Even though Black Friday sales were better than expected, most retailers saw their November sales plunge. As I posted in April, Wal-Mart Stores, Inc. (NYSE: WMT) would likely benefit from consumers' recession diet. That has proven to be a fairly safe bet, but the scary thing is that just about every other retailer is taking a hit.
A glimmer of good news is that for many of those that hurt, the results were not as bad as expected. Here are the actual results of five retailers (with expected results in parentheses):
An emerging theme is that expectations are so bad that retailers seem able to exceed them. However, there is no guarantee that such outcomes are likely to continue. If retailers do better than expected then forecasters may raise their estimates until retailers can't exceed them.
UBS upgraded Pacific Sunwear (NASDAQ: PSUN) to Neutral from Sell and said liquidity is no longer a near-term concern. The firm lowered Pacific Sunwear's target to $1.50 from $3. Citigroup upgraded shares to Hold from Sell on valuation following the recent weakness and believes Pacific Sunwear has sufficient liquidity to remain a going concern.
Calyon believes Reliant Energy (NYSE: RRI) will be successful in unwinding the Merrill Lynch Retail credit sleeve and obtaining alternative collateral. The firm upgraded shares to Buy from Add.
JP Morgan said Cogent's (NASDAQ: COGT) position in homeland security and the defense markets make it less sensitive to an economic downturn, making valuation attractive. JP Morgan upgraded shares to Overweight from Neutral and raised its target to $13 from $10.50.
Goldman added Research in Motion (NASDAQ: RIMM) to its Conviction Buy List and removed Riverbed (NASDAQ: RVBD) from the Conviction Sell List.
J.M. Smucker (NYSE: SJM) was raised to Buy from Underperform at Merrill Lynch.
Last week, JA Solar Holdings Co. Ltd. (NASDAQ: JASO) posted a quarterly loss and lowered its guidance. But as interest in alternative energy continues to grow, analysts polled by Thomson Financial are still looking for good things from solar energy concerns scheduled to report earnings this week.
Strong growth at Trina Solar Ltd. (NYSE: TSL) in the third quarter prompted it to lift its guidance back in October. Analysts expect the Chinese company to post profits that are 76.3% higher than a year ago, or $1.18 per share on revenues of $268.4 million (+225.0%). Though Trina Solar missed estimates in the second quarter, analysts on average recommend buying TSL. Shares are down 81.4% from a year ago and trading near an all-time low.
Earnings of rival LDK Solar Co. Ltd. (NYSE: LDK) are expect to have risen 47.9% to $0.71 per share on revenues of $486.7 million (+206.6%). Also based in China, LDK has not missed estimates in recent quarters; in fact, it blew past expectations in the second quarter. Yet the consensus recommendation is to hold LDK. Like Trina Solar, LDK's shares are trading near an all-time low; the share price has fallen 50.0% in the past year.
Analysts anticipate third-quarter earnings for Canadian Solar Inc. (NASDAQ: CSIQ) to be a whopping 96.3% higher than a year ago, or $0.54 per share on revenues of $248.0 million (+154.5%). The company easily topped estimates in the previous quarter. ReneSola Ltd. (NYSE: SOL) and Suntech Power Holdings Co. Ltd. (NYSE: STP) are also expected to report earnings growth of 29.7% ($0.37 per share) and 23.8% ($0.42 per share), respectively. All three of these stocks reached 52-week lows last week, and all are considered buys.
Shares of Pacific Sunwear (NASDAQ: PSUN) rose in after-hours trading yesterday after Adrenalina (OTC BB: AENA) announced an offer to acquire the company for $4.50 per share. Shares of PacSun had closed at $3.80. The press release announcing the offer said that the proposed deal would consist of a "combination of cash and Adrenalina common stock" and is " subject to PacSun's Board and shareholders approval, execution of a definitive agreement, obtaining the requisite financing and certain other terms and conditions." There are so many red flags here that it's hard to know where to begin. Pacific Sunwear has a market cap of $250 million, more than 10 times that of Adrenalina's. Adrenalina also has just $329,000 in cash and a history of huge losses for a company of its size. A few years ago, minnows could gobble up sharks but with credit markets as tight as they are, it's hard to see a company of Adrenalina's size swinging a deal like this.
