Retail Stocks Lead Averages Lower

123jump.com Staff
24 Aug, 2006
New York City

Three economic reports, earnings disappointment in retail stocks and light trading on both exchanges did not help market averages. Jobless claims fell by 1,000 at the end of the last week, July durable goods orders fell 2.4% and new home sales declined. It was the new home sales report that hurt the market sentiment the most. Home sales declined 4.3% from June and 21.6% from a year ago. Chicos reported 10% higher earnings but same-store sales at core group of stores fell. Stock fell 25%.

[R]4:00PM In lackluster trading and drop in retail stocks dominated the news.[/R]

-Yield on 10-year bond closed at 4.8% and 30-year bond closed at 4.94%.
-Crude oil rose 60 cents to $72.36 per barrel.
-Gold futures for October delivery closed down $4.40 to $622.60

-Asian Markets declined across the region led by 1.7% decline in Australia and 1.2% fall in Hong Kong and 1.06% drop in Singapore. India gained 1.1% on stable fuel prices.

-European Markets gained led by 0.67% gain Germany, 0.59% rise in France, 0.36% advacne in Spain and 0.25% gain in Switzerland. Norway dropped 0.5%.

-Latin American Markets advanced by a small fraction. Brazil rose 0.49%, Argentina gained 0.27% and Mexico closed near unchanged.

In a choppy trading with light volume market averages for the most of the day spent near unchanged line. The averages failed to make a headway in any direction right until the close of the day. More than 3,300 stocks traded on NYSE was with 51% volume from declining stocks and 48% volume from rising stocks. The Nasdaq trading had 3,100 stocks with 62% volume from rising stocks and 36% from falling stocks.

There are three economic reports in the morning. New home sales declined in July 4.3% from sales in June month and fell 21% from a year ago. Durable goods orders fell 2.4% in July but excluding the transportation sector the orders rose 0.5%. Initial jobless claims fell by 1,000 to 313,000 at the end of the last week.

Earnings report dominated the most active list. Chico’s ((CHS)), the third most active stock on NYSE, fell 25% or $6.12 to $17.96 on lower than expected rise in same-store sales at flagship stores. The company reported only 3% rise in same-store sales at Chico’s after reporting double digit gains for nine years in a row. The trading volume on the stock exceeded 26.2 million shares, more than ten times normal trading volume.

SanDisk ((SNDK)), flash memory and MP3 player maker, gained 4% to $53.01 on no news. Apple Computer ((AAPL)) rose 50 cents to close at $67.81. The company also announced the recall of laptop batteries totaling 1 million units in the U.S. and 0.7 million in the international markets. The batteries are made by the same unit of Sony, involved with the similar recall of Dell laptop batteris. The Consumer Product Safety Commission may broaden the battery recall with other laptop manufactures using the similar batter produced by the unit of Sony.

[R]2:00PM European markets closed higher on Italian banking mergers talk and cement company earnings and report on German GDP.[/R]
Markets in the region managed to climb higher as Swiss cement company Holcim reported better than expected eaernings. German Xetra index gained 0.67%, CAC-40 index in Paris gained 0.59% and SMH index in Switzerland gained 0.25%.

Italian bank merger news talk dominated the trading news. Sanpaolo IMI and Banca intensa are in talks to explore possible ‘merger of equals’ for $83 billion. The merger will create the largest bank in Italy surpassing Unicredit. French bank Credit Agricole owns 18% of Banca Intensa and Spanish bank Santander owns 8.7% of Sanpaolo IMI. The merger of banks in Italy is expected to accelerate with arrival of new Governor of Banca d’Italia.

Banca Intensa gained 7.5% and Saopaolo advacned 6% at the close. Capitalia and Midobaca in Italy also gained 3% and 5% respectively.

Germay’s business owners and managers reported a decline in confidence in August as reported in a survey conducted by economic institute Ifo. The indicator for the outlook for the business climate fell to 105.0 in August from 105.6 in July. At the same time Germany reported that its economy expanded in the second quarter at 0.9%. The latest economic expansion was driven by 4.6% rise in investment in construction and 2.5% gain in machinery segment. The consumer spending fell 0.4%

Holcim, swiss cement maker, fell 1.1% to SFr 98.50 in Swiss trading after reporting better-than expected earnings. The stock had run up in anticipation of better earnings. The company reported 38% rise in sales and 30% gain in earnings in the first-half earnings on the back of acqusition and price hike. The company also decided to sell its 85% stake in South African cement company.

