Shares of retailer Family Dollar Stores Inc. (NYSE:FDO) have been taking a hit in early trading as the company slashed its full-year earnings outlook amid tumbling market conditions.The retailer was able to post better-than-expected earnings numbers but this was not enough to reassure investors who pushed the stock down over 1%.
Family Dollar Stores announced that its second quarter profit had dropped 30% to $63.3 million, down from $90.5 million reported in the same period a year ago when the company benefited from an extra week of holiday sales. The retailer posted quarterly earnings of 45 cents a share, slightly higher the 42 cents a share that analysts expected.
The company posted a drop of 6% in its second-quarter revenue to $1.83 billion, down from $1.95 billion a year earlier. Analysts forecast revenue of $1.84 billion in the quarter, according to Thomson Financial. The drop in revenue came as the retailer had to face a difficult consumer environment brought by the U.S. housing market slowdown, high gas prices and credit crisis.
The result? Wall Street is rising, with the Dow industrials climbing over 200 points (211 as I write this). The broader S&P 500 is not shying from the rally either, soaring 1.8%, and the Nasdaq composite is up a cool 2.75%.
It is no surprise then to find that Wal-Mart Stores Inc. (NYSE: WMT) actually set a new 52-week high today, climbing to $54.15 before settling back a bit at $53.76, or 1% higher. While no specific news is driving Wal-Mart at the moment, its stock has seen nice price movement lately, as many have bet the discount retailer would fare well in a slowing economy / recession.
Theflyonthewall.com believes that the breakout is technical, saying that after the $51.50-$52 level served as a "major overhead resistance area for 3 years and was a major support area for the 2 years prior," WMT could break out if it climbed above that level. Not only that, but "breakouts of this type, which have developed over a long period of dull range trading, often produce extreme and persistent movement in the direction of the breakout." Meaning, that if the stock doesn't revert back, we could see WMT shares gain strong upward momentum.
While perhaps not breaching 52-week records, other retailers are performing well today too. Continued falling commodity prices have eased inflation concerns, putting retailers back in favor. Target (NYSE: TGT) shares are climbing nearly 2.5%; Walgreen (NYSE: WAG), which has reported a 5% earnings growth, is seeing its shares rise over 5.3%; and Family Dollar (NYSE: FDO), another discount store, is soaring over 6%.
MOST NOTEWORTHY: Garmin, Express Scripts and ArQule were today's noteworthy downgrades:
Deutsche Bank downgraded shares of Garmin Ltd. (NASDAQ: GRMN) to Hold from Buy and lowered their target to $90 from $125 after channel checks at CES raised concerns about competitive pressure in the U.S. and pricing. Deutsche sees increasing uncertainty for 2008.
Express Scripts (NASDAQ: ESRX) was lowered to Market Perform from Outperform based on valuation and risk to 2008 guidance.
Banc of America downgraded shares of ArQule (NASDAQ: ARQL) to Neutral from Buy following the departure of CEO Dr. Stephen Hill, to reflect greater execution risk and uncertainty.
OTHER DOWNGRADES:
Keefe Bruyette downgraded IberiaBank (NASDAQ: IBKC) to Underperform from Market Perform.
JMP Securities lowered Red Lion Hotels (NYSE: RLH) to Market Outperform from Strong Buy.
Bear Stearns downgraded Family Dollar (NYSE: FDO) to Underperform from Peer Perform.
TheStreet.com's Jim Cramer says it's still too early to get contrarian about the universal negativity on retail.
Squeeze?
DuPont (NYSE: DD) (Cramer's Take) better than expected. Countrywide (NYSE: CFC) (Cramer's Take) puts up numbers that don't seem bankruptish. We could have a day's respite from the gloom. We certainly are owed one, at least in Nasdaq land.
Plus, when you go out with people from the trading desks, you are overwhelmed by the negativity.
Last night at a buy-side/sell-side dinner, a smart guy I know who loves the short side tried to make a case for some down-and-out airlines and retailers. He's a price guy, meaning that he believes everything has a price and that you have to start looking at a Lowe's (LOW) here or a Macy's (M) because if you start buying now, put some on, you will be getting a pretty decent risk-reward ratio.
I thought people were going to throw things at him. He was immediately ridiculed as someone who didn't understand what's out there, the collapse of consumer spending as evidenced by Brinker's (NYSE: EAT) (Cramer's Take) Chili's, AT&T (NYSE: T) (Cramer's Take), Family Dollar (NYSE: FDO) (Cramer's Take) and all of the other usual suspects Tuesday.
