With daily reports in the financial press about the collapse of subprime lending, and the precarious position that lower-income Americans are finding themselves in, there's one group of retailers that may be destined to profit: Dollar stores. As people have to scrimp and save more to cover their ballooning mortgage payments, they may look to these discounters for household staples.
In addition, these companies are messing with big box retailers like Wal-Mart Stores, Inc. (NYSE: WMT) with competitive pricing and a smaller, more user friendly store-format.
Demographic trends are also helpful. Incomes at the lower-end are growing slowly and, as the baby boomer population ages, budget constraints may make these discounters more attractive.
These companies also tend to have simple business models, high turnover, and fairly predictable cash flows. While the private equity bull market appears to have waned, attractively valued dollar stores may still be attractive to some firms. KKR recently acquired Dollar General for $7.3 billion.
If you think dollar-stores have a bright future, you have a few investment options.
Family Dollar (NYSE: FDO) has settled shareholder lawsuits relating to the backdating of stock options issued to executives at the company. Under the terms of the settlement, Chairman and Chief Executive
Howard Levine, President and Chief Operating Officer
R. James Kelly, board member
George Mahoney and executive
C. Martin Sowers will give up a total of 210,000 stock options.
The company will also institute corporate governance reforms including the adoption of a majority-vote policy for uncontested elections of directors and the election of two additional independent directors.
Here's what bothers me: The company will be taking a charge of $5.7 million related to the settlement, including $3.5 million to cover the attorney's fees of the shareholders who brought the lawsuits.
This is my question: Given that the company clearly had ineffective internal controls that allowed top executives to receive backdated stock options, why should the company's shareholders have to pick up the tab for the legal fees? CEO Howard Levine made more than $3.1 million last year. Since he and other executives and directors were the ones responsible for options backdating, why shouldn't they pay legal fees?
Fourteen hundred lucky Prince fans will be able to catch a live concert at the downtown Minneapolis Macy's on July 7. The pocket-sized pop star is performing in his hometown at the Federated Department Stores (NYSE: FD) branch to coincide with the launch of his new fragrance, 3121.
For $250, a ticket to what's being called the Ultimate Prince Xperience, you get admission into the private concert, a ticket to Prince's concert at the Target Center that evening, and a bottle of the fragrance (3121 is also the name of Prince's newest album).
Remember when Prince was so against commercialization
and the corporate control of his record company that he scrawled "Slave" across his face and changed his name to an unpronounceable symbol? Yeah, me neither.
At this time in the morning, stock futures point to a higher opening as investors await housing data, getting a boost from what seems like a vote of confidence from billionaire investors.
Yesterday, stocks closed mixed once again, with the Dow hitting yet another record, while the Nasdaq and the S&P 500 ended lower. BloggingStocks' Sheldon Liber has been noting this trend the past couple of days, which in his view is a warning signal of a flight to safety.
Today, investors will focus on the housing market, which has been, and remained, a concern. Other economic indicators will always be released today.
The Commerce Department is due to release April housing starts and building permits at 8:30 a.m. EDT. Economists predict starts will fall from 1.518 million in March to a seasonally adjusted annual rate of 1.48 million. Building permits is forecast to have fallen in April to a seasonally-adjusted annual rate of 1.52 million from 1.564 million the month before.
April capacity utilization and industrial production are due just before the opening bell. The market estimates industrial production rose 0.3% in April, better than the previous month's drop of 0.2%. Capacity utilization is expected to be 81.5%, slightly up from March level of 81.4%.
At 10:30, weekly crude inventories are due. Oil prices fell slightly due to inventories that are seen rising and despite lingering concerns about oil production cuts due to protests in Nigeria.
Overseas, Asian stocks generally finished higher while European stocks are on the decline as concern over a slowing economy in the U.S. that could affect companies dependent on the world's biggest economy for sales.
Corporate:
Edward Lampert's hedge fund disclosed today a 15.24 million-share stake in Citigroup Inc. (NYSE: C), a 0.3% stake worth $782.6 million on March 31. Some speculate that Lampert, also the chairman of Sears Holding (NASDAQ: SHLD), might push for changes at the largest U.S. bank. Citi shares are up 1.6% in pre-market trading (7:24 a.m.).
Applied Materials (NASDAQ: AMAT) shares are dropping nearly 4% in pre-market (7:37 a.m.), after the company reported yesterday, beating analysts' estimates due to tight cost controls. Investors, however, were unimpressed with the company's outlook and guidance.