Ericsson ((ERICY)) has agreed to extend its current contract with Bharti Airtel, largest mobile telecom operator in India with 20 million subscribers for three years. The contract to manage network is valued at $1 billion. Bharti also has similar arrangement with IBM to manage hardware related issues. The Indian cell phone subscriber base has been growing at 40% rate in the last three years and is now over 100 million strong.

[R]1:15PM Retail stocks decline.[/R]
Retail stocks declined after economic reports and earnings revision from Chicos and coldwater creek. While Coldwater Creek ((CWTR)) raied its earnings guidance Chico’s reported earnings growth but its forecast for the same store sales and lowered earnings for the full year 2006 and 2007 hurt the stocks.

Chico’s ((CHS)) is trading down $5.95 or 25% to $18.16. The stock has declined from its peak of $49.40 in February of this year. The steady decline in stock is the result of slow down in same-store sales and earnings revision.

The company reported earings for the second quarter of 30 cents vs. 27 cents a year ago, including 2 cents of options expenses in the current quarter. The sales in the quarter rose 18% to $405 million and earnings rose to $54 from $49 million.

The company also said in the press release that after nine years of double digit same-store sales growth at the flagship Chico’s stores the store chain is facing a slow down and may have a negative comp sales. The company guided flat or a low single digit same-store sales growth in the third and fourth quarter of this year. For the full-year the operating margin company expects to decline from 17% and 19% to 14% and 15%.

The company has now a portfoli of chains including flagship Chico’s, sportwear casual chain Fitigue, intimate apparel chain of stores Soma and White House/Black Market selling casual black, white and gray apparel. The recently acquired Fitigue failed to deliver expected sales grwoth in the quarter, White House/Black Market sales rose 19% but flag ship chain Chico’s sales grew only at 3%, slowest in nine years.

The company blamed the same-store sales decline to lack of merchandise availabililty, failure of the recent promotion to pull new customers in the stores and slow traffic at stores.

[R]11:30AM Market averages trade in a lackluster fashion.[/R]
Market averages have remained subdued after the release of three economic repots. New home sales, durable goods order and weekly jobless claims. New home sales dropped 4.3% from the revised estimate sales in June 1.12 million and 21.6% from a year ago. The median home sales price in July 2006 was $230,000 and average sales price was $293,000. Median home price in June was $233,800 and in July 2005 was $229,200. Inventory of new homes rose to a 6.5 months supply at the end of July 2006.

Durable goods order for July moth dropped 2.4% but orders excluding transportation oders gained 0.5% in the month. The total oders in the month droped $5.3 billion to $212 billion. The orders for the transportation equipment dropped 9.6% including the 10% drop in aircraft orders and 7% drop in automobile orders.

Unemployment claims at the end of the last week declined 1,000 to 313,000.

Toro Company ((TTC)) reported third quarter earnings of 91 cents compared to 74 cents a year ago on revenue rise of 2%. The company reported earnings of $40.3 million on revenue of $477.9 million. The company also said that the professional segment sales rose 5.7% and residential sales dropped 2.2%. Toro cut its sales guidance for the year 2006 to 3% to 5% from 8% and raised its earnings grwoth target from 14% to between 15% and 17% for the year.

[R]10:30AM Sensex jumps on bonds and likely fuel price stability.[/R]
The Sensex on BSE soared 125.30 points, or 1.1%, to close at 11,531.95. This is the highest closing since 17 May 2006. The turnover on BSE amounted to Rs 3,146 crore, higher than Wednesday’s Rs 2,998 crore. The market-breadth was initially negative but turned positive in late trading, as 1,349 shares advanced on BSE, 1,113 declined and 81 shares were unchanged.

