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Green Light For GameStop – US-FOREX.US

Forex-Publisher — Thu, 20 Aug 2009 03:14:39 +0000

It’s a tough business if customers aren’t buying what you’re selling. This summer videogame sales have fallen sharply from last year, defying the prerecession assumption that the industry is growing so fast that nothing can stop it. Investors will get a look at the fallout when GameStop reports earnings on Thursday morning. The retailer is a popular hangout for gamers looking for the latest Xbox title or hoping to swap a conquered game for another used one. Despite the downturn, analyst Arvind Bhatia of Sterne Agee thinks GameStop is a go for investors.Sales of games and gaming hardware fell sharply last month. Software was down 26% in July compared with the year-ago period, according to research firm NPD, well below what Bhatia and other analysts had expected. A weaker slate of games from the major publishers coupled with still-high prices for popular game consoles like the Microsoft
Xbox 360, the Sony
PlayStation 3 and the Nintendo
Wii likely played a role. But the economic downturn has taken a toll on what consumers buy and discretionary purchases are taking a backseat to groceries and rent.That has led Bhatia to reverse his predictions for the industry, guessing that total game sales will fall 3% this year instead of rise by the same amount. GameStop
will feel the pinch. He thinks same-store sales, a common way to measure retail performance, fell 16% last quarter from the same period in 2008. Competition for used games, a very profitable business, may lower GameStop’s healthy margins. Overall, Bhatia thinks the firm will report earnings per share of 23 cents, well below the 28 to 33 cents GameStop itself had predicted and the Wall Street consensus of 30 cents.So why is the stock a buy? Industry sales data are no secret, and the sleepy summer is priced into GameStop’s shares, says Bhatia. Many analysts expect console makers to lower their prices this fall , and that should boost game sales, too. A strong lineup of eagerly awaited blockbusters is due out in the coming months, luring gamers into stores. Finally, GameStop’s second-hand business is a strong one and the firm dominates the market. Bhatia thinks the shares are worth 31, a 25% premium to their closing price on Tuesday.

Retailers Cut As Consumers Hold Back – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:51:00 +0000

Economic indicators may point to gradual economic improvements but to consumers facing weak wages, default, unemployment and eroding asset values, there’s little comfort in a “less-bad” economy. With private consumption accounting for roughly 70% of U.S. economic activity, a recovery without the consumer doesn’t promise to be much of a recovery at all. The consumer conundrum was evident in Thursday’s spate of retail earnings reports as several chains topped analysts’ profit expectations-lifting outlooks in some cases-but saw little reason to feel confident about sales growth in coming quarters. Retailers have been able to cut costs and slash inventories to deliver better than expected performance but that can only go on for so long.”Overall, our customers are more disciplined in their spending,” Walmart
‘s president, Mike Duke, said during the company conference call on Thursday. “There’s a new normal now where people are saving more, consuming less, and being more frugal and thoughtful in their purchases.” Such trends bode well for discounters like Walmart, which exceeded analysts’ profit expectations but missed sales estimates with a 1.4% decline. Earnings fell for department store Kohl’s
but results were better-than-expected. The company also said future sales would depend on its ability to cater to shoppers that are less willing to spend. The company disappointed the market with third- and fourth-quarter guidance that was lower than what analysts’ have been projecting. The lower forecasts, however, reflected costs associated with store openings planned for the fall as the company puts stores up in locations acquired from Mervyn’s, which went bankrupt last summer.Cost-cutting helped Nordstrom
meet the Street’s estimates despite a 27% decline in second-quarter profits and a 6% drop in sales, which weren’t as weak as feared because of the strong response to its anniversary sale. The results prompted Nordstrom to raise its full-year earnings outlook to between 1.50 and 1.65 a share, from 1.25 to 1.50 a share. Analysts, who remain cautious on upscale retailers in the coming months, had been projecting a 2009 profit of 1.48 a share.On Friday, the market will see whether cost-cutting helped teen retailer Abercrombie & Fitch
post better than a 7-cent loss and sales of 647 million. Department store J.C. Penney
also reports on Friday and is projected to post a 1-cent per share loss on sales of 3.9 billion. Thomson Reuters contributed to this article.