MOST NOTEWORTHY: Three food companies, TiVo Inc (TIVO), Circuit City Stores, Inc (CC) and AutoZone, Inc (AZO) were today's most noteworthy downgrades:
Deutsche Bank downgraded Groupe Danone (NYSE: DA), Unilever (NYSE: UL) and Nestle (OTC: NSRGY) to Hold from Buy as the firm believes the three food producers will suffer from rising prices for agricultural commodities.
SMH Capital downgraded shares of TiVo (NASDAQ: TIVO) to Sell from Hold on valuation as the firm believes the market has already priced in considerable penetration of the new TIVO/Comcast bundled DVR into Comcast's (CMCSK) core digital sub base.
Matrix downgraded Circuit City Stores (NYSE: CC) to Strong Sell from Hold as the firm believes increasing competition is leading to lower selling prices and decreasing profits.
BMO Capital cut AutoZone (NYSE: AZO) to Underperform from Market Perform on expectations that higher gas prices will be a drag on discretionary product sales...
Looks like an early Easter has dented April retail sales, as sales at top U.S. retailers were down last month. They were even lower than reduced estimates based on the structure of the month. Causes? Well, March sales were already pumped from the early Easter this year and April was the coldest April in ten years. That enough for ya?
It's quite a feat of non-spending when Wal-Mart Stores Inc. (NYSE: WMT) sees a sales decline over over 2%, let alone a 3.5% decline for April (expectations were 2%). Sales at Federated Department Stores Inc. (NYSE: FD) were also down, as were sales at once-trendy Gap, Inc. (NYSE: GPS).
In addition to an early Easter (six days earlier than in 2006), the cold snap in April put off spring and summer clothes purchases, so there was a double-whammy that brought April sales declines to a close. Also, our old friend -- high gas prices -- may have also contributed since per-gallon prices hovered in the area of $3 a gallon for the last few weeks of April, crossing that mark as well at the very start of May in much of the nation.
One thing that I never see externally measured is sales that are adjusted for holidays moving around, and other effects. Can forecasters attribute some sales from March (due to an early Easter) into April to give a clearer picture outside of the weather and gas price effects? I guess not -- and that's what it would be -- a guess.
Wal-Mart Stores Inc. (NYSE: WMT) total U.S. same-store sales fell 3.5% in April, more than the average estimate of analysts polled by Thomson Financial that predicted a decline of 1.1%. WMT expects May sales to rise 1-2%. WMT shares are down 1.4% in pre-market trading (8:10 a.m.).
Federated Department Stores Inc. (NYSE: FD) reported a 2.2% decline in April same-store sales, missing its own forecast as well as analysts'. FD shares are down 1.8% in pre-market (8:18 a.m.).
The Gap Inc. (NYSE: GPS) same-store sales dropped 16% in April, much lower than analysts' estimate of a 7.1% drop in comparable sales for the month. GPS shares are down 2.9% in pre-market.
Whole Foods Market Inc. (NASDAQ: WFMI) reported quarterly results yesterday, missing analysts estimates for earnings and revenue. WFMI shares are down nearly 10% in pre-market trading (8:05 a.m.) as HSBC cut ratings to Underperfrom from Neutral.
General Electric Co. (NYSE: GE) said it had successfully taken over the financial unit of Japanese electronics maker Sanyo Electric Co. It would pay 126 billion yen ($1.05 billion) to acquire 97.15% of outstanding shares in Sanyo Electric Credit.
Microsoft Corp. (NASDAQ: MSFT) has signed a deal with Lenovo Group Ltd. selling Windows, Office and other software suites for Lenovo's personal computers in a deal worth as much as $1.3 billion.
Hershey Co. (NYSE: HSY) lowered 2007 targets, citing increasing dairy costs. It now sees profit rising by 4% to 6%, down from the previous range of 9% to 11%. HSY shares are down 3.7% in pre-market (8:04 a.m.).
Viacom Inc. (NYSE: VIA) reported a 36% drop in first-quarter profit. Excluding restructuring charges, Viacom's quarterly profit of 34 cents beat Wall Street expectations of a profit of 31 cents, according to Reuters Estimates. Revenue rose 16% to $2.75 billion, also exceeding Wall Street estimates of $2.55 billion.
Google Inc. (NASDAQ: GOOG) holds a shareholders meeting today, just a few weeks after it reported quarterly results that impressed investors. The BBC has an interesting story about sounds being added to Google Earth if Google buys Wild Sanctuary, which has over 3,500 hours of soundscapes from all over the world.