Then there's the CEO of Adrenalina, Ilia Lekach. You may remember him as the former CEO of Parlux (NASDAQ: PARL), where he made numerous offers to take the company private that quickly disappeared, and frequently complained about market manipulation by short sellers. You can read more about him in Herb Greenberg's "Worst CEO of the Year" column from 2006.
Investors would do well to ignore Lekach's offer based on his history of smoke-blowing, and focus on the mess that is Pacific Sunwear's current operations.
UPDATE: Pacific Sunwear has announced that it has rejected the offer. Shares are down 1.5% today, at $3.74.
Aeropostale (NYSE: ARO), a retailer whose colleagues include Abercrombie & Fitch (NYSE: ANF), Pacific Sunwear of California (NASDAQ: PSUN) and Gap (NYSE: GPS), issued its Q2 report on Thursday. The stock didn't do much after the numbers were made public despite reporting a very nice 21% increase in sales during Q2, and a whopping 63% jump in earnings per diluted share to 31 cents. Why such a blasé reaction? Well, the retailer was only able to match the expectations of Wall Street analysts, so that might offer some justification for the lack of a decisive bid.
I felt the same way after reading Aeropostale's earnings release as I did after perusing the stats behind GameStop's (NYSE: GME) recent quarter, thinking the company deserved at least a little excitement, especially when one considers that last year at this time, the mall chain saw a 4% contraction in same-store sales. Of course, there is one understandable difference between the GameStop situation and the Aeropostale scenario. GameStop's stock wasn't trading near a 52-week high, and Aeropostale's shares are. So, perhaps the market is perceiving that a lot of the good news is already priced in.
Aeropostale has done well this year. Its stock is up over 28%. Should that concern potential investors? Perhaps. After all, this is a mall retailer based on fashion and investors must consider that Aeropostale's current hot streak could cool. If that happens, the stock might end up retreating back to the lower end of its 52-week range. While there are any signs that such a retreat will happen, I only want to throw into the discussion the concept of fickleness among the youth.
If you really like Aeropostale and want to buy its stock, it might not be so bad to wait for a better price, in my opinion, to allow at least a little margin for error.
Disclosure: I don't own any company mentioned; positions can change at any time.
U.S. stock futures were higher this morning, pointing to a potential positive start on Wall Street. Investors this morning await Federal Reserve Chairman Ben Bernanke speech on financial stability scheduled for 10:00 a.m. from the Fed's annual retreat at Jackson Hole. In the face of recent financial turmoil, namely talk of a government bailout for Fannie and Freddie, as well as troubles at Lehman, Bernanke's speech will likely be today's highlight. Meanwhile, oil dropped a little from Thursday's advance.
Indeed, the Wall Street Journalreports that Freddie Mac (NYSE: FRE) "executives are sounding out private-equity firms and other investors about the possibility of buying new common or preferred shares in the mortgage company." But of course, investors are worries their investments in Freddie or Fannie Mae (NYSE: FNM) may be lost in case of a government bailout. Even Warren Buffett opined on the matter on CNBC this morning, saying he expects the government to take action to support troubled mortgage financiers.
Lehman Brothers (NYSE: LEH) is rebounding this morning after an analyst at Ladenburg Thalmann upgraded LEH to Buy Thursday, saying it is vulnerable to a hostile takeover.
Verizon Communications (NYSE: VZ) is close to an agreement with Google (NASDAQ: GOOG), according to the Wall Street Journal. Conceding they need help with search, the deal could make Google the default search provider on Verizon devices.
Rival home improvement chains Home Depot Inc. (NYSE: HD) and Lowe's Companies Inc. (NYSE: LOW) are scheduled to report quarterly results this week. Not surprisingly, given the ongoing housing slump, analysts surveyed by Thomson Financial on average expect both companies to post earnings lower than in the same period a year ago. For Home Depot, that's 61 cents per share, down 20.8%, and for Lowe's, 56 cents per share, down 16.4%. Meanwhile, cabinet maker American Woodmark Corp. (NASDAQ: AMWD), for whom Home Depot and Lowe's are major distributors, is also expected to report lower earnings: 11 cents per share, down 67.6%.
The presidential campaigns have prompted much discussion of energy policy and alternative energy sources. Some solar-energy-related concerns are scheduled to report this week, and expectations seem to be high. Trina Solar Ltd. (NYSE: TSL) is expected to report 81 cents per share earnings, up 67.9%; ReneSola Ltd. (NYSE: SOL) is expected to post earnings of 32 cents per share, up 62.5%; and Suntech Power Holdings Co. (NYSE: STP) is expected to have earnings of 32 cents per share, up 21.9%. Even China Sunergy Co. Ltd. (NASDAQ: CSUN) is expected to have swung to a profit of 3 cents per share, from a per-share loss of 14 cents a year ago.
