For the week of Monday, May 14, 2012 through Friday, May 18, 2012
- Standard & Poor’s 500 Index: -4.23%
- Dow Jones Industrial Average: -3.39%
- NASDAQ Composite: -5.22%
Concerns about Greece’s possible exit from the eurozone weighed heavily on the markets this week, as the Dow Jones Industrial Average experienced a loss in 11 of the last 12 sessions. Even the much ballyhooed initial public offering of Facebook (NASDAQ: FB) did not provide the fireworks the market had anticipated. The effects of a wavering global economy offset encouraging U.S. employment reports and favorable earnings reports from giant retailers Wal-Mart Stores (NYSE: WMT) and Sears Holdings Corporation (NASDAQ: SHLD). These worries led investors into safer havens, driving Treasury yields lower.
Economic Data
- Chain Store Sales Snapshot:
- The chain store sales index fell 0.8%.
- This is the fourth week of decline in the last five weeks, reversing March gains by about half.
- The result was considerably better than the year-over-year growth, with the index accelerating to 4.5% from 3.3%.
- Moderating gasoline prices are supporting sales.
- The chain store sales index fell 0.8%.
- MBA Mortgage Applications Survey:
- Refinance applications helped the mortgage applications composite index jump 9.2% for the week ending May 11.
- The refinance index rose 13% from the previous week, helped by a fall in mortgage rates.
- The purchase index declined 2.4%, snapping its three-week streak of increases.
- The purchase index has still been trending higher over the past couple months.
- Housing Starts:
- With housing starts hitting 717,000, April’s annualized units in residential construction is near its fastest pace since 2008.
- The March figure was led by single-family construction, which was revised up to 2.6%.
- Housing completions are up 10% from March, while permits are down 7%.
- Industrial Production:
- Industrial production rose 1.1% in April, gaining across the major components.
- Details relating to manufacturing were mostly favorable; however, the data for prior months were revised downward.
- Gains were concentrated in the auto sector, where output rose 3.9%, while non-auto output only rose 0.3%.
- The report was positive overall showing that the second quarter of manufacturing got off to a good start.
- FOMC Minutes:
- The Federal Open Market Committee minutes from the April 24-25 meeting show the central bank is deeply divided.
- Some policymakers feel the economy may have been inflated by a mild winter.
- There doesn’t appear to be anything in the minutes that suggests an additional monetary stimulus is needed.
- The FOMC’s consensus appears to be that the economy does not need additional quantitative easing.
- They expect monetary tightening will begin sometime in 2014.
- Jobless Claims
- Countering expectations of improvement, jobless claims held steady last week.
- Initial claims held at 370,000 for the week ending May 12; the prior week’s data were revised from 367,000 to 370,000, and
- Continuing claims increased in the prior week.
- While stability is better than early April, the lack of improvement is discouraging for a labor market struggling to find firmer ground.
- Countering expectations of improvement, jobless claims held steady last week.
Earnings
- J.C. Penney Company Inc. (NYSE: JCP)
- Total sales declined 20% to $3.15 billion, while analysts were expecting $3.41 billion.
- Same-store sales slid 19%, when analysts expected a 13% drop.
- Weak sales and seasonal inventory markdowns created a narrow gross margin narrowed of 37.6% from 40.5%
- The company said it will suspend its quarterly dividend and not meet its previous annual earnings target thanks to additional restructuring charges and possible inventory write-downs as it jettisons certain lines of merchandise.
- The Home Depot Inc. (NYSE: HD)
- Home Depot Inc.’s fiscal first-quarter earnings rose 27%, aided by warm weather across the country.
- For the first quarter, Home Depot reported a profit of $1.04 billion, or $0.68 a share, up from a year-earlier profit of $812 million, or $0.50 a share.
- This included a three-cent per share gain from the termination of a senior secured loan.
- Sales increased 5.9% to $17.81 billion.
- Same-store sales rose 5.8%, and climbed 6.1% domestically.
- One of the warmest U.S. winters on record particularly helped drive demand in the heavily populated northeast U.S., though Home Depot also notched a stronger performance in the South and West where weather was more normal.
- Abercrombie & Fitch Co. (NYSE:ANF)
- Weak European sales led to Abercrombie & Fitch Co. posting a sharp drop in fiscal first-quarter earnings.
- For the quarter ended April 28, Abercrombie reported a profit of $2.99 million, or $0.03 a share, down from $25.1 million, or $0.28, a year earlier.
- Year-ago earnings from continuing operations were $0.29 a share.
- Sales jumped 10% to $921.2 million. Analysts had most recently forecast earnings of $0.02 on revenue of $952 million.