Other companies reporting quarterly results on Tuesday included the following:
Constellation Brands Inc. (NYSE: STZ): Third-quarter profit rose 11 percent, lifted by strong liquor sales, a growth in North American wine business, and acquisition of Svedka vodka. Profit for the quarter ended November 30 rose to $119.6 million, or 55 cents a share, from $107.8 million, or 45 cents a share, a year earlier. Analysts polled by Thomson Financial had expected 55 cents per share on revenue of $1.04 billion. However, Constellation lowered its full-year profit outlook, in part due to costs from its recent acquisition of Fortune Brands Inc.
Acuity Brands Inc. (NYSE: AYI): Fiscal 2008 first-quarter earnings fell 7 percent, as a restructuring charge offset higher pricing and increased sales. The company earned $31.1 million, or 72 cents per share, compared with $33.6 million, or 77 cents per share, in the same quarter a year ago. Analysts had expected profit of 82 cents per share on revenue of $500.6 million, according to analysts polled by Thomson Financial. Revenue increased 7% to $508.9 million, from $477.6 million a year ago. The special charge was related to planned actions to streamline operations as a result of the spin-off of Zep Inc.
Looking for stocks to stick under the family Miracle Tree? In this edition of StockWatch: Between the Bells, Amey Stone, business author and editor of BloggingStocks, shares a few stock plays for the holiday season.
Won't your little rocker be stoked if you take a stake in Activision (NASDAQ: ATVI)? The long-time video game maker has had monster success with its Guitar Hero franchise and should enjoy heavy Christmas sales of the latest volume, Guitar Hero III. For the fashionable in your family, Amey suggests Deckers Outdoors (NASDAQ: DECK), makers of the popular Ugg boots. Deckers' shares slipped a little at mid-month but are recently back on the rise.
It seems that Apple Inc.'s (NASDAQ: AAPL) Jobs perfectionism isn't so perfect lately. In the past 24 hours, there have been reports that a number of the new iMacs have been freezing. These are screen freezes, with the exception of the mouse pointer, when underneath the computer keeps running. Meanwhile, it seems that perhaps Apple wasn't intentionally bricking hacked iPhones, perhaps the software update was just a bad one as even non-hacked phones have been known to brick after the update.
It seems that Google Inc's (NASDAQ: GOOG) efforts in China have paid off. Today the search giant said it is closing the gap with rival Baidu.com (NASDAQ: BIDU) in the second largest internet market in the world. Google has increased its market share after it announced its partnership with Sina Corp (NASDAQ: SINA).
eBay Inc (NASDAQ: EBAY) said it has acquired Afterbuy.com, which enables professional trading on eBay's German Website and other online marketplaces. Terms of the agreement were not disclosed.
Family Dollar Stores Inc. (NYSE: FDO) today said fourth-quarter net income rose 17% to $37.8 million, or 26 cents a share. Analysts expected earnings of 25 cents a share, according to a survey by Thomson Financial.
Microsoft Corp's (NASDAQ: MSFT) CEO said Steve Ballmer said at a press conference in Zurich that he did not rule out further acquisitions of a similar size to web advertising firm aQuantive ($6 billion). Research In Motion Ltd. (NASDAQ: RIMM) is expected to post earnings after the close today. Analysts expect a per-share profit of 50 cents for the second quarter. Shares are up some 1.8% in premarket trading ahead of earnings.
Countrywide Financial Corp (NYSE: CFC) was ordered to give confidential information about its stock-grant practices to a pension fund, according to the Los Angeles Times web site.
Bear downgraded shares of Circuit City Stores Inc (NYSE: CC) to Peer Perform from Outperform based on lack of visibility, execution issues, softer consumer environment, potential pricing disruptions, and product cycle concerns.
Merrill downgraded shares of Wells Fargo and Company (NYSE: WFC) to Neutral from Buy to reflect higher credit losses and valuation and KeyCorp (NYSE: KEY) to Sell from Neutral to reflect the company's "weak" revenue growth.
Merrill Lynch downgradedWells Fargo & Co. (NYSE: WFC) to Neutral from Buy, citing the stock's recent outperformance and rising credit losses.
Mattel (NYSE: MAT), which also apologized to China for toy recalls, was upgraded Oppenheimer & Co. analyst Linda Bolton Weiser to Buy from Neutral, with a target of $30. The analyst said that recall-related bad news is now in the past and already priced in. There are a number of catalysts for share price growth like the introduction of new toys related to three movies and others. She expects operating margin expansion and double-digit earnings growth in 2008.
Family Dollar Stores Inc. (NYSE: FDO) was downgraded by JPMorgan anlayst Charles Grom to Underweight from Neutral due to tough competition and a sluggish economy.
Yamana Gold Inc. (NYSE: AUY) was downgraded at CIBC World Market from Sector Outperform to Sector Perform and the price target lowered from $16 to $14.