Environmental regulators meet today to discuss new standards proposed by the Environmental Protection Agency that could dramatically reduce exhaust from diesel engines used to power trains and tugboats. The rules, which could go into effect by 2009, could have a big impact on engine makers such as Caterpillar Inc. (NYSE: CAT) and GE.
Update: MasterCard Inc. (NYSE: MA) was upgraded to Hold from Sell at Stifel Nicolaus.
A month ago, I wrote that Federated Department Stores (NYSE: FD) was seeking shareholder approval to change its corporate name to "Macy's Group." Today, with swimsuit season right around the corner, the retailing giant said it will slim down its stock symbol as well. If shareholders agree to the new new name of "Macy's Inc.," a new symbol of "M" will go hand in hand, beginning on June 1.
Over on the MarketBeat Blog, David Gaffen mentions that this single-letter ticker has laid dormant for years, as the New York Stock Exchange was rumored to hope that Microsoft (NASDAQ: MSFT) might one day want to simplify its ticker (and head over to the Big Board).
Shareholder approval for this change shouldn't be a problem, but I foresee bigger problems for the department-store name. Won't new-wave fans confuse the stock symbol with the succinctly named band of the same name (of Pop Muzik "fame?") Or what about James Bond's colleague?
Yes, confusion may be unavoidable, but that's not to say that the stock doesn't look intriguing at this juncture. A long-term uptrend has seen it nearly quadruple in value since February 2003, and this week has seen the equity pull back to double-tiered technical support. With its name back in the news, now may be an attractive entry point.
MOST NOTEWORTHY: The interactive entertainment sector, CVS Corp (CVS) and two large retailers, J.C. Penney (JCP) & Federated Department Stores (FD), topped today's notable initiation list:
AG Edwards initiated Electronic Arts Inc (NASDAQ: ERTS), Activision, Inc (NASDAQ: ATVI), THQ Inc (NASDAQ: THQI) with Buy ratings and Take-Two Interactive Software (NASDAQ: TTWO), Midway Games Inc (NYSE: MWY) and GameStop Corp (NYSE: GME) with Hold ratings. The firm believes the video game industry is well-positioned for above-average L-T growth based on positive demographic trends. In addition, AG Edwards expects overall U.S. video game industry retail dollar sales to grow by 39% in 2007.
Elsewhere, Wachovia initiated CVS Corp (NYSE: CVS) with an Outperform rating. The firm believes CVS is well-positioned to take advantage of the fundamentals in the PBM business and find cost synergies from the merger.
Thomas Weisel initiated both J.C. Penney (NYSE: JCP) and Federated Department Stores (NYSE: FD) with market Weight ratings. The firm believes JCP will have more modest margin expansion going forward and believes high expectations and valuation for FD will limit its outperformance in the near-term.
OTHER INITIATIONS:
ThinkEquity started DivX, Inc (NASDAQ: DIVX) with a Buy rating and $26 target.
RBC initiated Trident Microsystems, Inc (NASDAQ: TRID) with a Sector Perform rating.
UBS initiated Teva Pharmaceutical Industries Ltd (NASDAQ: TEVA) with a Buy rating.
Pacific Growth started American Superconductor Corp (NASDAQ: AMSC) with a Neutral rating.
Susquehanna started Quality Systems, Inc (NASDAQ: QSII) with a Positive rating.
Earnings season is winding down, which means the retailing sector takes center stage in the reporting confessional. At 8:00 a.m., Federated Department Stores Inc. (NYSE:FD) reported fourth quarter financial results: The firm's fourth-quarter sales slipped 4.3% to $9.16 billion, while same-store sales rose 6.1%. Earnings, excluding items, hit $1.66 per share, ahead of consensus analysts' expectations of $1.58 per share.
The report was accompanied by a slew of announcements:
The company is planning to change its name to "Macy's Group," citing that close to 90% of company sales come from the Macy's Brand. Don't worry about those cute little brown bags, though; FD assures that the Bloomingdale's chain remains a valuable part of the company. Shareholders will vote on the change on May 18. If approved, it will take effect on June 1.
FD will buy back up to 18% of its outstanding shares, or up to an additional $4 billion worth of stock.
The firm declared a regular quarterly dividend of 12.75 cents per share, payable April 2, to shareholders of record at the close of business on March 15.
Looking ahead to the future, the retailer targets sales of $27.1 billion to $27.6 billion in fiscal year 2007, with full-year earnings expected in a range of $2.45 to $2.60. For the first quarter, FD sees per-share earnings of 15 to 20 cents.
