net income came in at $0.71 per share versus the $0.59 per share booked a year ago.
That's decent growth, but there are a couple things to consider here. First, the top line wasn't fully organic, as it includes the Stride Rite acquisition (remember that Payless ShoeSource bought out Stride Rite and became Collective Brands). Second, same-store sales did not confirm any sort of underlying healthy trend. Comps declined a nasty 6.5%. So, even though earnings expectations were beat by a wide margin according to MarketWatch (analysts seemed to think the shoe concern would do about $0.56 per share), I'm not fully impressed.
And let's go back to that litigation thing. The earnings release discusses the risk involved with an unfavorable ruling vis-a-vis the retailer's battle with Adidas. That's another strike against the company for me. From a price-action perspective, Collective Brands' stock has been rather weak as of late, and it currently sits much closer to the 52-week low than it does to the 52-week high.
On Thursday, Nordstrom Inc. (NYSE: JWN) and Kohl's Corp. (NYSE: KSS) both reported smaller-than-expected first-quarter profit declines as consumers continued to pull back their spending.
Luxury retailer Nordstrom said its profit fell 24% from the same quarter of last year to $119 million, or 54 cents per share. Revenue fell 4% from a year ago to $1.88 billion. Analysts surveyed by Thomson Financial had predicted Nordstrom would earn 49 cents per share on sales of $1.9 billion.
The company said same-store sales fell 6.5% for the quarter, below the expected 3% to 5% drop. The retailer said it expects same-store sales to fall 5% to 7% in the quarter, and 4% to 6% in the year.
For the current quarter, Nordstrom forecast a profit of 65 to 70 cents per share; analysts' forecast earnings of 69 cents per share. For the full year, Nordstrom cut its earnings outlook to $2.65 to $2.89 per share, from an earlier forecast for $2.75 to $2.90 per share. Analysts predict earnings of $2.76 per share.
By mid day Friday, shares of Nordstrom had gained $1.35, or 3.5%, from the open on Thursday. Shares have fallen 28.7% in the past year.
MOST NOTEWORTHY: The Department store sector, SanDisk and CNET Networks were today's noteworthy downgrades:
Goldman downgraded the department store sector to Neutral from Attractive after raising its 2008 oil forecast to $149 from $115, as it believes higher gas prices will impact consumer discretionary spend and sentiment. Goldman downgraded JC Penney (NYSE: JCP) and Nordstrom (NYSE: JWN) to Neutral and also removed Kohl's (NYSE: KSS) from its Conviction Buy List.
JMP Securities downgraded SanDisk (NASDAQ: SNDK) to Underperform from Market Perform based on increased competition in NAND, a potential decline in royalty income, valuation, and lack of catalysts from flash-based solid state drives.
CNET Networks (NASDAQ: CNET) was cut to Neutral from Buy at Banc of America following the tender offer from CBS (NYSE: CBS).
I know that what you probably wanted to hear most is that the economy's slowdown is at an end so that some of your beaten-down stocks could enjoy a nice recovery. When the stock markets started declining towards the end of last year, SmartMoney tells us that analysts began to place bets on when we might see stocks rebound. Back then, many fund managers had expected a rally in the second half of 2008.
The Federal Reserve's decision to slash interest rates several times certainly gave a temporary boost to stocks -- not enough for a long-term rally, though. Daily concerns such as the deep housing slump and the rising inflation today give the impression that a second-half comeback is but a dream; it that would be quite hard to accomplish.
While analysts on Wall Street mostly believe a long-term rally is not too realistic now, they believe a moderate boost, stemming from the Fed's rate cuts and the $117 billion in tax rebates going into banks' accounts, is likely. On the other hand, looking at corporate profits, Citigroup analysts believe that predictions related to stocks' earnings figures are too high when taking the challenging market conditions into account.
The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.