The least surprising of downgrades come from Bear Stearns of Circuit City (NYSE: CC), to Peer Perform from Outperform.
General Electric (NYSE: GE) has offered €4 billion ($5.6 billion) to buy the property assets which Spanish bank Santander is selling to fund its bid for parts of Dutch bank ABN AMRO.
According to executives at Google Inc. (NASDAQ: GOOG), it's true that U.S. mortgage lenders are cutting advertising budgets due to a global credit squeeze, but they are not likely to reduce internet search marketing anytime soon.
MOST NOTEWORTHY: American Capital (ACAS), Doral Financial (DRL), E-Trade Financial (ETFC) and Family Dollar (FDO) were today's noteworthy downgrade:
Jefferies downgraded shares of American Capital (NASDAQ: ACAS) to Hold from Buy citing the slowing M&A market and risk characteristics of the company.
Soleil downgraded Doral Financial (NYSE: DRL) to Sell from Hold, on the belief that the recent reverse stock split will increase short-selling activity and discourage speculative buying.
E-Trade Financial (NASDAQ: ETFC) was cut to Neutral from Buy at UBS, citing deteriorating trends in the credit/mortgage markets, lack of near-term catalysts; the firm does not see an M&A deal occurring near-term.
Goldman downgraded Family Dollar (NYSE: FDO) to Neutral from Buy, citing weakness in the low-end consumer and increased pressure from Wal-Mart (WMT)...
OTHER DOWNGRADES:
Wachovia downgraded Tween Brands (NYSE: TWB) to Market Perform from Outperform.
Estee Lauder (NYSE: EL) was downgraded to Neutral from Outperform at Credit Suisse.
Deutsche Bank cut Pearson (NYSE: PSO) to Hold from Buy.
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.
According to the Wall Street Journal, discount/single-price point stores like Family Dollar Stores Inc. (NYSE: FDO), Dollar Tree Stores Inc. (NASDAQ: DLTR), and the soon to be KKR owned Dollar General Corp. (NYSE: DG) are growing in popularity [subscription required] with consumers, reporting solid same-store sales growth and expanding sales of food products. According to Family Dollar CEO Howard Levine, "The low-income customer is always stressed and always strained. When things like a minimum-wage increase happen, that's a great benefit to them. When gas prices come down, that's a great benefit to them, and conversely when they go the other way, that has a negative impact."
Because of sky-high real estate prices in my area, we have no dollar stores. There used to be one in a local mall but it got replaced by a jeweler. I'm not kidding. However, anytime I'm traveling, I go to a dollar store, not because I'm "always stressed and always strained," but because it's fun. I was recently driving with my brother and we passed a Family Dollar and I practically ordered him to turn the car around. He reluctantly agreed with only this protest: "You are such a loser."
I thought it might be interesting to present a comparison between the two best known dollar store operations. Both Family Dollar (NYSE:FDO) and Dollar General (NYSE:DG) are well known for their penny pinching product packed stores but in a financial sense how are these two discount chains faring within the far flung retail world and how do they compare to one another? With reckless abandon I have chosen to dive deep into the darkest reaches of the Internet to draw some insight on the dollar store world.
Dollar General, a Fortune 500 discount retailer, has been in operation since 1955 and currently operates 8,309 stores. The Dollar General website predicates the company's mission upon the statement, "Dollar General stores offer convenience and value to customers, by offering consumable basic items that are frequently used and replenished, such as food, snacks, health and beauty aids and cleaning supplies, as well as a selection of basic apparel, housewares and seasonal items at everyday low prices."
Family Dollar began operations in 1958 and is a part of the Fortune 500 Index. Currently, Family Dollar operates over 6,200 stores which are especially located to serve Family Dollar's middle to lower income target clientele. Their mission statement as presented on the Family Dollar website is a three part declaration of value: "For our customers, a compelling place to shop . . . by providing convenience and low prices. For our associates, a compelling place to work . . . by providing exceptional opportunities and rewards for achievement. For our investors, a compelling place to invest . . . by providing outstanding returns."
Both of these dollar store operations appear to make it clear that it is their intent to offer discounted retail merchandise in first class fashion. Both companies have a drive and focus which place the average American at the heart of their mission and both companies also seek to present their investors with consistently healthy returns. And the more I read about these two compact discount retailers, the more I get the message that they are far less concerned about competing with each other than they are about trimming the edges off of their mutual competitor Wal-Mart (NYSE:WMT).
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TheStreet.com's Jim Cramer says it's still too early to get contrarian about the universal negativity on retail.
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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.
According to the Wall Street Journal, discount/single-price point stores like 
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