The week got off to a shaky start in the wake of several earnings disappointments, thus a lot of attention will be paid to Amazon (NASDQ: AMZN) when it reports its second quarter numbers this afternoon after the market closes.
Analysts are looking to see Amazon show earnings of 26 cents per share, and revenue of $3.96 billion. The last time that the company reported earnings was April 23, when be itat analysts' estimates by 2 pennies, with a reported 34 cents per share for its first quarter.
It has definitely been a tough couple of months for retailers, but we could see some strength in Amazon as a result of changes it made during the quarter which allows users to shop the store from their cell phones via its new service TextBuyIt.
TheStreet.com's Jim Cramer says these stocks will be killed today, and attentive investors can get them on the cheap.
Oh my, Costco (NASDAQ: COST) (Cramer's Take). I didn't expect that one. That's the best -- it's a shocker. I can't recall how many years it has been since I have seen the words "well below" and "Costco" together.
You can see how it happened: Costco held out. They didn't raise prices. Almost everyone else is raising prices and many are losing customers -- look at Safeway (NYSE: SWY) (Cramer's Take) or Supervalu (NYSE: SVU) (Cramer's Take). But two held out: Costco and Wal-Mart (NYSE: WMT) (Cramer's Take).
When you lump in the ridiculous price hikes that Costco had to take in its gasoline business, you see that it simply wasn't making much money selling anything.
There were high hopes that Americans would run out and spend their tax rebate checks in a hurry, and that this would be just what the economy needed to get back on track. Well, it does seem that the checks were spent, but as weaker than expected June retail figures come in, it seems that it was a weak fix to a much bigger problem.
The program worked out pretty well in May, as retail sales grew 0.8% during the month, but we were sent back to reality today as June's figures showed that retails sales in the month grew at a measly 0.1%. This was lower than the 0.4% that Wall Street analysts were expecting. Since these figures typically get re-adjusted, it is not out of the question to assume that this figure could be even lower. May, for example, was originally reported to have had an increase of 1.0%, but that was lowered to 0.8%.
Once again, we have to assume that it is record high gasoline prices that are weighing on consumer's minds, as the biggest declines came in automobiles, furniture, electronics and building materials. Auto sales of course were the biggest drag on the retail numbers, and if you look at the figures while ignoring auto sales, then retail would have actually risen by 0.8%, but that is still under the 1.0% that analysts were predicting.
Some of the country's largest retail chains had good June sales, benefitting from consumers looking for a place to spend their tax rebates, but this was not the case for higher-priced department stores. Retailers offering big discounts were among the privileges ones as consumers chose to stay away from high prices.
Consumers spent on the basics, looking for bargains, boosting sales at some companies like Wal-Mart (NYSE: WMT), but resulting in losses for the others like Nordstrom (NYSE: JWN) and American Eagle (NYSE: AEO). This confirmed that retailers will face further weak demand even during the back-to-school shopping season, and more deep discounts will be needed.
As June is considered a key month for sales, merchants were hoping for a "stimulus" effect from tax rebates, despite worries tied to soaring gasoline and food costs. However, only companies offering cheaper gas like Wal-Mart, Costco (NASDAQ: COST) and BJ's Wholesale Club (NYSE: BJ) saw their dreams accomplished. Thus, Wal-Mart came with June sales growth of 4.3%, Costco reported a 9% increase in June same-store sales, while BJ's Wholesale saw a growth of 16.5%.
Wolverine World Wide, Inc. (NYSE: WWW), famous for its work boots, posted its 24th straight quarter of record profits. Revenue for 2Q2008 totaled $267.4 million, up 6.8%. EPS increased 17.9% to $0.79. More importantly, sales revenues increased in all global regions. The company's order backlog increased, indicating demand for its products outstrips supply. Inventory levels decreased 7% due to company efforts to control expenses and improve operational efficiencies. Accounts receivables increased 13%, so more money is moving through the pipeline. The company repurchased 200,000 shares of stock. Operating margins were squeezed a bit given the recent run up in raw material costs.
CEO Blake Krueger forecasts a growth rate in the 7.6-11.8% range, truly impressive when so many other retailers are struggling. This growth rate would translate into revenues in the $1.23-$1.26 billion range and EPS in the $1.83-$1.90 range. Inexplicably, the stock dropped 11.5% to $23.50 on the earnings release, despite the fact that 2Q EPS beat estimates by $0.02. The stock began to climb back a bit yesterday to close at $23.33, down from its 52-week high of $31.21, but it is dropping again this morning.
After hitting a one-year high of $53.90 in December, the stock has hit a new one-year low today. This morning, BBY opened at $40.01. So far today the stock has hit a low of $38.20 and a high of $40.06. As of 12:15, BBY is trading at $38.54, down 1.31 (-3.3%). The chart for BBY looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $47.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in ten weeks as long as BBY is below $47.50 at September expiration. Best Buy would have to rise by more than 22% before we would start to lose money. Learn more about this type of trade here.
