Discount Retailers Power Ahead

Elena
06 Oct, 2005
New York City

The Labor Dept. said that jobless claims rose to 390,000 from the previous week's upwardly revised figure of 369,000. All Asian markets finished in the red, following the sharp declines on Wall Street, led by the Nikkei falling 2.4%. Oil prices slipped to a two-month low with crude-oil down at $41.20 a barrel, and gasoline down at $1.8340a gallon.

U.S. MARKET AVERAGES

Stocks began trading in the positive after two consecutive sessions of heavy losses. The market sentiment was lifted by the promise of steady profits from General Electric Co. and September retailers’ sales reports which painted a mixed picture but proved better than previously expected.

Two major companies released upbeat data. Retailer Costco ((COST)) posted Q4 20% earnings rise of 73 cents a share on higher revenue, beating estimates. Wal-Mart ((WMT)), the world's largest retailer, revealed that its September comparable sales rose 3.8% from last year. For October, Wal-Mart projected comparable store sales growth of 2%-4%. The company reaffirmed its Q3 earnings guidance of 55 to 59 cents per share.

Limited Brands revealed a 2% decline in September comparable store sales, Sharper Image ((SHRP)) announced a 21% drop, Factory Card & Party Outlet ((FCPO)) reported a 0.4% slide and The Buckle ((BKE)) posted a 1.4% decline. Talbots ((TLB)) reported lowered 2005 earnings outlook and a 5.1% decline in its September comparable store sales. New York & Co. ((NWY)) cut its full-year guidance and posted 0.4% in comparable store sales.

In addition, another slip in oil prices helped shares move up in the early going. Light, sweet crude is down $1.59 at $61.20 per barrel. The good news helped investors overlook another rise in first-time jobless claims, which rose to 390,000 last week, an increase of 21,000 from the week before. The Labor Department said as many as 363,000 people were out of work due to Hurricanes Katrina and Rita.

The falling oil prices boost the airline sector, which is one of the best performers so far, rising 2.2%.

The oil price decline is dragging on shares of energy-related companies. The natural gas sector is down about 2%, while the oil service sector is posting a decline of about 1.8%.

In the first hour of trading, the Dow rose 27.22, or 0.26%., the Standard & Poor's 500 index gained 1.77, or 0.15%, and the Nasdaq composite index added 1.96, or 0.09%.

Bonds were little changed, with the yield on the 10-year Treasury note steady at 4.36 percent from late Wednesday.

MOVERS AND SHAKERS

Dow component Merck ((MRK)) jumped 4.7% after it was announced that a study indicated effectiveness of a company anti-cancer vaccine. The experimental vaccine showed success in pivotal studies, preventing nearly 100% of growths that can lead to the deadly disease. The vaccine is aimed at four types of the human papillomavirus, or HPV.

General Electric ((GE)), also a Dow component, was up 1.1% after the company said its third-quarter earnings will be at the top of its expected range, and also increased its range for 2005 earnings to $1.81-$1.83 a share, from previous outlook for $1.80-$1.83 a share. General Electric said it would earn 44 cents a share, matching the analysts forecast. The company’s previous forecast was for income of 43 cents to 44 cents a share.

Retailer Wal-Mart ((WMT)) added 0.7% after the company posted a 3.8% increase in September same-store sales, equal to its expected results. Another retailer Target ((TGT)) also upped 0.6% after it reported same-store sales near the top expectations. The company said September sales rose 5.6% at stores open at least a year, and it maintained its profit forecast for the rest of the year.

Retailer Kohl's ((KSS)) is also likely to be active but in the opposite direction due to the news of a 0.2% decrease in monthly same-store sales. The company was disappointed with sales of cold-weather products. The company backed its third-quarter earnings forecast of 43 cents to 46 cents per share, and said it expects a shift in weather-related demand into October.

Federated Department Stores ((FD)) dropped 4.7% after the U.S. biggest department store chain said that same-store sales were below its target of 2% to 3% growth due to lost sales from stores closed because of Hurricanes Katrina and Rita and other factors.

ECONOMIC NEWS

Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended October 1, showing an unexpected increase. The report may raise some concerns about the strength of the monthly employment report due to be released on Friday.