Analysts surveyed by Thomson Financial expect earnings growth, compared to the same period in the previous year, from Urban Outfitters (NASDAQ: URBN) to be 22.7% to 22 cents per share, from Wal-Mart Stores (NYSE: WMT) to be 9.3% to 75 cents per share, and from TJX Companies (NYSE: TJX) to be 7.5% to 40 cents per share.
Analysts expect earnings declines from the previous year from JC Penney (NYSE: JCP) by 52.9% to 49 cents per share, from Kohl's (NYSE: KSS) by 34.4% to 42 cents per share, and from Nordstrom (NYSE: JWN) by 18.3% to 49 cents per share.
In the case of Abercrombie & Fitch (NYSE: ANF), analysts expect earnings to remain flat, year over year, at 65 cents per share.
And then there's Macy's (NYSE: M), which is expected to swing to a loss of 2 cents per share, compared to a profit of 16 cents a year ago.
The sample size may be too small to define any significant trends, but the numbers do suggest that analysts expect profit declines to be deeper than profit growth, and that consumers may be more likely, given the current state of the economy, to buy clothes at Wal-Mart or TJ Maxx than at Nordstrom or Abercrombie.
The coming results will reveal if those expectations are correct.
Kohl's Corp. (NYSE: KSS) recently said that it would scale back its plans for opening new locations in the U.S. in 2008 and for the next few years, citing a "squeeze-play on consumers." Instead of the announced 90 new stores this year, Kohl's now expects to open 70 to 75 new stores this year. The retailer is still on track to open its 1,000th store later in 2008, however.
Although the "mall store outside the mall" has identified about 400 sites for potential locations in the near future, it said that kind of expansion may not happen until 2014. Last year, the retailer opened 112 stores nationwide, ending up with a total of 943 stores total in 57 states.
Kohl's is right when it said that its customers are "under a lot of pressure" due to higher fuel, grocery and health care costs. The good news, from what I have seen in the past, is that Kohl's has very low prices for much of its "Croft & Barrow" apparel items, its private-label brand. If it can fight the good fight with Target Corp. (NYSE: TGT) and Wal-Mart Stores, Inc. (NYSE: WMT) in terms of prices and clothing selection, it may yet have decent sales on those items as expensive housewares and related items sink this year.
PDUFA date for Bristol-Myers Squibb Co. (NYSE: BMY)'s supplemental Biologics License Application for Orencia for the treatment of Juvenile Rheumatoid Arthritis.
Alcoa Inc. (NYSE: AA) to report Q1 earnings; conference call at 5pm.
Tuesday, April 8
Chattem Inc. (NASDAQ: CHTT) to report Q1 earnings; conference call at 9:00am.
FOMC to release minutes of the March 18th meeting at 2:00pm.
Here are highlights of some other earnings reports from Thursday:
Gap Inc. (NYSE: GPS) reported a 21% increase in its fourth-quarter profit year over year. The $265 million, or 35 cents per share, matched analysts' expectations. Revenue totaled $4.68 billion, down 5% from the previous year.
Kohls Corp. (NYSE: KSS) fourth-quarter profit fell about 15% year over year to $411.7 million, or $1.31 per share, just beating analysts' estimates. Sales rose less than 1% $5.49 billion, but same-store sales fell.
Novell Inc. (NASDAQ: NOVL) swung to a profit in its fiscal first quarter: $16.8 million, or 5 cents per share, matching expectations. Revenue rose to $230.9 million from $218.4 million a year ago.
The Wall Street Journal [subscription required] suggests that the 70% of economic growth that's driven by consumer spending is shifting into reverse. High, middle, and low income consumers are cutting back their spending. Lower and middle income consumers are selling their gold and using pawnshops to pay their bills as food and energy prices hit record levels. Investors should consider whether to sell their stocks or hold on and suffer.
High income consumers hit. Companies that serve higher income consumers are losing altitude, including:
Tiffany & Co. (NYSE: TIF) said that its U.S. sales slumped during the holiday period.