Reliance Industries led the advancers. The stock surged in late trading and triggered the turnaround in the market from negative to positive. Most blue-chips advanced towards the second half of trading, in contrast to an early fall. Reliance Industries surged 5.3%, to Rs 1,118.

Metal shares bounced back in the latter part of trading. Sterlite Industries gained 4% to Rs 424.95, Hindalco advanced 4% to Rs 168.50, Hindustan Zinc rose 3% to Rs 594, and Tata Steel jumped 2.4% to Rs 518.55. Metal shares had retreated in early trade in the wake of commodity price drop in European trading.

Select cement stocks gained on hopes of a rise in demand as the monsoon season is about to end. Gujarat Ambuja Cements gained 3.4% to Rs 113.80, ACC rose 2% to Rs 912, Grasim was up 1.2% to Rs 2,220, India Cements advanced 3% to Rs 191.40, JK Lakshmi Cement jumped 3% to Rs 142.75, and Madras Cement added 3% to Rs 2,870.

State Bank of India also gained 1.5% to Rs 876. Its board meets later in the day to consider a hike in prime lending rates. Cellular services operator Bharti Airtel advanced 2.3% to Rs 415 on reports that it has offered a contract worth $ 1 billion to expand and upgrade its telecom network to telecom equipment maker Ericsson. Gas transmission company, GAIL India, also jumped 4.4% to Rs 267.25.

Select auto stocks gained on hopes that the government will not raise domestic fuel prices in the near term due to the recent retreat of global crude oil price. Hero Honda gained 2.5% to Rs 718, Mahindra & Mahindra rose 1.6% to Rs 642.50, car major Maruti Udyog advanced 0.7% to Rs 831.50 and Tata Motors added ((TTM)) 1.5% to Rs 860. Hindustan Motors soared 9.91%, to Rs 40.50 on high volumes of 4.2 million shares on BSE as compared to a two-week average volume of 0.13 million shares.

[R]9:45AM Early trading indicate a positive bias.[/R]
Market maintained the upward bias in the first twenty minutes of trading. Nasdaq traded 6 points up, Dow traded 18 points up and S&P 500 gained 3 points after twenty minutes of trading. Durable goods orders and jobless claims report led traders to conclude that interest rates may not need to be revised.

Creative Techonologies is up $1.39 to $7.40 on the news of the patent settlement worth $100 million with Apple Computer. Williams Sonoma ((WSM)) is down $2.60 to $30.00 on the earnings news. The company reported second quarter earnings of 30 cents compared to 26 cents a year ago.

In the large cap stocks dominating various indexes IBM, Johnson & Johnson an Merck are up 40 cents, United Technologies is up 46 cents and Honeywell is up 22 cents. However, Caterpillar is down 63 cents and Home Depot is down 19 cents.

Chico’s ((CHS)) dropped to $5.06 or 21% to $19 on the earnings news. The company reported second quarter earnings of 30 cents vs. 27 cents a year ago on revenue growth of 19%. Same store sales grew 3%, below the projected rise of 4.5% by the management. The company lowered its full year fiscal 2006 year earnings per share guidance between $1.10 and $1.14 and for the year 2007 to $1.28 to $1.36.

[R]9:25AM Futures indicate higher opening.[/R]
Economic reports on durable goods orders and jobless claims led a brief decline in the bond market. The 10-year note is trading at 4.81%. Jobless claims fell 1,000 to 313,000 and July durable goods orders fell 2.4% vs. the expected 0.8% decline. Volatile transportation oders for the aircraft orders declined. However, excluding transportation orders, core order for durable goods, gained 0.5%.

Market in the futures trading indicate an opening with a slight positive bias. Financials, semiconductors and consumer and retail stocks are likely to lead the advancers.

Rite Aid has agreed to buy Eckerd and Brooks stores from JeaCoutu for $2.55 billion in stocks and cash. The company after the acquision will have 5,000 stores and icrease its foot print from 14 states to 31 states. The company will pay $1.45 billion in cash and issue 250 million shares. The combined operation will have $26.8 billion in revenue.

Williams-Sonoma reported second quarter porofit of 30 cents vs. 26 cents a year ago on revenue grwoth of 6.4%. The second quarter earnings included 5 cents charges.