Retailers Cant Wait For School – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:10 +0000

American shoppers can’t decide if they’re ready to spend again or should hold off on that new plasma screen in case they lose their job, their home or their life savings. Big retailers also can’t decide. They posted better July sales figures than some had expected but a mixed batch of second-quarter earnings. Today the Commerce Department said July retail sales fell a tenth of a percent in July when economists had been expecting a gain of 0.7%. Excluding cars and gas the numbers look even worse, a drop of 0.6% last month. .With that in mind, investors are eyeing the fall shopping season, which for many chains actually means the end of summer, to tell them whether the recession is ending. Analyst Deborah Weinswig at Citigroup
points out a few factors that could boost back-to-school sales for stores but says the season is likely to be a challenging one for many firms as shoppers cut back on more expensive “wants” in favor of cheaper “needs.”Helping out is a later Labor Day this year, the latest in ten years, which means many schools start later, too. That will extend the school shopping season a bit and many states have shifted their annual sales tax holidays to August, too, lending an added incentive for people to hit the mall. The tax holidays could add 1.5% to 2.5% to August sales, Weinswig estimates. .Also favoring your local Target
, Costco
or J.C. Penney
, is a lower price for gas than last year, adding 140 billion to consumers’ wallets, says the Citigroup analyst. Similarly, as oil plummeted from last year’s high, so have other commodities. The global downturn has taken a bite out of prices for everything from crops to metals and that is translating into lower wholesale costs for stores. With merchandise costing them 5% less than last year, some firms will have the option of passing those savings on to consumers if their sales are weak. If sales are strong, they’ll get to pocket the difference for their bottom lines.But stores can’t ignore the recession and its effects on American spending. Citigroup found that nearly half of shoppers plan to spend less this back-to-school season than they did last year. Many families will be buying only what they think they need, cutting back on discretionary items, says Weinswig. For August and September, Weinswig estimates a sales decline of between 3% and 4% compared to last year. That’s more optimistic, she notes, than colleagues at the National Retail Federation . .For her money, Weinswig likes department store J.C. Penney, although she rates it a high-risk investment. Penney is cutting back on opening new stores during the recession but has the right mix of merchandise and advertising for the long-term, even though the near-future could be painful, she says.
Also a buy, but with less risk, is CVS Caremark, the pharmacy chain that now manages prescription benefits, too. The firm has acquired rivals and invested in new ideas like drop-in clinics that should help it dominate its industry.

Consumers Trade Down – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:05 +0000

Cash-strapped consumers are looking to get the most bang for their buck, forcing retailers to adapt to new spending habits, says Claire Gruppo, co-founder and managing director of investment bank and M&A firm Gruppo, Levey.”People aren’t comfortable paying for brands or an experience if they don’t feel it’s worth it,” Gruppo said, “and the trend we’re seeing across most brands is consumers seem to be trading down for ticket prices.” Americans have become more careful with their money, but the key to their behavior isn’t price, but value. For example, instead of buying a 20 t-shirt at Ann Taylor
, consumers will purchase it for 5 at Wal-Mart
or Kohl’s
. They’re still buying a t-shirt, but not at 20.The environment is very difficult. Instead of rising 0.7% as expected, on Thursday, the U.S. Commerce Department reported retail sales fell by 0.1% in July, and would have dropped by 0.6% if it were not the government’s “clash for clunker” program. Department store stales sunk 1.6%, while broader general merchandise stores, which includes mega-retailers like Target
, saw sales decrease 0.8%. The data reinforces the thesis held by many on Wall Street that business, rather than consumers, will lead the economic recovery.To navigate this trend, some retailers have become more careful in managing their inventory, by reducing product lines and offering fewer items within a line. The strategy is simple: offer the consumers what they’ll actually purchase. This way businesses are better able to streamline inventory and not tie upa lot of capital in items that aren’t going to move. The trick is to reduce inventories without shoppers thinking that they have fewer choices.”Good retailers are thinking not so much about discounting as much as adding items of lines of merchandise at different price points that they’re not going to have to sell at 50% off retail,” Gruppo said. “They’re starting different offerings at lower price points.”Gruppo highlighted Macy’s
recent performance as an example of this approach. “They beat expectations and raised their forecast for the year,” Gruppo said. “The brand has always been known for good value at department stores, and it’s the first piece of good news from something other than a big-box discounter.”
Gruppo expects retailers to operate in this fashion until consumer spending begins to turn around. “Until unemployment and lack of credit ease more than what we’ve seen this will be what the retail landscape will look like,” Gruppo said. The businesses that will have an edge through the end of the year will be the ones that offer lower prices but with strong value, Gruppo added.