The Labor Dept. said that jobless claims rose to 390,000 from the previous week's upwardly revised figure of 369,000. Economists had expected jobless claims to decline to 350,000 from the 356,000 originally reported for the previous week.

The report also showed that the 4-week moving average rose to 404,500 from the previous week's upwardly revised average of 388,750. This marks the eighth consecutive increase for the less volatile 4-week moving average.

Additionally, the Labor Dept. also said that continuing claims in the week ended September 24 rose to 2.905 million from the preceding week's revised level of 2.787 million.

As mentioned above, the Labor Dept. is due to release its September employment report on Friday, with economists expecting the report to show that the U.S. economy lost 150,000 jobs in September. The decrease is expected to reflect the impact of Hurricanes Katrina and Rita.

INTERNATIONAL MARKET NEWS

All Asian-Pacific benchmarks closed in the red, posting heavy losses on sharp declines of U.S. equity markets. The Japanese Nikkei was the biggest decliner, down 2.4% with Kyocera, Honda Motor and Fanuc among the leading losers. Across the region, South Korea’s Kospi fell 2% with decliners including Samsung Electronics and Posco, Hong Kong’s Hang Seng tumbled 2.1%, and Australia’s All Ordinaries was down 2.1%. The dollar bought 113.97 yen.

European markets fell deeply in the negative territory, dragged down by sharp declines on Wall street, inflation concerns , prospects of higher interest-rate, and a slowdown in economic growth. The expected interest-rate decisions of Bank of England and the European Central Bank also weighed on markets. The German DAX 30 lost 1.2%, the French CAC 40 fell 1.2%, and London’s FTSE 100 slipped 1%. Among the losing stocks were automakers Volkswagen, Daimler Chrysler, and oil majors like BHP and Total.

ENERGY, METALS, CURRENCIES

Oil prices dropped to a two-month low on oil inventory report, showing declines in crude and gasoline stocks. Light sweet crude for November delivery lost 89 cents to trade at $61.90 a barrel on the Nymex. Gasoline futures slid 3 cents to $1.8780 a gallon. London Brent lost $1.03 to $59.09.

Gold prices climbed in European trading on the back of a weaker dollar. In London the precious metal traded at $466.30 per troy ounce, down from $464.10. In Hong Kong gold fell 50 cents to close at $466.15. Silver opened at $7.42, down from $7.33.

In European trading the U.S. dollar declined against its major counterparts. The euro was quoted at $1.2054, up from $1.1954.The dollar changed hands at 113.78 yen, down from 113.93.The British pound was trading at $1.7674, up from $1.7630.

EARNINGS NEWS

Costco Wholesale Corp. ((COST)), retailer, reported a Q4 profit rise of 19.5% to73 cents a share on 10.3% revenue growth and announced its intentions to buy back another $1 billion in shares. The company said the quarter included 7 cents in tax benefits; apart from those benefits, its earnings of 67 cents topped analysts’ forecasts of 64 cents a share. Comparable sales increased 11% in September, with overall sales up 13% to $5.14 billion.

Marriott International Inc. ((MAR)), lodging industry operator, reported 12% Q3 net income rise to 65 cents per share, beating the analyst estimate by a penny, and up from 56 cents per share in the year-ago period on revenue growth at the company's hotels, boosted by higher room rates. The latest quarter incorporated a charge of 5 cents per share for writing down the value of the company's investment in a Delta Air Lines leveraged aircraft lease. Excluding the charge, net income was 70 cents per share.

ATI Technologies, Inc. ((ATYT)), graphics chipmaker, reported a Q4 loss of 41 cents a share on revenue decline from $60 million from the Q3 to $470 million, missing the analysts’ forecasts for a loss of 30 cents a share. Excluding one-time items, the company reported a loss of 12 cents a share.

CORPORATE NEWS

Goody's Family Clothing ((GDYS)) has reached an agreement to be acquired by an affiliate of Sun Capital Partners for $8.00 per share in cash. The company said it expects a definitive agreement within the next 48 hours. Separately, Goody's reported a 5.5% drop in September same-store sales.