Posts Tagged ‘Wal Mart’
Understanding the economic slowdown in the Chinese economy is very important because not only does it impact American companies doing business there, but what happens in the Chinese economy—now the second-largest economy in the world—affects the global economy.
While media outlets tell us the Chinese economy will grow by about seven percent this year (30% below the 10% the economy has been growing annually over the past few years), the statistics I see point to much slower growth.
In February, manufacturing activity in the Chinese economy contracted and hit an eight-month low. The final readings on the HSBC Purchasing Managers’ Index (PMI) for February showed manufacturing output and new orders declined for the first time since July of 2013. (Source: Markit, March 3, 2014.)
And there are other troubles. The shadow banking sector in the Chinese economy shows signs of deep stress, but we don’t know how much money is really on the line here. China keeps much of its real economic news to itself, but we do hear how firms that are involved in the sector are defaulting on their payments.
And the Chinese currency, the yuan, keeps declining in value compared to other major world currencies. The Wisdom Tree Chinese Yuan Strategy (NYSEArca/CYB) is an exchange-traded fund (ETF) that tracks the performance of Chinese money market instruments and the yuan compared to the U.S. dollar. Look at the chart below:
Since the beginning of February, the Chinese yuan and Chinese money market instruments have been showing signs of severe stress, largely unnoticed by mainstream media and economists.
There is no doubt in my mind … Read More
As more and more public companies warn about weak fourth-quarter corporate earnings reports, quite a number of them are resorting to the use of words like “corporate restructuring” or “cost cutting.” At the very core, these cost-cutting measures mean reducing the number of employees working at these companies.
Let’s face the facts: companies on key stock indices are struggling to keep revenue and profits rising. The share buyback “thing” is getting old (after all, how much money do these companies have to throw at stock buybacks?), so to show better corporate earnings, reducing work forces is the easiest thing to do.
Wal-Mart Stores, Inc. (NYSE/WMT) says it plans to lay off 2,300 assistant managers and hourly employees at its Sam’s Club stores. (Source: CNBC, January 24, 2014.)
Abbott Laboratories (ABT) recently let go an unspecified number of employees at its Lake County headquarters. In the conference call to investors about its fourth-quarter corporate earnings, the CFO of the company simply said, “[the company] will take further actions to reduce out expenses… get our support structure at appropriate levels.” (Source: “Abbott Laboratories launches round of layoffs,” Chicago Tribune, January 28, 2014.)
And as I told you last week…
Intel Corporation (NASDAQ/INTC) said it will be reducing its workforce by 5,000 this year. Here’s what the company spokesman, Chris Kraeuter, had to say: “This is part of aligning our human resources to meet business needs.” (Source: “Intel to reduce global workforce by five percent in 2014,” Reuters, January 17, 2014.) Intel had flat fourth-quarter 2013 corporate earnings.
Hewlett-Packard Company (NYSE/HPQ), another major company in the key stock indices, is taking a … Read More
Investors were happily greeted with a surprise on Tuesday after the reporting of better-than-expected retail sales numbers that suggest the consumer spending market may be alive and well after all.
In December, the headline retail sales reading jumped 0.2%, which was above the Briefing.com estimate calling for a flat result. Even after adjusting for the volatile auto sales, the core retail sales reading surged 0.7% compared to the 0.4% consensus estimate.
The results offer some encouragement for spending this year in the retail sector and were much needed, given the recent downward guidance from several retailers.
Now, don’t get too giddy and go out and buy retail stocks at random. It’s not that easy. Investing in retail stocks at this time requires careful thought and evaluation. But with the right investments, there’s some money to be made in the retail sector.
The National Retail Federation also reported some encouraging numbers for the retail sector. Excluding auto, gas station, and restaurant sales, retail sales advanced 3.8% in November and December.
Sounds good on the surface, but there may be some underlying issues surfacing in the retail sector. About 25 of the 29 retailers that issued earnings guidance, unfortunately, offered a negative outlook. (Source: O’Donnell, J., “Holiday sales paint mixed picture for retailers,” USA Today, January 14, 2014.)
The stats put forth are non-conducive to a rally in the retail sector and, in fact, represent a troubled retail climate that is facing lower income from middle-class consumers.
Even the discounted retail sector area is showing some weakness in growth. Family Dollar Stores, Inc. (NYSE/FDO) offered a soft tone in its outlook … Read More
We won’t really get into the heart of the fourth-quarter 2013 earnings season until late January into early February. Smaller companies typically take longer to report, as they don’t have the large accounting departments that blue chips have.