MOST NOTEWORTHY: American International Group, Pacific Sunwear, FedEx and Cheniere Energy were today's noteworthy downgrades:
Goldman downgraded American International Group (NYSE: AIG) to Neutral from Buy as they expect market concerns regarding balance sheet pressures and dilutive capital raises to pressure shares.
Citigroup downgraded shares of Pacific Sunwear (NASDAQ: PSUN) to Sell from Buy as they believe Q1 trends are disappointing following the comp results.
Morgan Keegan downgraded FedEx (NYSE: FDX) to Market Perform from Outperform citing the uncertainty related to fuel prices and the economy. RBC
Capital cut Cheniere Energy (NYSE: LNG) to Underperform from Outperform citing the corrected 2007 10K which indicates increased liquidity concerns.
OTHER DOWNGRADES:
Oppenheimer cut Navios Maritime (NYSE: NM) to Perform from Outperform.
Credit Suisse lowered TAL International Group (NYSE: TAL) to Neutral from Outperform.
Vital Signs (NASDAQ: VITL) was downgraded at Piper to Neutral from Buy.
MOST NOTEWORTHY: The Brokers and Asset Managers sector, Pacific Sunwear and Metabasis Therapeutics were today's noteworthy upgrades:
Goldman upgraded the Brokers and Asset Management sector to Attractive from Neutral as they believe an inflection point has been reached for stocks with minimal credit exposure, or where exposure is marked to market. Goldman expects the problem to shift to regional banks and specialty finance from brokers. As such, Goldman upgraded American Express (NYSE: AXP), Metlife (NYSE: MET), Bank of New York Mellon (NYSE: BK), Franklin Resources (NYSE: BEN), Janus Capital (NYSE: JNS) and NYSE Euronext (NYSE: NYX) to Buy from Neutral.
Wachovia upgraded Pacific Sunwear (NASDAQ: PSUN) to Outperform from Market Perform based on valuation, merchandising improvements, operating efficiencies, favorable product mix, and reductions in underperforming categories.
Rodman & Renshaw raised Metabasis (NASDAQ: MBRX) to Outperform from Market Perform on valuation given the potential for MB07803.
OTHER UPGRADES:
HSBC raised Novartis (NYSE: NVS) to Neutral from Underweight.
UBS (NYSE: UBS) was upgraded at Morgan Stanley to Equal Weight from Underweight.
With recession fears, housing market worries and credit concerns, retailers have been facing tough times, especially during the holiday winter season of December and January when sales came with weak numbers. But on the heels of these disappointing results, retailers got a beam of hope as February's sales numbers showed a surprising increase.
Encouraging news for retailers showing a rebound in consumer spending during the past month came after world's largest retailer Wal-Mart Stores Inc. (NYSE: WMT) announced a rise of 2.6% for its February same-store sales. The company said that its same-store sales during the period were helped by strong gains from gas, food and flat-panel TVs. Analysts were expecting the retailer show an increase of 1.1% for its same-store sales, according to Thomson Financial.
Among other retailers that showed a rebound in February sales were Costco Wholesale Corp. (NASDAQ: COST) and Saks Inc. (NYSE: SKS), both of which reported stronger-than-expected gains. Apparel retailers Pacific Sunwear of California Inc. (NASDAQ: PSUN) also reported earnings results exceeding estimates of 6% sales growth last month.
For Limited Brands Inc. (NYSE: LTD), though, February didn't come with positive results. The company stated that higher energy and food prices put pressure on consumers who focused on necessities.
MOST NOTEWORTHY: Motorola, Paccar, Pacific Sunwear, Talbots and RightNow Tech were today's noteworthy upgrades:
Oppenheimer upgraded shares of Motorola Inc. (NYSE: MOT) to Buy from Neutral on valuation, and is positive on the company's free cash flow generation.
Wachovia raised Paccar Inc. (NASDAQ: PCAR) estimates to Market Perform from Underperform based on better-than-expected European performance.
Citigroup upgraded shares of Pacific Sunwear (NASDAQ: PSUN) to Buy from Hold as they believe the demo division divestiture and improving product execution in core PacSun stores could drive accelerating EPS growth.