Emerging Rift Between Retailers – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 20:46:20 +0000

Retailers are wielding the same weapons-clearances, cost-cutting and promotions-to rid stock rooms of excess inventory while keeping cash registers ringing. The results, however, have been mixed as discounters and moderately priced retailers continue to seize market share from luxury department stores.Buying behavior will come into focus on Thursday as retailers across the price spectrum report quarterly earnings for a period in which consumers continue to limit spending on nonessentials despite slight economic improvement.
Wal-Mart Stores
, a favorite for food and basics among bargain hunters, is expected to be among the strongest reporting on Thursday. The mega retailer expects a second-quarter profit between 83 cents and 88 cents a share. Some analysts suspect earnings may be at the low end of the range and that comparables will be difficult because of the company’s strong year-ago second quarter. “While food deflation will present a near-term challenge to comps, the waning impact of last year’s stimulus, accelerating traffic and continued market share gains should support a return to more normalized comps in the second half of 2009,” said Baird analyst Peter Benedict. UBS analyst Neil Currie recalls management’s caution regarding second-quarter headwinds from foreign exchange rates and strong year-ago sales resulting from the 2008 stimulus. Currie anticipates a quarterly profit of 83 cents a share and cut year-end guidance to 3.56 from 3.58 a share, while the consensus estimate is for earnings of 86 cents a share on sales of 103.1 billion and a year-end profit of 3.56 a share. “Key focus will be on inventory levels after two sequential quarterly declines. Additionally, what Wal-Mart says about the consumer should be important for market sentiment, and any meaningfully cautious noises could impact stocks across various sectors,” Currie said.
Moderately priced department store chain Kohl’s
may be the real standout of Thursday’s earnings lineup, which also includes Nordstrom
and cosmetics company Estee Lauder
. Kohl’s surprised the market last week with a same-store sales gain of 0.4% in July; analysts had expected a 3.2% decline. The company lifted its second-quarter earnings forecast to a range of 73 cents to 74 cents a share, from between 56 cents and 64 cents a share. The company, which opened nearly 20 stores this Spring-most of which were former Mervyn’s locations-has picked up market share from rivals who have buckled under financial pressures. Kohl’s, which sells clothing and home basics, seems to also be benefiting from consumers continued purchases of no-frills necessities. Analysts polled by Thomson Reuters anticipate a second-quarter profit of 74 cents a share on sales of 3.8 billion.Challenging sales are expected to continue for upscale retailer Nordstrom since the luxury store segment remains under pressure as weak job and housing markets prevent consumers from splurging. Analysts suspect that second-quarter promotional activity needed to coax reticent shoppers into stores may weigh on Nordstrom’s profit margins. The Street is expecting earnings of 48 cents a share on sales of 2.1 billion.”Department store trends have improved slightly since March,” said UBS analyst Nik Modi. “However, we note that same-store sales trends in higher-end retail outlets such as Neiman Marcus, Saks and Nordstrom’s have not shown meaningful acceleration in the most recent months. Lower-end outlets like Kohl’s have been showing the greatest improvement, which could have mixed implications for beauty players within this channel.”Although trade-down trends in the prestige beauty category continue to pressure sales at Estee Lauder, Modi said shares might trade higher on Thursday if the company can show that conditions are getting better despite the difficult environment. Analysts are projecting fourth-quarter earnings of 20 cents a share on sales of 1.7 billion. Shares across the retail sector were trading broadly higher during Wednesday’s afternoon trading session. Earlier, Macy’s
credited better-than-expected profits to diligent expense management. Shares of Estee Lauder were up by 98 cents, or 2.7%, at 37.96; Nordstrom’s stock gained 13 cents, or 0.4%, at 29.53; and Kohl’s stock added 2 cents to 52.53. Wal-Mart shares were up by 96 cents, or 1.9%, at 50.73, and Macy’s was ahead by 1.08, or 7%, at 16.55. The Retail HOLDRs
exchange-traded fund was up by 1.35, or 1.6%, at 85.11.
The Associated Press contributed to this article.

