The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.
Analysts surveyed by Thomson Financial expect earnings growth, compared to the same period in the previous year, from Urban Outfitters (NASDAQ: URBN) to be 22.7% to 22 cents per share, from Wal-Mart Stores (NYSE: WMT) to be 9.3% to 75 cents per share, and from TJX Companies (NYSE: TJX) to be 7.5% to 40 cents per share.
Analysts expect earnings declines from the previous year from JC Penney (NYSE: JCP) by 52.9% to 49 cents per share, from Kohl's (NYSE: KSS) by 34.4% to 42 cents per share, and from Nordstrom (NYSE: JWN) by 18.3% to 49 cents per share.
In the case of Abercrombie & Fitch (NYSE: ANF), analysts expect earnings to remain flat, year over year, at 65 cents per share.
And then there's Macy's (NYSE: M), which is expected to swing to a loss of 2 cents per share, compared to a profit of 16 cents a year ago.
The sample size may be too small to define any significant trends, but the numbers do suggest that analysts expect profit declines to be deeper than profit growth, and that consumers may be more likely, given the current state of the economy, to buy clothes at Wal-Mart or TJ Maxx than at Nordstrom or Abercrombie.
The coming results will reveal if those expectations are correct.
Penney (J.C.) (NYSE: JCP) is a little timid right now in the face of the recession. According to this AP piece, CEO Mike Ullman, speaking at an analysts' meeting, is reducing the number of new locations he plans to debut this year -- look for 36 instead of 50. The CEO said that he doesn't like the unpredictability that currently exists in the macroeconomic world.
He's right to be careful. Consumer confidence might head lower from here. And considering that J.C. Penney reported terrible comps for March -- the retailer saw a decline of 12.3% -- now is probably not the time to be in expansion mode. Instead, management needs to figure out how best to connect with the mall traffic. This will necessitate new marketing campaigns that aggressively promote the brand and the shopping experience, and differentiate the chain from competitors such as Sears (NASDAQ: SHLD) and Macy's (NYSE: M). Retailers, in my opinion, often underestimate the value of investing in creative campaigns that focus more on the experience a consumer receives when he or she is in the store rather than the perceived value that a consumer has regarding the inventory portfolio.
In terms of investment potential, J.C. Penney is not a retail company that I'm seriously looking at right now. I'll wait to hear more financial updates from management; it isn't expensive at the moment, and it is certainly eons away from its 52-week high, but I just don't have a good feel for its growth potential yet. Interestingly enough, I wrote about American Eagle Outfitters (NYSE: AEO) the other day, another cheap retail stock; both J.C. Penney and American Eagle Outfitters might be considered similar stories in terms of valuation, but for me, I find American Eagle to be the more attractive candidate from a brand viewpoint and in terms of bouncing back big when the economy improves (that's my current outlook, at least). We'll have to wait and see how this mall story evolves.
Disclosure: I don't own shares in any of the companies mentioned; positions can change at any time.
Why Starbucks' Logo Changed The coffee chain is temporarily using a retro brown look to evoke its beginnings and restore some goodwill for the brand. Starbucks' Retro Logo - BusinessWeek
Big Names Owe Big-Time on Taxes The IRS estimates that 21% of federal individual income taxes go unpaid each year - about $300 billion last year. As Tuesday's tax deadline approaches, Americans are settling accounts on $1.5 trillion in federal and state income taxes for 2007. But what about those who don't pay? Who are they? Do they get away with it? Hundreds of seemingly wealthy people - company presidents, former soap opera stars, top-selling real estate agents - live in multimillion-dollar homes yet have huge tax problems. Many tax delinquents live openly and prosperously for years, even decades, while owing millions of dollars in taxes. These include singer Dionne Warwick, comedian Sinbad, Bill Clinton's former political advisor, Dick Morris, former U.S. treasurer Catalina Vásquez Villalpando and infamous celebrity OJ Simpson to name a few. Big names owe big-time on taxes - USATODAY.com
What's a tell-tale sign of a recession, and conversely, an indicator investors/readers should monitor to spot when the recovery has started? Retail sales -- particularly at department stores.
Most retailers will report March 2008 same-store sales this week, and Wall Street is bracing for the worst. In January 2008 and February 2008, same-store sales declined at nearly every major department store, including JC Penney (NYSE: JCP), Macy's (NYSE: M), Kohl's (NYSE: KSS), Dillard's (NYSE: DDS) and Nordstrom (NYSE: JWN).
