U.S. Stocks Drop on Weak Retailers

123jump.com Staff
07 Feb, 2008
New York City

U.S. stocks fell in the morning after weak January retail sales, rising unemployment claims at the end of last week, and rate decisions in Europe. Retail sales in January showed grwoing economic anxities faced by consumers. Widespread discounts failed to attract consumers to retailers. Unemployment claims rose at the end of last week as construction and financial industries reduce staff. Oil dropped.

[R]11:30AM New York – U.S. stocks traded in a tight range after weekly unemployment claims gained, January retail sales dropped and oil dropped.[/R]

U.S. averages fell in the first thirty minutes of trading after retailers reported January same store sales, cautious outlook from Cisco, and higher than expected unemployment claims.

January Retail Sales

Same store sales in January fell more than expected by most analysts. Wal-Mart reported same store sales increased 0.5% in the month, lower than the company’s guidance of 2%. Sales at Wal-Mart stores fell 0.2% and at Sam’ Club increased 2.1%. For the fiscal year, same-store sales at U.S. locations rose 1.4%, lowest growth in the last thirty years of data tracking at stores.

Target sales in January fell 1.1%.

Retailers are bracing for one of the toughest years as consumers tackle rising energy and gasoline prices, falling home values, tighter credit conditions, and stagnant wages.

Costco Wholesale Corp, reported 7% rise in January same store sales across the company but sales increased 5% at domestic locations, only 3% when gasoline sales are excluded, and currency adjusted gain of 9% at international locations.

Department stores lowered prices on several products at mall based locations to attract buyers and rev up the gift card spending. However consumers kept their spending in check.

Apparel retailers reported drop in sales as customers avoid discretionary purchases. J C Penney sales declined 1.9%, sales at Limited dropped 8.1%, at Macy’s fell 7.1%, and at Gap fell 2%. Saks bucked the trend and reported 4.1% rise in sales.


Weekly Unemployment Claims

In the week ending Feb. 2, the advance figure for seasonally adjusted initial claims was 356,000, a decrease of 22,000 from the previous week''s revised figure of 378,000. The 4-week moving average was 335,000, an increase of 8,500 from the previous week''s revised average of 326,500.

The advance number of actual initial claims under state programs, unadjusted, totaled 379,507 in the week ending Feb. 2, an increase of 9,563 from the previous week. There were 339,018 initial claims in the comparable week in 2007.

Earnings News

Moody’s ((MCO)) reported revenue of $504.9 million for the three months ended December 31, 2007, a decrease of 14% from $590.0 million for the same quarter of 2006. Operating income was $212.1 million and diluted earnings per share were $0.49, which included a restructuring charge of $47.8 million or $0.11 per share. Excluding the restructuring charge in 2007 and the gain from a building sale in 2006, operating income of $259.9 million declined 14% from $302.7 million in the year-ago period.

Raymond McDaniel, Chairman and Chief Executive Officer of Moody’s, commented, “The severity and protracted nature of current credit market dislocations confirms that the challenges of 2007 will persist well into 2008.”

Revenue for the full year 2007 totaled $2,259.0 million, an increase of 11% from $2,037.1 million for the same period of 2006. Operating income for the full year 2007 was $1,131.0 million and included a restructuring charge of $50.0 million.

Diluted earnings per share of $2.58 for the full year 2007 included a $0.19 per share benefit from the settlement of a legacy tax matter in the second quarter of 2007 and an $0.11 per share charge related to restructuring actions.

Excluding the 2007 restructuring charge and the 2006 gain on building sale, operating income of $1,181.0 for 2007 grew 7% from $1,098.9 million in 2006. Excluding the adjustments listed above and the impact of legacy tax matters in both years, full year 2007 diluted earnings per share were $2.50, 11% higher than $2.25 in 2006.

European Rate Decisions

The European Central Bank left its rate unchanged at 4% after an unanimous decision by governing council of 21 members. The President Jean Claude Trichet signaled that he will consider lowering rates if the economy show any sign of weakness. Euro fell after the rate decision. Before the meeting the ECB had signaled that it is worried that wage rise may fuel the inflation and market had interpreted it as a possible rise in interest rates.

The Bank of England lowered its rate by 0.25% to 5.25% after a decision by a nine-member governing body. The pound fell against the dollar and euro after the rate decision. Weak retail sales, falling housing prices, and consumer anxieties have all affected the economic outlook for UK. Interest rates in UK are still high among group of seven wealthiest nations and UK is likely to face weakening economy and rising inflation pressures in 2008.