Bargains As Bait – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 21:46:19 +0000

Retailers know that this year the back-to-school season won’t be enough to get consumers back to shopping. Unemployment remains a focal concern as consumers keep spending limited to necessities – and the occasional bargain. As retailers gear up to report quarterly earnings, the market will be looking to see how stores plan on luring shoppers through check-out aisles. Clearance sales and other buying incentives helped retailers unload high inventories amassed during the recession, which, in addition to aggressive cost-cutting actions, have some companies in a better position ahead of their quarterly report releases.
Macy’s
surprised Wall Street when it forecast second-quarter earnings between 15 and 17 cents a share last week despite July’s same-store sales decline of 10.7%, which was worse than the 9.1% drop expected by analysts. Analysts, who had been expecting a quarterly profit of 5 cents a share, upwardly revised their estimates to 15 cents a share. The higher forecast reflected the store’s fierce cost reduction program that closed 11 stores, eliminated 7,000 jobs, chopped capital spending, scaled back employee retirement funds and hacked its dividend. Even with higher earnings expected, however, analysts voiced caution since consumers are still reticent.”We remain cautious on the near term prospects of these shares as Macy’s works through and implements its new centralized buying structure,” said Credit Suisse analyst Michael Exstein. “We would also note that unlike some competitors, Macy’s sales pace has decelerated in recent months. Some other competitors’ sales have either stabilized or are modestly improving.” When the company reports second-quarter earnings on Wednesday, analysts polled by Thomson Reuters anticipate sales of 5.2 billion. Macy’s stock closed Tuesday’s trading session up by 24 cents, or 1.6%, at 15.47.
On Thursday, Nordstrom
, Kohl’s
, Wal-Mart Stores
and cosmetics company Estee Lauder
release quarterly results.
The Associated Press contributed to this article.

Attention Retail Shoppers – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 19:46:22 +0000