Further, investors should watch Nordstrom's same-store sales carefully. The reason? Upscale retailer Nordstrom is a type of quick-reference, or an economic-barometer-in-a-snapshot, of the depth of a recession. If retail sales decline at broader-demographic retailers for several consecutive months, that points to a recession. But if sales decline at upscale retailer Nordstrom, that's a sign that even those with higher incomes and substantial assets are cutting back, which is a bad sign for the economy.
Nordtstrom's customers include professionals, executives and business owners -- including people who make hiring decisions. If they're cutting back, that may indicate they will not be hiring in the period ahead, which is never good news for the economy. Invariably, it means the recession's end is not near.
In Q4 2007, Nordstrom's sales fell 4.4% and earnings per share fell for the first time in more than five years to 92 cents per share. If Nordstrom's same-store sales decline again in March, that's a sign of continued belt-tightening by upper-middle and upper-income adults, and a sign that an economic recovery is not near.
Target Corp. (NYSE: TGT) stock is trading lower after competitor JC Penney (NYSE: JCP) cut its first-quarter profit estimate to 50 cents per share from 75 cents per share, citing waning consumer demand and lower-than-expected sales. The announcement has sent the retail sector down, piquing worries that inflation and a slowing economy will adversely affect the retail sector. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TGT.
After hitting a one-year high of $70.75 in July, the stock hit a one-year low of $47.01 in January. This morning, TGT opened at $50.05. So far today the stock has hit a low of $49.50 and a high of $50.52. As of 12:30, TGT is trading at $50.23, down 75 cents (-1.5%). The chart for TGT looks bullish but deteriorating, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $55 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 a 13.6% return in 3 weeks as long as TGT is below $55 at April expiration. Target would have to rise by more than 9% before we would start to lose money. Learn more about this type of trade here.
TGT hasn't been above $55 for more than a few days at a time since November and has shown resistance around $53 recently. This trade could be risky if the US economy turns around quickly, but even if that happens, this position could be protected by resistance TGT might find right around $55, where the stock has topped out over the past month.
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 TGT or JCP.
After showing optimism last month over its further earnings, department store operator J.C. Penney Inc. (NYSE: JCP) turned this morning to the pessimistic side and warned it expects first-quarter earnings below its previous predictions due to weak consumer demand.
The company now expects earnings of about 50 cents per share in the first-quarter, down from its prior forecast for profit in a range of 75 cents and 80 cents per share. This is well below analysts' expectations of earnings of 75 cents per share in the quarter, according to Thomson Financial.
J.C. Penney blamed challenging market conditions that put a curb on consumer spending. The slumping U.S. housing market, credit crisis and soaring oil prices put pressure on consumer confidence, resulting in low revenue numbers. During the Easter holiday, the retailer counted lower-than-expected sales.
Best Performers of 2008 The 12th annual BusinessWeek 50 spotlights the 50 best performing companies in the S&P and topping this year's list is retailer Coach. Rounding out the top five are Gilead Sciences, Allegheny Technologies, Verizon, and Questar. Last year's No.1 company, Google, dropped to No.34 on the list – shares are down almost 40% from their high of 747 last November. The BusinessWeek 50 – BusinessWeek
The Next Hot Stock Sectors Amid the volatility, BusinessWeek's Gene Marcial talks with stockpicking pros about the market sectors they see leading the next major advance. Stocks: The Next Hot Sectors
Maidenform Brands (NYSE: MFB) designs and sells a range of intimate apparel products in the United States and Canada. Offerings include bras, panties and shapewear, marketed under the brand names Maidenform, Flexees, Lilyette, Sweet Nothings, Rendezvous, Subtract, Bodymates and Self Expressions. The company sells its products through department stores, specialty retailers, company-operated outlet stores and a Web site. Kohl's (NYSE: KSS) and J.C. Penney (NYSE: JCP) are major customers.
The firm pleased investors last week, when it reported Q4 EPS of 27 cents and revenues of $95.8 million. Wall Street analysts had been looking for 20 cents and $89.8 million. The CEO attributed success in the quarter to sourcing initiatives and growth of the wholesale branded business.
MOST NOTEWORTHY: Quiksilver, Omniture and Crown Holdings were today's noteworthy upgrades:
B. Riley upgraded shares of Quiksilver (NYSE: ZQK) to Buy from Neutral on valuation and to reflect the EPS catalyst and debt reduction associated with divesting Rossignol.
Friedman Billings upgraded shares of Omniture (NASDAQ: OMTR) to Outperform from Market Perform following the recent pullback, as they believe the company is in its best competitive position ever, which should drive increasing win rates and help restore pricing power.
Banc of America upgraded shares of Crown Holdings (NYSE: CCK) to Buy from Neutral to reflect the company's international exposure and believes metal packaging companies should be better able to manage input inflation.