[R]7:30AM Asian markets fall Thursday on large-caps in auto and tech sector.[/R]
Asian markets ended lower on Thursday. The Nikkei 225 Average finished 1.25% lower at 15960.62, Hong Kong''s Hang Seng Index sank1.20% to 16883.04, South Korea''s Kospi Index shed 0.7% to finish at 1315.73, Taipei shed 0.09% to 6550.64, and Australia''s S&P/ASX 200 closed 1.86% lower at 4987.80. Shanghai Composite Index was the only index to buck the trend, finishing 0.66% higher at 1623.02.

Toyota Motor fell 2.2% and Canon lost 2.3%. Sony shed 2.9% after Mitsubishi UFJ Securities lowered its rating on the stock, citing possible difficulties in component procurement for the PlayStation 3 game console. Nippon Steel, bucked the downtrend, ending 0.2% higher. The increase was based on a Nikkei report that it was in talks with Mittal Steel.

Hong Kong fell led by Hutchison and Cheung Kong. Hutchison fell 2.4% and Cheung Kong dropped 2.5%. Cheung Kong''s first-half profit advanced 33% from the year-earlier period, but at the low end of analysts'' expectations because of sluggish property sales. Hutchison''s earnings doubled.

South Korean Samsung Securities lost 2% and Daewoo Securities dropped 2.8%. Samsung Electronics shed 1.4% on foreigners'' profit-taking after last week''s more than 8% gain. Shares in Taiwan closed slightly lower on falls in some large technology companies and on weakness in transportation and construction companies. In Australia, the stock market saw its biggest intraday fall in six weeks as BHP Billiton closed 3.1% lower, and Rio Tinto shed 2.6%.

[R]6:30AM European markets got a boost from German economic data.[/R]
European markets were broadly higher by mid-morning on Thursday. Frankfurt Xetra Dax was up 0.5% to 5,802.46, while in Paris, the CAC 40 added 0.3% to 5,099.66 and only in London the FTSE 100 was flat at 5,856.2. Swiss watchmaker Swatch beat market expectations, with first-half net profit rising 23.6 per cent on 13 per cent growth in gross sales.

Banks advanced after reports of consolidation among the Italian lenders. Banca Intesa and Sanpaolo IMI were being advised on a merger of equals helped both stocks higher. The oil sector declined following Wednesday’s oil-price fall that came in the wake of an unexpected increase in US crude stockpiles. Austria’s OMV was down 2%, while Norway’s Statoil fell 1.1%.

Oil prices gained slightly Thursday, a day after a fall brought on by an unexpected increase in U.S. gasoline and crude oil stockpiles. Light, sweet crude for October delivery gained 13 cents to $71.89 a barrel on the NYME. October Brent crude on London''s ICE futures exchange rose 26 cents to $72.28 a barrel.

Gold opened Thursday at a bid price of $623.25 a troy ounce, up from $622.20 late Wednesday. The euro slipped against the U.S. dollar Thursday. The euro bought $1.2774 in early European trading, down from $1.2795 in New York late Wednesday. The British pound fell to $1.8903 from $1.8933. The dollar edged up to 116.41 Japanese yen from 116.30 yen.

[R]5:00AM Gold futures hit Wendesday three-session low.[/R]
December gold futures finished $1 lower at $633 a troy ounce. Silver futures held onto gains as the benchmark September contract ended 25 cents higher at $12.515 an ounce. October platinum settled $1.30 lower at $1,236.50 an ounce, while September palladium finished up $3.90 at $346.85 an ounce. The September copper futures shed 2.80 cents to settle at $3.4650 per pound on the NYME.

October light, sweet crude oil ended down $1.34 at $71.76 a barrel. September gasoline fell 7.99 cents to $1.8594 a gallon, its lowest close since March 27. September natural gas closed down 13.3 cents at $6.875 a million British thermal units. On the New York Board of Trade, September Arabica coffee ended down 0.85 cent at $1.0735 a pound while December lost 1.25 cents to $1.1135. Futures on raw sugar in foreign ports for October moved up 0.35 cent to settle at 12.41 cents a pound.