I’ve noticed that quite a number of Wall Street research analysts have been boosting their 2014 full-year earnings expectations. They’re playing the same old game of cat and mouse with corporations and research analysts. Corporations always want to “outperform” if they can, so they deliberately keep their outlooks pretty conservative.
Companies getting a boost to their full-year earnings outlooks include: Wal-Mart Stores, Inc. (WMT), Microsoft Corporation (MSFT), Colgate-Palmolive Company (CL), Oracle Corporation (ORCL), E. I. du Pont de Nemours and Company (DD), Exxon Mobil Corporation (XOM), and Verizon Communications Inc. (VZ). Even Intel Corporation (INTC) is having its earnings outlook nudged higher by the Street for several upcoming quarters, including all of 2014.
According to FactSet, eight out of 10 S&P 500 market sectors are expected to report an increase in fourth-quarter earnings; these sectors are led by a strong expected gain in financials, followed by the telecom and industrial sectors. Energy is expected to produce a decline, comparatively.
While revenue growth from financials should be lackluster to negative on a comparative basis, a strong expected gain in earnings will be market-boosting news. Countless financials have been doing very well on the stock market since last November.
Over several of the last quarters, companies reported they were able to increase their selling prices without materially affecting demand. Sales growth has been a combination of increased volumes and rising prices.
Extreme monetary expansion … Read More
Quietly, without much fanfare or news, the bellwether 10-year U.S. Treasury hit a yield of 2.9% this past Friday—double what it yielded in June of 2012. (Source: Treasury.gov, last accessed December 20, 2013.)
Yes, the Federal Reserve only slightly pulled back on its money printing program and interest rates are already spiking.
And the standard 30-year mortgage rate hit 4.52% last week, up from 3.35% in November of 2012. Mortgage rates have increased by about a third in one year’s time. (Source: Freddie Mac web site, last accessed December 18, 2013.)
In the statement issued by the Federal Reserve last week, it said, “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.” (Source: Press Release, Federal Reserve, December 18, 2013.)
In other words, the Federal Reserve will continue to print $75.0 billion a month in new paper money as opposed to the $85.0 billion a month it used to print. If the Federal Reserve continues to print $75.0 billion a month through the year 2014, its balance sheet will grow by another $900 billion. Yes, by the end of 2014, we will be looking at a Federal Reserve balance sheet that shows close to $5.0 trillion in newly created money on it.
I’d like to end this year’s last editorial issue of Profit Confidential by communicating my most important message of the year.
All this printing of … Read More
I always want to know what Costco Wholesale Corporation (COST) has to say about its business. It’s a great benchmark stock and a barometer on spending.
The company’s latest quarter produced earnings that came in slightly below consensus. The great thing about this business is the membership fees. They are pure gravy and go a long way in padding the company’s bottom line.
In its fiscal first quarter of 2014 (ended November 24, 2013), the company’s sales grew five percent to $24.5 billion. Comparable store sales in the U.S. market grew three percent; international sales grew one percent. Excluding gasoline and foreign exchange (which the company always reports), U.S. comparable store sales grew four percent, while international sales grew six percent.
Membership fees actually came in pretty solid, growing to $549 million in the most recent quarter compared to $511 million during the same time last year.
Total quarterly earnings were $425 million, or $0.96 per diluted share. This compares to $416 million, or $0.95 per diluted share. Dividends paid grew to $0.31 a share, up from $0.275 per share, comparatively.
Costco’s shares sold off slightly after reporting its numbers. The company is in a solid financial position, but there has been a softening of results from other merchandisers.
Costco’s share price has been on a tear the last several years, but this is the second small crack in the company’s quarterly reporting, and I find it material. (See “Costco Membership Drop an Irksome Sign of Consumer Pullback.”) Costco’s five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
The bright spot in Costco’s latest quarter was … Read More
The modification to the current one-child policy, which I recently discussed in these pages, will help create an even bigger middle class in the country that will drive up the demand for goods and services. (Read “China’s Expected Baby Boom a Boon for U.S. Business.”)
The Organization for Economic Cooperation and Development (OECD) has become more bullish on China, and predicts Chinese gross domestic product (GDP) growth will rise to 8.2% in 2014, driven by a rise in domestic consumer spending. (Source: “OECD sees China growth accelerating in 2014,” China Daily, November 20, 2013.) The OECD even goes as far as to say the Chinese economy could surpass the U.S. economy to become the world’s biggest economy by 2016. While this is faster than I expect, it’s clearly not impossible, given the rise in income levels and spending.
