Retailer Macy's (NYSE: M) first fiscal quarter wasn't that bad, at least in terms of the analyst game. The company, which competes with mall colleagues such as J.C. Penney (NYSE: JCP) and Sears (NASDAQ: SHLD), reported net income of 2 cents per diluted share from continuing operations. The denizens of Wall Street thought the company would lose 2 cents, so management came ahead in this regard by four pennies. Bravo!
However, does this news excite me? Not necessarily. Macy's needs a little help in its sales department. First, the overall top line declined almost 3%, coming in at $5.7 billion. Second, and perhaps even more telling, same-store sales were weak during the quarter, decreasing by 2.6%. And then there's the issue of cash flow. Operational cash flow from continuing operations was excellent compared with last year's quarter since $21 million was generated this time around as opposed to $370 million being used last time around. Nevertheless, when you take into account capital spending, no free cash flow was left over in the first quarter. And cash has been decreasing on the balance sheet. Oh, and gross margin went down, too.
I wasn't too taken by Macy's current earnings report, and I'm not putting the company on my list of investment ideas right now, even though the stock closed up yesterday on the news (heck, the company didn't repurchase any shares last quarter and stated that it didn't see any more share repurchases coming for the rest of the year, so apparently the stock isn't on management's ideas list, either). I think there might be better retail investments out there, such as Wal-Mart (NYSE: WMT) or Target (NYSE: TGT). Yes, the retailer may have strong associations with Donald Trump and Martha Stewart, but I will not be blinded by such celebrity value.
Disclosure: I don't own shares in any company mentioned here; positions can change at any time.
SHLD is scheduled to release Q1 results on May 29.
SHLD June call option implied volatility is at 46, puts are at 56. SHLD average option implied volatility over the last 26-weeks average is 46 according to Track Data. SHLD puts are priced higher than calls because SHLD is difficult to borrow.
NASDAQ 100-QQQQ overall implied volatility at 24; 26-week average is 28.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
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.
In a story posted by The Consumerist, an eloquent and apparently intelligent gentleman referred to as Tom, relates a story of turmoil which he has experienced with a Sears Card purchase he made at Sears Holding Corporation (NASDAQ: SHLD). The story goes like this:
Tom states that he purchased a television from a Sears store. It was a deeply discounted model, at a price he couldn't refuse. Tom apparently paid for his purchase with his Sears Card and then went out of town. Upon return from his trip, Tom called Sears to see when his new television would be delivered. It wasn't available. He would have to wait. Another week passed and Tom contacted his Sears retailer again. They still had no television to deliver to him, so after a terse verbal tug-o-war with the manager, Tom was offered an alternate television at a similar discount. He purchased the surrogate unit and left the store satisfied. However, Tom's problems had only just begun.
It seems that Tom has been unable to recover the funds he paid for the television which Sears couldn't deliver. Try as he might, the best Tom has been able to accomplish has been a serious test of his fortitude. He's hit dead ends from one end of the Sears operation to the other. He has been able to reasonably ascertain that Sears management's telephones don't interlink with one another. Meanwhile, the phantom television model remained on display in the store. Might this possibly have been in violation of consumer bait and switch laws?
After hitting a one-year high of $195.18 last April, the stock hit a one-year low of $84.72 in January. This morning, SHLD opened at $102.95. So far today the stock has hit a low of $101.81 and a high of $104.03. As of 11:45, SHLD is trading at $103.74, down $1.42 (-1.3%). The chart for SHLD looks bullish and steady, 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 a May bear-call credit spread above the $120 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 9.9% return in five weeks as long as SHLD is below $120 at May expiration. Sears would have to rise by more than 16% before we would start to lose money. Learn more about this type of trade here.
SHLD hasn't been above $120 since November and has shown resistance around $110 recently. This trade could be risky if earnings from other retail companies are a positive surprise, but even if that happens, this position could be protected by resistance SHLD might find at its 200 day moving average, which is currently around $120 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 SHLD.
When Edd Lampert merged K-Mart and Sears Roebuck into Sears Holdings Corp. (NASDAQ: SHLD), he probably didn't plan for a complete and unmitigated disaster. But, from all accounts, that is what the company is at this time. Its sales have consistently plummeted for more than just a few quarters now, the competition has killed it. Sears merchandising frankly is really, really bad -- and on and on.
Lampert's grand vision is still alive, but the realities of running a national retailer in an intense environment have not proved easy at all. What's keeping Sears Holding's shares above $100, you say? Check out the company's vast real estate holdings. Don't think for a second that this isn't the reason Sears is majority owned by Lampert, who could care less about the retail end of the business.
Still, you have to run a business. It's always nice to see that a former CEO who appeared to do virtually nothing in terms of performance get an annual base salary of $1 million through the next few years -- even though he's no longer at the company. Ousted CEO Alwyn Lewis, who was highly regarded when recruited for the Sears Holdings CEO spot but who was wholly ineffective, will receive his salary package through March 24 of 2010. Lewis will also continue to have health and welfare plan availability along with having his remaining stock and option awards vest until 2010 as well.
Even though the boards of public companies should be completely separate from the management and owners of the company, it's hard to see that they're not when excessive, after-term packages like this come to light. Pay for performance? Hogwash. CEO compensation committees can be as corrupt on company boards as those Enron folks from years back. Well, to a degree, anyway.