FD shares are slipping over 2% in pre-market trading as of 8:37 a.m.
Sirius Satellite Radio Inc. (NASDAQ:SIRI) posted a narrower loss for the fourth-quarter, driven by an increase in subscribers. Sirius posted a net loss of $245.6 million, or 17 cents a share, on revenue of $193.4 million -- a 142% increase. Analysts had forecast a loss of 19 cents a share for the latest fourth-quarter, according to Reuters Estimates. Brian White is liveblogging the conference call.
Originally set for launch this month, Apple Inc. (NASDAQ:AAPL) has delayed until March the launch of the AppleTV set-top box without explaining why.
While The Big Three keep announcing plant closures in the U.S., Toyota Motor Corp. (NYSE:TM) is announcing the opposite with a plan to build a sport utility vehicle plant in Mississippi for around 100 billion yen ($830 million) as it's trying to keep up with booming demand. Other reports put the investment amount at 200 billion yen.
Meanwhile, global production keeps growing with Toyota's global production rising 5.2% in January, further narrowing the gap with General Motors Corp. (NYSE:GM). Honda Motor Co. (NYSE:HMC) saw an 11.9% global production rise, while Nissan Motor Co. reported a 6.9% gain. Mazda Motor Corp., owned 33.9% by Ford Motor Co. (NYSE:F) said its global production rose 6.2%.
General Electric Co. (NYSE:GE) was upgraded to Buy from Neutral at UBS due to attractive valuation. The analyst also mentioned that GE's domestic natural-gas turbine business might record better-than-expected orders in 2007 and 2008. GE shares are up 0.17% in pre-market trading. While not much of a climb, in this all-red morning, it's something.
Bear Stearns is holding a retail, restaurants and consumer conference this week in New York. Keynote presentations will be made by Best Buy Co. (NYSE:BBY), J.C. Penney Co. (NYSE:JCP), Marriott International Inc. (NYSE:MAR), McDonald's Corp. (NYSE:MCD), Safeway Inc. (NYSE:SWY) and Wal-Mart Stores Inc. (NYSE:WMT).
According to the Wall Street Journal, Time Warner Inc.'s (NYSE:TWX) AOL unit is in talks to acquire mobile phone advertising start-up Third Screen Media, for some $80 million. Microsoft Corp. (NASDAQ:MSFT) came close to buying Third Screen last year. Oppenheimer also upped its target on TWX from $24 to $27.
Exxon Mobil Corp.(NYSE:XOM) will pay $650,000 to settle allegations by California over selenium discharge.
Earnings are due today from Target Corp. (NYSE:TGT) -- expected $1.27 EPS, Federated Department Stores Inc. (NYSE:FD -- expected $1.58 EPS, CBS Corp. (NYSE:CBS) -- expected $0.47 EPS and TXU Corp. (NYSE:TXU) -- expected $1.19 EPS.
Electronic Arts Inc. (NASDAQ:ERTS) yesterday named former EA executive John Riccitiello as the new CEO.
Other notable analyst calls: - Moody's (NYSE:MCO) was upgraded by Citigroup from Hold to Buy. - Bed Bath & Beyond Inc. (NASDAQ:BBBY) was downgraded by UBS from Buy to Neutral. - NYSE Group, Inc. (NYSE:NYX) was downgraded by J.P. Morgan to Underweight from Neutral.
The bar has been set high for Nordstrom Inc. (NYSE:JWN) when it reports earnings Monday February 26 after the market closes, but look for the quintessential upscale retailer to meet those expectations, and more.
For the record, analysts surveyed by Reuters expect Nordstrom's Q4 revenue to increase more than 12% to $2.62 billion and EPS to rise better than 30% to 90 cents.
Those are gaudy projections for a trader/investor to try to get out in front of with a new position, but a review of JWN's chart shows a stock and company that Wall Street senses has its better days (and quarters) still ahead of it, even as it experiences enviable levels of success at present. After a summer consolidation period, Nordstrom's stock has risen about 90% in 6 months, yet its P/E is at an un-stratospheric 19.
With the above in mind, a Q4 revenue/earnings underperformance would surprise many on Wall Street and undoubtedly would also spark a sell-off, but going against JWN is considered by many to be a daring position at this juncture; calculating against Nordstrom now is a little like taking a position against US Steel (NYSE:X) in the 1950s. Not prudent.