- Gross margin fell to 62.6% from 65%.
- Total U.S. sales rose 1% to $644.3 million, while international sales jumped 42% to $277 million.
- Total same-store sales were down 5%.
- Target Corp. (NYSE: TGT)
- Target Corp.’s fiscal first-quarter earnings edged up 1.2%.
- For the quarter ended April 28, Target reported a profit of $697 million, or $1.04 a share, compared with a year-earlier profit of $689 million, or $0.99 a share.
- Total revenue rose 5.9% to $16.87 billion
- Stripping out items, such as Canadian expansion costs, earnings totaled $1.11 per share.
- Deere & Company (NYSE: DE)
- Deere & Co., the world largest seller of tractors and harvesting equipment, beat analysts’ profit expectation when its fiscal second-quarter earnings rose 17%.
- This occured even as sales came in lower than the company predicted in February.
- Deere maintains its forecast of a 15% increase in revenue for the full fiscal year, about $33.9 billion, slightly below analysts’ estimate of $34.1 billion.
The company raised its profit guidance for the year by $0.25 per share to about $8.25, well ahead of analysts’ estimates. - Deere’s sales of farm machinery for the second quarter rose 11% to $7.73 billion, while operating profit climbed 21% to $1.4 billion on expanding margins.
- Sales of construction equipment increased 26% to $1.67 billion as equipment rental companies ramped up their purchases in the quarter.
- Profit from the construction business rose 13% to $119 million.
- Overall for the quarter Deere reported a profit of $1.06 billion, or $2.61 a share, up from $904 million, or $2.12 a share, a year earlier.
- Total revenue, which includes revenue from the company’s finance business, increased 12% to $10 billion.
- Net equipment sales, excluding financial services and other revenue, rose 13% to $9.41 billion.
- Advance Auto Parts Inc. (NYSE: AAP)
Advance Auto Parts Inc.’s fiscal first-quarter earnings rose 22%, as the auto-parts retailer’s sales got a boost from the addition of new stores, although margins narrowed on slower inventory growth. - As a result of a slow second quarter start, the company expects same-store sales for the year to rise in the low-single-digits.
- For the period ended April 21, the company reported a profit of $133.5 million, or $1.79 cents a share, compared with a year-earlier profit of $109.6 million, or $1.35 a share.
- Sales rose 3.1% to $1.96 billion on a net addition of 82 new stores in the past 12 months, as same-store sales rose 2.1%.
- Gross margin narrowed to 50.1% from 50.5% on a slower pace of inventory growth, which drive higher supply chain costs.
- Wal-Mart Stores, Inc. (NYSE: WMT)
- Wal-Mart’s fiscal first-quarter earnings rose 10%, as U.S. namesake stores posted a 2.6% increase in the same period.
- Same-store sales at its Sam’s Club warehouse shops jumped 5.3%.
- For the quarter ended April 30, Wal-Mart reported a profit of $3.74 billion, or $1.09 a share, compared with a year-earlier profit of $3.4 billion, or $0.97 a share.
- Revenue rose 8.5% to $113.02 billion, exceeding the $110.54 billion expected by analysts.
- Sears Holdings Corporation (NASDAQ: SHLD)
- Sears Holdings Corp. swung to a profit in its fiscal first quarter on a boost from shedding some real estate.
- The retailer is slimming down because it intends to continue to trim its stake in Sears Canada Inc.
- The company’s board has approved plans to pursue a partial spinoff of Sears Canada, an effort that would reduce the company’s stake to roughly 51% from about 95%.
- The spinoff, Sears said, would give investors “a more targeted investment opportunity” by having ownership in two separate companies, while also allowing both firms to focus on their respective businesses.
- Stripping roughly $200 million of gains from the sale of some U.S. and Canadian stores, the company reported a loss of 31 cents a share versus a year-earlier loss of $1.34 a share.
- For the quarter ended April 28, Sears reported a profit of $189 million, or $1.78 a share, compared with a year-earlier loss of $170 million, or $1.58 a share.
- Revenue fell 2.8% to $9.27 billion.
- Analysts expected a loss of 67 cents a share on $9.15 billion in revenue.
Interest Rates
- Treasury prices rose again amid European concerns.
- The two-year Treasury rate rose three basis points to 0.29%.
- The five-year Treasury rate remained flat at 0.75%.
- The 10-year Treasury rate fell 10 basis points to 1.77% as it continues to set new six-month lows.
- The 30-year Treasury yield fell 15 basis points to 2.89%, lows not seen since early January.