Sales may be down while unemployment is up but retailers are doing well, nonetheless. Since the start of the year the sector has walloped the broad market by a wide margin. The SPDR S&P Retail ETF
gained 55% since Jan. 1 while the S&P 500 is up just over 10%. Now, with the biggest retailers reporting quarterly earnings this week and next, Deutsche Bank analyst Bill Dreher Jr., says there’s good reason to think investors will be pleasantly surprised.Like other sectors of the economy, retail chains responded to the recession, and falling sales, by slashing inventories and costs. Macy’s
, Kohl’s
, Saks
and J.C. Penney
all rushed to reduce overhead and get merchandise off the shelves in case the recession turned into a full-blown depression, notes Dreher. The result is that now, with sales no longer dropping fast, chains have far less clearance inventory that they need to discount.Stores also saw some unexpected benefits this summer. As shoppers traded down form high-end department stores, mass-market shops picked up some business while their own customers moved to in-house brands, which are more profitable. J.C. Penney gets 52% of sales from private-label merchandise, while Kohl’s gets 42% and Macy’s gets 40%. They should benefit from the trend.Tough times also mean opportunities for solid companies with cash to spend. With some regional and local chains going out of business, Dreher estimates there are 21.4 billion in sales that the biggest national chains can grab. Kohl’s recently bought dozens of stores from bankrupt Mervyn’s, for example.That’s not to say retail firms don’t face a tough environment. Unemployment has soared to over 9% so Americans are saving more, roughly twice as much as last year. Shoppers are hunting for bargains, not splurging, so don’t expect sales to accelerate, warns Dreher. Instead, look for a boost to earnings at companies that have aggressively reduced costs and done away with waste.Dreher likes Macy’s, which reports earnings Wednesday morning. He’s betting the department store will announce quarterly profit of 16 cents share, two cents better than the consensus among Wall Street analysts. A trimmed-down organization should save 400 million a year eventually and a lower dividend has improved the firm’s cash position. Weak rivals could also give it an advantage.
Another buy rating from Dreher is the big daddy of retailers: Wal-Mart
. The world’s largest store reports earnings Thursday and Dreher predicts a quarterly profit of 86 cents a share, in line with the consensus. Wal-Mart has turned its focus from opening stores to capturing more shoppers at existing ones with in-store foods brands, which are especially profitable. Wal-Mart’s rock-bottom prices also help.

Profit Potential – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 16:46:18 +0000

A surge in earnings among S&P 500 companies may keep the stock rally going into the fall. That’s what economist Steven Wieting of Citigroup believes could happen as industrial companies ramp up production to meet a rebound in demand. The S&P 500 is up 15% in the last four weeks and nearly 50% from its March low point. Much of that increase has come from a stabilization in the credit markets following the financial crisis, writes Wieting. Earnings season and accompanying data on unemployment and economic growth have also led many investors to conclude the worst of the recession is in the past. That still leaves most of them wondering how long a recovery will take and how fast corporations can get back to selling, and earning, what they were before the financial crisis.For the largest U.S. firms, says Wieting, a recovery in profits is now likely to come this year or next, rather than dragging on as some have speculated. He recently raised his estimates of what the S&P 500 companies will earn this year to 60 a share from 56. Next year they should turn a per-share profit of 68, up from his prior forecast of 62. Certain industries, like energy and information technology, could see even faster growth.Behind the rebound Wieting sees an industrial economy that cut too far, too fast, as the credit crisis turned into an all-out global recession. “Production declines were far more profound than the consumer downturn,” he says. So while demand for goods was coming back last quarter, production rates and capital expenditures were plummeting. In other words, companies were making fewer widgets than they were selling. Wieting points to the auto industry as an example. At the end of June, U.S. car companies were making one new car for every two being sold as managers slashed production ahead of falling sales. Now that GM and Chrysler have declared bankruptcy and moved to reorganizing, companies are planning to boost vehicle manufacturing by half this quarter. That will still leave them making fewer cars than are being sold, Wieting predicts.So how should investors react? Wieting notes that economic conditions are still dire in many ways. Unemployment is high, sales are way down and the financial system could still relapse into a volatile mess. Wieting thinks profits are coming back soon, and so he’s lowered the index’s earnings growth rate over the next four years to 10% from 12%.
The markets will likely get more clues on the economy’s direction when the Federal Reserve ends its two-day policy meeting on Wednesday. Don’t expect a change in interest rates, but investors will be interested to know if the Fed’s economists share Wieting’s views on a quick profit rebound.
Thomson Reuters contributed to this report.