Caterpillar Inc. (NYSE:CAT) is planning to raise its stake and take control of a construction machinery, 50-50 joint venture with Japan's Mitsubishi Heavy Industries Ltd. According to Mitsubishi Heavy , CAT wants to raise its stake to about two-thirds.
A day after Ford Motor Co. (NYSE:F) Russia plant was closed due to a strike over pay and conditions, production resumed, but workers threatened to strike again if pay talks stall.
General Electric Co. (NYSE:GE) -- Yesterday, GE Energy Financial Services and a Paris-based company that generates electricity from wind power, Theolia, announced an agreement. For 5.2 million shares of Theolia, GE Energy will sell 165-megawatt wind farms it owns in Germany.GE Energy will buy an additional 1.2 million shares of Theolia stock for about $26 million.
After DaimlerChrysler (NYSE:DCX) indicated yesterday it might be interested in selling its Chrysler Group, Toyota Motor Corp. (NYSE:TM) quickly said it isn't interested in buying it or any other company.
Yesterday, Fidelity filed its fourth quarter holdings. According to the filing, the world's No. 1 mutual fund firm, cut its holdings in Yahoo Inc. (NASDAQ:YHOO) by 51%, slashed its holding in AT&T Inc. (NYSE:T) by 29%, reduced its stake in Johnson & Johnson (NYSE:JNJ) by 25% and raised its holdings in Microsoft Corp. (NASDAQ:MSFT) by 13% in the fourth quarter.
Microsoft Corp. (NASDAQ:MSFT):
A Russian court threw out a criminal case against a school principal accused of installing pirated Microsoft software in school computers.
Microsoft scheduled an analyst meeting today at 10 a.m. EST in New York. While no shattering news is expected, speculation remains on what the software maker's Chief Executive Steve Ballmer and Chief Financial Officer Chris Liddell might be planning for the -- short, hour-long -- briefing.
Starbuck Corp. (NASDAQ:SBUX) will double its purchases of fine coffee from East African countries by 2009. Starbucks also announced it would help small-scale coffee producers and would set up a farmer support center in 2007 to improve bean quality.
According to regulatory filing yesterday, billionaire investor Carl Icahn cut his stake in Time Warner Inc. (NYSE:TWX) by 65%. Icahn also more than tripled his stake in Federated Department Stores (NYSE:FD).
The decision of XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) to sell and lease back one of its satellites have analysts split. Banc of America Securities analyst Jonathan A. Jacoby thinks it's a a good move, while Morgan Stanley analyst Benjamin Swinburne said he was "mixed" on the deal. Stanford Research downgraded XMSR from Buy to Hold and reduced its target price from $20 to $15.
Other notable analyst calls include several downgrades for Baidu.com, Inc. (NASDAQ:BIDU) that reported a quintuple jump in profit for the fourth quarter.
MOST NOTEWORTHY: Nordstrom Inc (JWN) and Federated Dept Stores (FD) were today's most notable initiations:
JP Morgan initiated Federated Dept Stores (NYSE: FD) with a Neutral rating. They believe Federated's merger remains a struggle while the company's valuation is stretched.
JP Morgan see Nordstrom Inc (NYSE: JWN) as one of the strongest retail models in their universe, but consider the stock's valuation to be rich. The firm initiated Nordstrom with a Neutral rating.
OTHER INITIATIONS:
IPG Photonics (NASDAQ: IPGP), a designer and manufacturer of optical fiber-based lasers and fiber amplifiers, was initiated at five research firms this morning: Needham, Jefferies and Merrill Lynch with a Buy rating, Lehman Brothers with an Equal Weight rating and Thomas Weisel with an Overweight.
Guidance Software (NASDAQ: GUID) was initiated at three firms: With a Buy rating at AG Edwards, an Overweight rating at Morgan Stanley and an Outperform rating at Wachovia.
With daily reports in the financial press about the collapse of subprime lending, and the precarious position that lower-income Americans are finding themselves in, there's one group of retailers that may be destined to profit: Dollar stores. As people have to scrimp and save more to cover their ballooning mortgage payments, they may look to these discounters for household staples.
Fourteen hundred lucky Prince fans will be able to 
At this time in the morning, stock futures point to a higher opening as investors await housing data, getting a boost from what seems like a vote of confidence from billionaire investors.
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Main market news 
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Earnings season is winding down, which means the retailing sector takes center stage in the reporting confessional. At 8:00 a.m., Federated Department Stores Inc. (NYSE:
Main market news 
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