Citigroup also upgraded shares of Talbots Inc. (NYSE: TLB) to Hold from Sell on valuation but remains concerned about the company's long-term outlook.
Roth Capital upgraded RightNow Technologies (NASDAQ: RNOW) to Buy from Hold, as they are encouraged by RNOW's Q3 results and raised guidance and believes the worst is behind the company.
OTHER UPGRADES:
Goldman added Pfizer (NYSE: PFE) to its Conviction Buy List.
Thomas Weisel upgraded Akamai (NADAQ: AKAM) to Overweight from Market Weight.
Lehman upgraded Harley Davidson (NYSE: HOG) to Equal Weight from Underweight.
The Wall Street Journal's "Numbers Guy" takes a look at the issue of counterfeiting of luxury goods, a major thorn in the side of such couturiers as Coach (NYSE: COH) and Gucci. According to The Numbers Guy, "Washington business groups such as the U.S. Chamber of Commerce and the International Anticounterfeiting Coalition calculate that global counterfeit sales equal $600 billion to $650 billion a year -- numbers parroted in news releases by companies claiming to fight piracy. They build on the often-cited claim that counterfeit goods represent 5% to 7% of all world trade."
The problems with this statistic are twofold: First, it's hard to get accurate data on the operations of organized crime. Secondly, even if we do know how many knock-offs are being sold, it's hard to say how much of that is actually detracting from the sales of the high-fashion labels: Is someone who buys a $10 pair of "Gucci" sunglasses from a street vendor really buying those instead of $300 Gucci sunglasses? Or is that sale instead coming at the expense of less expensive retailers like PacSun (NASDAQ: PSUN) or even Wal-Mart (NYSE: WMT)?
It's unclear how much illegal knock-offs are really hurting designers, but there's another issue that definitely is hurting them and, for now at least, it's legal: lower-budget knock-offs, perfectly legal because there's no logo, of runway couture, often before it even hits stores.
MOST NOTEWORTHY: McAfee (MFE), Wabtec Corp (WAB), Pacific Sunwear (PSUN), Aeropostale (ARO) and Amdocs (DOX) were today's noteworthy initiations:
McAfee Inc (NYSE: MFE) was initiated with an Accumulate rating at ThinkEquity, as the firm is positive on the company's competitive positioning in security, refocused business and streamlined operations.
JP Morgan initiated shares of Wabtec Corp (NYSE: WAB) with an Overweight rating, as the firm believes Wabtec's strong market presence should support 22% and 12% EPS growth in 2007 and 2008.
Nollenberger feels that the core PacSun concept is challenged to re-establish a niche in the competitive teen marketplace, and initiated shares of Pacific Sunwear (NASDAQ: PSUN) with a Neutral rating and $22 target.
Nollenberger also initiated shares of Aeropostale (NYSE: AEO) with a Buy rating and $49 target and recommends buying the stock into back to school.
Cantor initiated shares of Amdocs (NYSE: DOX) with a Hold rating and $37 target on valuation...
Even though Black Friday sales were better than expected, most retailers saw their November sales plunge. As I posted in April, Wal-Mart Stores, Inc. (NYSE: WMT) would likely benefit from consumers' recession diet. That has proven to be a fairly safe bet, but the scary thing is that just about every other retailer is taking a hit..gif){kind=logo}
Last week, 
Shares of 
.gif){kind=logo}
U.S. stock futures were higher this morning, pointing to a potential positive start on Wall Street. Investors this morning await Federal Reserve Chairman Ben Bernanke speech on financial stability scheduled for 10:00 a.m. from the Fed's annual retreat at Jackson Hole. In the face of recent financial turmoil, namely talk of a government bailout for Fannie and Freddie, as well as troubles at Lehman, Bernanke's speech will likely be today's highlight. Meanwhile, oil dropped a little from Thursday's advance.
Rival home improvement chains 
.gif){kind=logo}
.gif){kind=logo}
With recession fears, housing market worries and credit concerns, retailers have been facing tough times, especially during the holiday winter season of December and January when sales came with weak numbers. But on the heels of these disappointing results, retailers got a beam of hope as February's sales numbers showed a surprising increase. 
Best & Worst in Money 2008: Most shocking financial collapse
Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
Global Q&A: A rocky road, but profits ahead