The middle class in China will drive the economic engine of the country, unlike what we are seeing in America with the declining spending prowess of the middle class. In fact, what we are seeing in China is similar to the power of the U.S. middle class that drove the Industrial Revolution in the late 1800s and early 1900s.
If China can emulate what happened in the U.S. then, there could be some golden years ahead for the Chinese economy.
To play the expected rise in consumer spending in China, which is increasing at double-digit rates and is likely to continue … Read More
Black Friday is less than two weeks away, and I sense there’s increasing nervousness in the retail sector. For some, this weekend of spending accounts for over 50% of annual sales.
Macy’s, Inc. (NYSE/M) reported a strong fiscal first quarter in which it beat the Thomson Financial earnings-per-share (EPS) consensus estimate by $0.08 per diluted share or 20%. But while Macy’s offers investors some hope, the good news was short-lived, as the stock’s results may have had more to do with the company’s own success than a strong retail sector.
Wal-Mart Stores, Inc. (NYSE/WMT) and Kohls Corporation (NYSE/KSS) followed suit with soft reports that left investors worried about the strength of the holiday shopping season.
In the case of Wal-Mart, the world’s largest retailer reported a 0.1% decline in comparable U.S. store sales (without fuel) for the 13 weeks ended October 25, down from 1.7% growth a year earlier. For the 39 weeks ended October 25, Wal-Mart saw its U.S. sales contract by 0.4%, versus 2.4% growth in the year-earlier period. The result from Wal-Mart raises some red flags for the retail sector as we head into what is the most critical shopping time of the year.
Mike Duke, president and CEO of Wal-Mart, noted in the company’s quarterly report that the retail sector is “competitive.”
Wal-Mart also doesn’t appear to be too optimistic going forward and that makes me nervous, since the company is a good barometer … Read More
It’s early on, but we are already seeing some hints that corporate America and the retail sector are not faring as well as we want them to, but this is no surprise, given that gross domestic product (GDP) growth is still muted.
Alcoa Inc. (NYSE/AA) managed to beat on revenues and earnings. The provider of aluminum also suggested that the global demand would be in the seven-percent range next year.
Kentucky Fried Chicken (or KFC) and Taco Bell owner YUM! Brands, Inc. (NYSE/YUM) was met with a rush to the exits after the company revealed it was short on both revenues and earnings in its latest quarter.
Yet what continues to worry me is the lackluster reporting from the retail sector that indicates a stalling in consumer spending; this is a red flag, considering consumer spending accounts for a large part of the country’s GDP. (See “How Red Flags in the Retail Sector Are Threatening U.S. GDP Growth.”)
Spending on credit cards fell for the third straight month in August—another bad sign, considering financing rates are at relatively low levels in an attempt to spur spending.
In the retail sector, revenues at 10 retailers increased 3.6% in August, based on info from the International Council of Shopping Centers, which is well down from the six-percent rise in August 2012. This is not a surprise, given the economic uncertainties out there and the stale jobs market.
A few weeks ago, bellwether Wal-Mart Stores, Inc. (NYSE/WMT) reported softness in its global … Read More
If there’s one company that has been a stalwart wealth creator on the stock market it’s Costco Wholesale Corporation (COST).
The company’s been on a roll since the mid-2000s, and up until recently, it reported excellent financial growth in its operations. But its most recent quarterly earnings came in shy of expectations and were a surprise for those who follow the business.
Costco’s been doing well over the last several quarters, and it is still very much a growing corporation. But in the 16 weeks ended September 1, 2013 (the company’s fourth fiscal quarter of 2013), sales came in just shy of consensus, growing five percent comparatively to $31.77 billion.
Earnings barely grew to $617 million, or $1.40 per share, compared to $609 million, or $1.39 per share. Lucrative membership sales were $716 million during the quarter, growing much less than in comparative quarters.
The company incurred higher expenses and long-term debt grew significantly in the most recent quarter. On the positive side, Costco’s cash and short-term investments soared another billion dollars to $6.12 billion from $4.9 billion.
However, shareholders’ equity fell and total liabilities grew quite a bit. You can’t call the company’s quarter a disappointment, since it is still growing, but a dividend increase would have been nice.
This was Costco’s first earnings miss in eight quarters.
Also coming in short of expectations was Family Dollar Stores, Inc. (FDO), whose 2013 fiscal fourth-quarter sales grew 5.8% to $2.5 billion. Earnings grew 26% to $102 million, but management said that comparable store sales were flat, and they struck a cautious tone on fiscal 2014.
Rounding out the evidence of … Read More
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