BBY hasn't been above $47.50 since January and has shown resistance around $41 recently. This trade could be risky if the company's earnings (due out on 9/16) are a positive surprise, but even if that happens, this position could be protected by resistance BBY might find at its 200-day moving average, which is currently around $46 and falling.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BBY.
No you can't. Circuit City doesn't have any sort of game plan at the moment, and it's sinking fast. The company's stock is priced at $2.31 as I write this. The goofy Blockbuster Inc. (NYSE: BBI) transaction is gone (for now, at least...there are reports saying that it could be resurrected at a later date, although I don't buy that it will happen at all). It isn't competing effectively against Best Buy Co., Inc. (NYSE: BBY) and Wal-Mart Stores, Inc. (NYSE: WMT). In short, Circuit City is a Titanic-like electronics retailer that doesn't know how to keep its ship from hitting icebergs.
So this resignation isn't surprising. Of course, is there any way to make money off the stock? I do believe there is downside to come on the share price, which would therefore imply that shorting it could work out. Alas, I wouldn't recommend it. You just know that some company and/or financial entity out there might come in at any point and make a bid, and the shares could skyrocket. Although the Blockbuster deal didn't make sense, it doesn't mean that there isn't some transaction scheme out there that would be logical. Circuit City is a stock merely to watch out of curiosity, it's not one to do anything about.
Disclosure: I don't own any company mentioned here; positions can change at any time.
This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
With over 4,000 stores in the United States ranging from warehouse-concept Sam's Club to discount retail stores to supercenters, Wal-Mart (NYSE: WMT) is by far the largest retailer in the U.S. -- and the world. So where does Wal-Mart go from here? International expansion has become the true growth engine for Wal-Mart as it dots the landscapes of other nations. The company has embarked on a series of initiatives these past 15 months to spruce up the stores, install better lighting and offer a more competitive brand of consumer goods. Recent same-store sales have validated these improvements.
Wal-Mart has been the beneficiary of a more cost-conscious consumer in this economic slowdown. Yet it can only squeeze so much growth out of its existing locations. And if it opens more stores, it risks cannibalizing the revenues of its existing stores.
Enter Fred's (NASDAQ: FRED). This quiet, regional concept has been around since 1947. Fred's is headquartered in Memphis, Tennessee, and has its base in 15 Southeastern states. Fred's has 659 discount stores and 280 pharmacies in its system -- with room to grow. Fred's has 24 franchisees, which is a quicker way to expand the concept while not draining the corporate coffers.
Fred's offers a full range of apparel, food, sporting goods and other general merchandise in its system. The company's philosophy is: quality merchandise at a discount price. The stores are well lit, organized and make for a pleasant shopping experience.
Bed Bath & Beyond (NASDAQ: BBBY) reported Q1 earnings on Wednesday, and Trey Thoelcke highlighted the numbers in this earnings-recap piece. Shares rose substantially in the after-hours trading session yesterday, jumping over 8%, and as I reviewed various earnings reports last night, I found myself drawn to the retailer's stock performance. I haven't been a huge fan of Bed Bath & Beyond as of late, so I figured I should take a look at the earnings release to see if there's anything here that would change my opinion.
Unfortunately, there isn't. Sales may have grown 6%, and expectations may have been beaten by $0.03, but net income still dropped over 20% to $0.30 per diluted share. Cash flow from operations declined 44% to $65.8 million. And same-store sales were very anemic, rising only 0.8%.
I choose, in this case, to focus on those figures. I also consider the fact that Bed Bath & Beyond does not pay a dividend, and that we are in an awful economic environment, both from a consumer and stock-market standpoint. This is not the stock I'd want to face the recession with, and I don't necessarily find it to be a big value right now. When it comes to retail, I am more likely to look at Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). I'd even consider a Home Depot (NYSE: HD) or a Lowe's (NYSE: LOW). All of these stocks pay dividends and have better brand equities and more attractive prospects. Bed Bath & Beyond certainly didn't deliver an earnings bomb, but I'm still not inclined to put money here.
Disclosure: I don't own any company mentioned; positions can change at any time.
The original Montgomery Ward retail strategy focused on selling quality merchandise over long distances. Aaron Montgomery Ward had a vision of providing first-quality goods, at reasonable prices, to rural customers who might otherwise not have had such merchandise available to them. The first Montgomery Ward catalog appeared in 1872 as a single sheet of paper, listing 163 items for sale, with ordering instructions.
By 1883, the Montgomery Ward catalog, dubbed the "Wish Book," had grown to 240 pages and 10,000 items. It wasn't until 1896 that Montgomery Ward faced any serious competition in the mail order field. That was the year Richard W. Sears fielded his first catalog and the fierce competition between the two companies began. By 1904, Montgomery Ward was mailing as many as three million, four-pound catalogs to its loyal customers across the country. In 1908, the company opened a 1.25 million square foot distribution center and headquarters north of downtown Chicago.