Staples (NASDAQ:SPLS) cut to "neutral" at Goldman Sachs according to24/7 Wall St. The website also reports that JC Penney (NYSE:JCP) and Nordstom (NYSE:JWN) were raised to "buy" at Goldman Sachs
TheStreet.com's Jim Cramer says the number of things that went wrong in one day is astounding, and is led by the woes of Fannie Mae and Freddie Mac.
There aren't many days like yesterday. Or let's hope there won't be. Let me refresh all of the things that went wrong so we have the context of how treacherous this market really is.
1. The Treasury and the President saw fit not to endorse the "implicit" guarantee for Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take) paper. For those of us who have bought and sold this paper for most of our lives, this was the signal that almost everything could be worthless. Their refusal to acknowledge the problems was so in the Hoover playbook that it was shameful.
2. We always figured that you should be able to lever up if you are in the bond market, with nine to one being an acceptable level for rock solid collateral like Fannie Mae mortgage paper, which was presumed to pay off at par with the only question being when. Now, because the question is no longer "when," but "if" that level of leverage is going to be obliterated. Maybe three or four times is all we will get. There have to be trillions of dollars at risk in loans right now because of that loss of implicit guarantees.
J.C. Penney Company, Inc (NYSE: JCP) stock is falling sharply today after the retailer posted a 6.7% decrease in February same-store sales. Analysts had been expecting a 1.9% fall. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on JCP.
After hitting a one-year high of $84.70 in April, the stock hit a one-year low of $33.27 in January. This morning, JCP opened at $46.66. So far today the stock has hit a low of $43.13 and a high of $46.66. As of 12:20, JCP is trading at $43.24, down $4.87 (-10.1%). The chart for JCP looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a March bear-call credit spread above the $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. This particular trade will make a 4.2% return in two weeks as long as JCP is below $50 at March expiration. JC Penney would have to rise by more than 16% before we would start to lose money.
JCP hasn't been above $50 by more than a few cents since November and has shown resistance around $49.50 recently. This trade could be risky if consumer spending shows gains in the next two weeks, but even if that happens, this position could be protected by resistance JCP might find around $50, where it has topped out twice in the past month. Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in JCP.
Survival Strategies For Target, Neiman-Marcus, J.C. Penney & Macy's An economic slowdown tends to spook the retail industry. Retailers don't just stand there and take a beating. They slim down, shut stores, trim inventory, slice payroll and take other strategic steps they hope will help them endure the pain. Here is a look at the strategies of four retailers that draw from often-overlapping segments of shoppers. Survival strategies for Macy's, Penney's, Target, Neiman's - USATODAY.com
Brighter Side of Lower Home Prices: Lower Taxes Lower home prices are bad news for sellers -- but other homeowners may benefit from lower prices. If you think your property taxes are too high see how you can get a reassessment. TheStreet.com : The Bright Side of Lower Home Prices: Lower Taxes | Saving
The Pain of Home Over-Improvement High-end kitchen and bath renovations just aren't boosting a home's value the way they used to. Sellers who succumbed to home over-improvement syndrome are feeling the pain. Say Good-bye to Granite Countertops - CNNmoney
Getting Out of Debt: How to Take Action Getting in the debt pit is easy; climbing out, not quite so. These strategies help lessen the pain. Control your finances
Wish Your Social Security Benefits Were Higher? There Is a Way You may think that once you start Social Security benefits, you can't go back and change your mind, but a little-known rule allows you to cancel your decision and start over. The catch? You must have the assets available to pay back all the benefits you received. There's no interest or penalty tacked on. After paying back those benefits, you can re-apply for benefits at a higher monthly amount, thanks to the fact that you're older. Wish your Social Security benefits were higher? There is a way - MarketWatch Also: Your Most Pressing Social Security Questions Answered
Airports Where Passengers Are King Tired of feeling like cattle? The world's top airports make flying feel, once again, like a luxury. South Korea's Incheon tops the list for the third year, Porto leads Europe, Dallas-Fort Worth wins first place stateside, and Ben Gurion is best in the Mideast. The World's Best Airports Also: World's Most Wired Airports
Real Estate Broker to the Stars (a.k.a. Paris Hilton's Uncle) Mauricio Umansky caters to the celebrity crowd in some of the L.A. area's most exclusive properties. Celebrity Real Estate Broker - Portfolio.com
The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.
What's a tell-tale sign of a recession, and conversely, an indicator investors/readers should monitor to spot when the recovery has started? Retail sales -- particularly at department stores. 
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