American Express Co. (NYSE: AXP) warned of rising delinquencies and slowing spending among its cardholders.
Lower and middle income spending down. Less surprisingly, retailers to lower and middle income people are also suffering. These include:
Landstar Systems Inc (NASDAQ: LSTR) to hold Q1 mid-quarter update conference call at 2pm.
Federal Reserve St Louis Bank President William Poole to speak at 11am, Federal Reserve Governor Kevin Warsh to speak at 2pm.
Tuesday March 6
International Game Technology (NYSE: IGT), a "global company specializing in the design, development, manufacturing, distribution and sales of computerized gaming machines and systems products," to hold its annual shareholder meeting at 1pm.
Wednesday March 7
Saks Inc (NYSE: SKS) to hold Q4 earnings conference call at 10am.
PDUFA date for Abbott Laboratories (NYSE: ABT) Humira, a Tumor Necrosis Factor blocker, which is used to reduce the signs and symptoms of arthritis.
PDUFA date for Merck and Co Incs (NYSE: MRK) Janumet, a treatment for Type 2 Diabetes.
Thursday March 8
Monthly Same Store Sales to be reported by Wal-Mart Stores (NYSE: WMT), Target Corporation (NYSE: TGT), Aeropostale Inc (NYSE: ARO), Kohl's Corporation (NYSE: KSS), Pacific Sunwear of California Inc (NASDAQ: PSUN), Abercrombie & Fitch Co (NYSE: ANF), Gap Inc (NYSE: GPS) Nordstrom Inc (NYSE: JWN) and J.C. Penney Co Inc (NYSE: JCP).
Friday March 9
PDUFA date for Eli Lilly and Company's (NYSE: LLY) Cymbalta, a treatment for depression.
The Wall Street Journal (subscription required) reported that Kohl's Corp (NYSE: KSS) may form a multi-year deal with Elle for an exclusive line of clothing.
The Journal also reported that Comcast Corp (NASDAQ: CMCSA) is expected to announce an online video deal with Facebook.
The Barron's Online (subscription required) "Weekday Trader" column highlighted Citrix Systems Inc (NASDAQ: CTXS), which it said could rise to $40 a share or more from its current $31. The company is a play on the success of Microsoft Corporation's (NASDAQ: MSFT) Vista Operating System.
OTHER PAPERS:
According to the BBC News, Vodafone Group ADR (NYSE: VOD) is offering News Corporation's (NYSE: NWS) MySpace in the UK through its subscribers' mobile phones.
The Economic Times wrote that EMC Corporation (NYSE: EMC) has bought India's privately-held enterprise data security company Valyd Software for an undisclosed sum.
The Chicago Tribune reported that Chicago real estate magnate Sam Zell has entered the bidding for the Tribune Company (NYSE: TRB).
MOST NOTEWORTHY: Kohl's (NYSE:KSS) and Juniper Networks (NASDAQ:JNPR) were today's most notable downgrades:
Kohl's was downgraded to Neutral from Outperform at Robert W Baird due to difficult comps, less benefit from key 2006 drivers and warmer weather.
Juniper Networks was downgraded to Sector Performer from Sector Outperformer at CIBC World Markets as there is limited share upside due to competition from the Redback Networks (NASDAQ:RBAK) /Ericsson (NASDAQ:ERIC) combination and a reduced possibility of an acquisition premium.
OTHER DOWNGRADES:
Panacos Pharmaceuticals (NASDAQ:PANC) was downgraded at Bear Stearns, Think Equities, RBC Capital Markets, Leerink Swann and Caris & Co. after the company released disappointing Phase II Bevirmat data.
On Thursday, 
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I know that what you probably wanted to hear most is that the economy's slowdown is at an end so that some of your beaten-down stocks could enjoy a nice recovery. When the stock markets started declining towards the end of last year, SmartMoney tells us that analysts began to place bets on when we might see stocks rebound. Back then, 
The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.
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