In 1926, Montgomery Ward opened its first retail store in Plymouth, Indiana, while continuing to operate its catalog business. The company rebuffed a merger offer from Sears in 1930. All was well until the early 1950s when the automobile gave birth to suburbia, and Montgomery Ward held the city ground while its competitors moved out to the strip malls. By the mid 1960s, the company's catalog sales began to weaken and the company struggled into the 1970s after a merger with Container Corporation of America. In 1976, the company was acquired by Mobil Oil, and an aggressive restructuring buoyed the company. However, its catalog operations ceased in 1985, as its retail outlets underwent transformation from department stores to specialty stores. A leveraged buyout then took the company private in 1988.
The Dow Jones industrial average gave up more than 280 points by midday Friday. That's a decline of over 2.2% to 12,324. Weren't we over 13,000 just a few days ago -- May 19, to be exact?
But today there seems to be good cause for the selloff -- the jobs report was extremely weak with unemployment rate jumping to 5.5%. With that, the dollar weakened -- how can the Federal Reserve raise rates when the economy is slowing? Not to mention, fundamental reasons for the dollar's decline and ECB's president Thursday saying he's considering a rate hike. Already his comments Thursday caused the biggest rally (in dollar terms) in oil prices, a feat that has already repeated itself today.
Of course, with higher oil price comes higher inflation and the consumers real income declines, leaving much less disposable income for purchases. Yes, more than two thirds of the U.S. economy is consumer driven, so that scares the heck out of many, especially with one of the worst housing slumps and credit crunches in decades.
Can the U.S. economy recover? How fast? Views on that matter differ, with some saying the U.S. economy is more resilient than given credit for and that there is a lot of unnecessary fear out there as the weak dollar could boost exports, which in turn could have its own trickling down effect. Others say that until the housing market starts showing signs of recovery -- with estimates of that happening anywhere from the Q4, 2008 to Q4, 2009 -- the economy will remain sluggish. I'm with the more pessimist crowd, but the question is how will the stock markets react tomorrow?
A piece in the USA Today reports that top retail chains have improved their supply chain management to get the hot new fashions in stores more quickly before.
Sounds great, right? Maybe not. According to the article. "With the tighter economy squeezing retailers industrywide, several companies have hit on a successful formula for propping up earnings: They're speeding up the time it takes to get the latest fashions into their stores."
Obviously increased efficiency is great and there's nothing not to like about improved ordering, fewer markdowns, etc. But it could be creating a false sense of optimism if it's allowing for the frontloading of sales. $30 million in sales in the first quarter and then $10 million in the second is the same as $20 million in each quarter: but if you don't know about the differences in inventory situations, you could have a false sense of optimism at the end of the first quarter.
Time will tell whether better supply chain management is messing with the distribution of sales throughout the year.
When I go to a Barnes & Noble (NYSE: BKS) or a Borders (NYSE: BGP) store, I really can't tell much of a difference. That's not a bad thing – at least for me. Hey, I have lots of choices – and not just books.
But for investors, the situation is a problem. So, instead of fighting, why not B&N and Borders join forces?
Well, according to the Wall Street Journal [a paid publication], there are signs of a possible deal as B&N has put together a team to explore the option.
However, there is a big hurdle: antitrust regulators. The federal government will scrutinize the deal heavily given that Barnes & Noble is #1 and Borders is #2 in the US marketplace.
Barnes & Noble will argue that the market is much different now with online operators like Amazon.com (NASDAQ: AMZN).
Retailer Target Corp. (NYSE: TGT) joined the earnings parade this morning when it reported its first quarter numbers. Despite a 7.5% drop in net income, the company was still able to come in above Wall Street estimates.
Going into today's earnings report, analysts had been looking for earnings for the quarter of 71 cents per share, and the company actually was able to post earnings of 74 cents a share, on net income of $602 million. During the same period last year, the company was able to show net income of $651 million.
Revenues came in slightly under analyst estimates, with a reported $14.8 billion, compared to Wall Street's expectations for $14.92 billion. Same store sales were down by 0.7% in the quarter, but revenue was actually higher by 5.4% as the company's new stores were able to overshadow the decrease in revenue that the company witnessed in its stores open more than a year.
The week got off to a shaky start in the wake of several earnings disappointments, thus a lot of attention will be paid to Amazon (NASDQ: AMZN) when it reports its second quarter numbers this afternoon after the market closes.
There were high hopes that Americans would run out and spend their tax rebate checks in a hurry, and that this would be just what the economy needed to get back on track. Well, it does seem that the checks were spent, but as weaker than expected June retail figures come in, it seems that it was a 
This post is part of 
This post is part of a series on some of the most memorable 
The Dow Jones industrial average gave up more than 280 points by midday Friday. That's a decline of over 2.2% to 12,324. Weren't we over 13,000 just a few days ago -- May 19, to be exact?
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Earnings preview for Ford
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
