Wall Street Higher on Retail Earnings; Japan, Euro Zone in Focus

Arthi Gupta
22 May, 2012
New York City

U.S. indexes traded higher after retailers reported better than expected earnings but caution prevailed after the estimate of growth in the euro zone were lowered and Japan debt rating was lowered. BestBuy, AutoZone and Williams Sonoma reported better than expected earnings.

[R]10:15 AM New York – U.S. indexes traded higher after retailers reported better than expected earnings but caution prevailed after the estimate of growth in the euro zone were lowered and Japan debt rating was lowered. BestBuy, AutoZone and Williams Sonoma reported better than expected earnings.[/R]

U.S. indexes gained in early trading but caution prevailed after Fitch downgraded Japan debt rating and the Paris based OECD lowered its forecast for the euro zone growth to a decline of 0.1% this year.

Organization for Economic Cooperation and Development lifted the growth outlook for the U.S. but warned that sovereign debt problems may derail the global economic recovery and estimated sixth year of recession in a row in Greece.

Greek economy is expected to shrink 5.3% in 2013 after the OECD revised its outlook from the 4.7% estimate of shrink in March.

The European indexes extended gains after the finance ministers of France and Germany reaffirmed their commitment towards Greece and said that an exit of Greece was not a solution to the euro-zone debt crisis.

Asian markets edged higher tracking the U.S. indexes. However, investor sentiment was dampened after Fitch Ratings downgraded Japan''s long-term foreign and local currency issuer default ratings to ''A+'' from ''AA'' and ''AA-'' respectively, citing the nation’s high and rising public debt ratios. The outlooks on both IDRs are negative.

OECD Lifts Outlook

The Organization for Economic Co-operation and Development said that the global economy is gradually gaining momentum.

The Paris-based think-tank lifted the growth outlook for the U.S. to 2.4% in 2012 from 2% projected earlier, driven by private sector demand.

The growth forecast for 2013 was revised up slightly to 2.6% from previous prediction of 2.5%.

Accor to Sell Motel 6

Accor SA, the French hotel group agreed to sell its United States Economy Hotels Division to an affiliate of Blackstone Real Estate Partners VII for a total value of $1.9 billion. The network includes Motel 6 and Studio 6, and comprises 1.102 hotels in the USA and in Canada.

The hotel group aims to reduce its net debt by approximately €330 million and its fixed-lease commitments by €525 million as a result of the transaction.

Shaw Group Divests Business Unit

The Shaw Group Inc., the construction services company agreed to sell substantially all of its Energy & Chemicals business to France-based Technip for about $300 million in cash, subject to certain adjustments.

Shaw anticipates closing the divestiture in the fourth quarter 2012.

Earnings Review

AutoZone, Inc. ((AZO)), the automotive parts retailer reported third quarter net sales improved 6.7% to $2.11 billion from $1.98 billion in the same quarter last year. Domestic same store sales increased 3.9% after 5.3% increase last year.

Net income in the quarter increased 9% to $248.59 million or $6.28 per diluted share compared to net income of $227.37 million or $5.29 per share in the prior-year quarter.

Best Buy Co., Inc. ((BBY)), the consumer electronics retailer said first quarter revenue rose 2% to $11.61 billion compared with $11.4 billion a year earlier. Net earnings in the quarter fell 25% to $158 million or 46 cents per diluted share compared to net earnings of $212 million or 53 cents per share last year.

Urban Outfitters, Inc. ((URBN)), the lifestyle specialty retailer said first quarter net sales rose 9% to $568.93 million from $524.02 million in the same quarter last year. Net income in the quarter fell 12% to $34 million compared to net income of $38.6 million for the year-ago quarter.

Earnings per share for the quarter were flat at 23 cents as number of shares outstanding fell 12% from a year earlier.

Williams-Sonoma, Inc. ((WSM)), the consumer retailer said first quarter net revenues increased 6.1% to $818 million from $771 million in the first quarter of fiscal 2011. Comparable store sales in the quarter increased 4.6% compared to 9% last year.

Net earnings in the quarter decreased 2.8% to $30.72 million compared to net earnings of $31.62 million last year. However, earnings per diluted share improved to 30 cents from 29 cents a year earlier on lower share count.