Some believe the current financial crisis is the most serious since the Great Depression and if so some of the largest companies in the country could be taken over and cease to be independent public corporations. Huge firms with vulnerable businesses, competitive pressures, and weak balance sheets may end up being takeover targets. Here is 24/7 Wall St.'s predictions of possible takeovers that could happen in the near future if the current crisis persists. They include McDonald's buying Wendys, VW acquiring Ford Motor, Wal-Mart getting Sears, Wells Fargo buying out Washington Mutual, J&J nabbing Boston Scientific and more.
The upscale retailer has embarked on an aggressive store expansion. The company will add 1.11 million square feet in 2008, more than twice that which was added in 2007. With that expansion in square footage has come an commensurate increase in short sales volume (those sold with the intention of betting on the stock price decreasing in JWN).
Analysts are fearing that while Nordstrom may have it going on in terms of hitting the fashion bulls-eye, such aggressive expansion may negatively affect the company. The same Bloomberg story quotes a Wall Street analyst who said that "slowdown in square-footage growth'' would make her more positive on the Nordstrom story.
Much as an astute investor in the stock market would use price pullbacks to add to positions he or she likes, Nordstrom is leveraging cut-backs in store expansions at competitors to land what it feels are prime locations for new stores.
With fears that the U.S. consumer will suffer more than he is presently, investors are nervous that store expansion may leave Nordstrom with a lot to sell and not a whole lot of buying going on.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
This year, the International Trade Commission is set to issue rulings on whether Samsung and Nokia Corporation (NYSE: NOK) have infringed patents from InterDigital Inc (NASDAQ: IDCC). If InterDigital, who licenses its patents to iPhone maker Apple Inc (NASDAQ: AAPL), wins, fees from the deals could double its revenue over the next few years, the Wall Street Journal contended.
According to FDA commissioners, the New York Times reported that Baxter International Inc's (NYSE: BAX) critical blood thinner heparin, which has been linked to nearly 20 deaths and whose base was created in China, contained a "possibly counterfeit" ingredient that "mimicked the real drug."
In his opening arguments in the state of Alaska's lawsuit against Eli Lilly & Company (NYSE: LLY), an attorney for the state alleged the drug maker failed to warn doctors and patients of dangerous side effects associated with its drug Zyprexa, the Associated Press reported.
The retailer announced that its quarterly profit dropped to $426 million, or $3.17 a share on declining margins as sales at its Kmart and Sears stores slipped due to the weak U.S. economy and increased competition. These numbers are down from $811 million, or $5.27 per share reported in the same period a year ago.
Included in the company's earnings numbers was a one-time gain related to the sale of some assets. Excluding that, Sears earnings numbers would have come at $3.04 per share. Analyst estimates (which typically exclude one time items) was for $3.10 per share in the quarter.
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
U.S. stock futures were lower this morning, ahead of economic activity data and as Federal Reserve chairman Bernanke testifies before Congress for the second day. Several large-cap companies are also reporting earnings today and could help sway sentiment on the Street.
On Wednesday, stocks finished the session mixed. Concerns about the economy were not easily alleviated by
the Federal Reserve signaling more rate cuts. The Dow industrials ended up 9 points, or 0.07%, the S&P 500 was down 1 point, or 0.09%, and the Nasdaq composite added 8 points, or 0.37%.
More economic data will be released today and remain in focus:
At 8:30 a.m. EST, the latest reading of gross domestic product for the fourth-quarter is due. Analysts are expecting the data to show an annual growth rate of 0.8%, up from the initial estimate of 0.6%.
At the same time, weekly initial jobless claims will be reported.
TheStreet.com's Jim Cramer says it could be part of a strategy to pounce when the economy sagged. Lowe's can take the pain; Home Depot can't.
Maybe Lowe's (NYSE: LOW) (Cramer's Take) sees what we saw this morning: A Home Depot (NYSE: HD) (Cramer's Take) that's a shadow of its former self. Maybe LOW is pulling a Verizon (NYSE: VZ) (Cramer's Take) and just going out to destroy the competition with lower rates and short-term hits to performance.
Yesterday I was torn between what really drove up the price of Lowe's: the January low point with February showing some improvement, or an overall belief that the early cycle is starting and the economy has bottomed courtesy the Fed rate cuts. The reaction last night to Nordstrom (NYSE: JWN) (Cramer's Take) was similar: terrible earnings but hope that things will get better. It's is now well above where it hit its low and it is hard for me to believe that it could go back there.
You couldn't tell which theory was winning out for either Lowe's or Nordstrom because I am sure you had buyers of both plus the ubiquitous short-sellers who lurk everywhere and are prone to cover on a moment's worth of positive price action (as we saw in Goldman Sachs (NYSE: GS) (Cramer's Take) yesterday before a new round of estimate cuts, courtesy special purpose vehicles that some alleged cognoscenti will claim they saw coming).
Retailer Macy's (NYSE: M) first fiscal quarter wasn't that bad, at least in terms of the analyst game. The company, which competes with mall colleagues such as J.C. Penney (NYSE: JCP) and Sears (NASDAQ: SHLD), reported net income of 2 cents per diluted share from continuing operations. The denizens of Wall Street thought the company would lose 2 cents, so management came ahead in this regard by four pennies. Bravo!
Sears Holding
In a story posted by 
When Edd Lampert merged K-Mart and Sears Roebuck into 
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U.S. stock futures were lower this morning, ahead of economic activity data and as Federal Reserve chairman Bernanke testifies before Congress for the second day. Several large-cap companies are also reporting earnings today and could help sway sentiment on the Street.
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