Unilever Loses Profit Power – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 09:46:14 +0000

Anglo-Dutch firm Unilever delivered what investors wanted on Thursday-a surprisingly good 2% rise in second-quarter volumes-but at what cost? The household goods company’s earnings sank 15% over the year, almost on par with rival Procter & Gamble’s disappointing profits drop, after it spent more on advertising and held back from hiking prices too much. Is this a one-off or the beginning of a worrying trend?Sanford C. Bernstein analyst Andrew Wood thinks the former. Although he expects Unilever
to report a 2% drop in earnings per share for the whole of 2009, he says that profitability will improve in the third quarter. The reason? Declining commodity costs, which will ease the recession’s squeeze on Unilever’s pricing power. The Anglo-Dutch firm hiked prices by 2.1% in the second quarter, but this was below expectations of 4%.Then again, it all depends on how successfully Unilever balances out easing cost pressures with advertising and promotions. “Strong advertising” was part of the reason why Unilever managed to strengthen sales of brands like Dove soap and Domestos cleaner, at a time when consumers might be tempted to switch to cheaper brands. Wood thinks the company will ramp up advertising even further in the second half of the year.Investors aren’t worried yet. Shares of Unilever soared 5.2%, or 98 euro cents , to 19.78 euros , during morning trading in Amsterdam on Thursday. Second-quarter sales grew by 1%, to 10.5 billion euros , while volumes rose 2%. This was particularly impressive given Procter & Gamble
‘s 11% reported decline in sales and rival Henkel
‘s 5% drop.”I am encouraged by the return to volume growth across all regions and the majority of countries and categories,” said Unilever Chief Executive Paul Polman. “We continue to focus on restoring volume growth while protecting margins and cash flow.”Consumer-goods rival Reckitt Benckiser
, maker of Harpic surface cleaner and air freshener Air Wick, reported a 20% rise in sales for the second quarter last month. But it is under threat from the impending loss of exclusivity on Suboxone, a treatment for heroin addiction, in the United States.

Pharma Wobbles Ahead For Reckitt – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 09:46:04 +0000

Reckitt Benckiser has an answer for most consumers, whether it’s surface cleaners like Harpic or health products like Strepsils, but does it have an answer for its pharmaceutical division? The unit will lose exclusivity on its Suboxone heroin-addiction treatment in the United States later this year, and doesn’t seem to have a secret weapon to counter the imminent generic onslaught-which could wipe out 80% of Reckitt’s Suboxone earnings.This won’t be a total disaster: Reckitt Benckiser’s pharmaceutical revenues account for less than 10% of the company total, and the company’s strong second-quarter results on Wednesday showed the rest of its brand portfolio performing well despite the downturn. But Suboxone is a crucial driver of growth for the pharmaceutical unit, which grew recurring sales by 46% in the second quarter, streets ahead of other segments like home care, up 7%, or health and personal care, up 9%.”[The loss of Suboxone] will be a massive drag on operating performance,” said Andrew Wood, an analyst with Sanford C. Bernstein, who rates Reckitt Benckiser “market perform.” He told clients earlier in the week that Suboxone was one of the reasons he was cautious on the stock, along with slowing operating momentum.Shares of Reckitt Benckiser
fell 0.4%, or 11 pence , to 28.52 pounds , during morning trading in London. The firm reported an expectation-beating set of quarterly results on Wednesday, with sales up 20%, to 1.9 billion pounds , and profits up 31%, to 310 million pounds . Reckitt also raised its sales guidance for this year to 5%-6% growth, from 4%, and its profit expectations to 10%-11% growth, from 8%-10%, excluding currency volatility.Reckitt has benefited from price rises on its products and slowing commodity costs, while increasing operating efficiency by cutting costs elsewhere in the business. Sanford C. Bernstein’s Wood said that the company’s new targets were “reasonable” and “achievable.”But Wood also said the big “unknown” was the Suboxone exclusivity loss. He said Reckitt could only perhaps postpone the process by one quarter at most, but that it could still begin in the fourth quarter.
Reckitt said it “continues” to search for ways to offset the impact of incoming generic competition.