Sears Holdings: Retail Blues equal Stock Greens?

A consumer environment at the apex of, what can only be described as the very definition of fragile doesn't lend itself to positive business results at retailers. Specifically retailers which struggled even before the US went recession-official. Sears Holdings (SHLD) was one of those retailers. And after this morning's quarterly results it still is.

While not suffering the doomsday fate of electronics retail specialty chain Circuit City, the department store giant and its approximate army of 3800 stores reported a loss of $1.16/share ($146Million). Hedge Fund impresario Edward Lampert was known to make magic happen with the cash horde at Sears in years prior, however in today's economic and financial climate it is getting harder to keep ahead of the curve. The company did make some gains in hedge transactions with Sears Canada but it also took a charge with the closing of 14 'under performing' stores.

Excluding all special items the loss ran to $0.90/share, which still almost doubled the analyst predictions of a loss $0.49/share. Revenue was down year over year by 8% ($10.7Billion) and the all important same-store sales metric was down over 10%. Sears did however do some trimming around its bulging edges, chopping almost $600Million in inventory and installing another $500Million share buyback. And yes, those that have followed SHLD's share price descent know all too well about these buyback announcements. They, the buybacks, come practically quarterly as Lampert and co. try to resurrect a failing share price and a company that still sits on over $1Billion in cash.

Forecasting is proving to be an increasingly difficult endeavor for retailers and Sears is no different. Offering the public the unsparing sentiment that previous forecasts are 'no longer relevant'. The economic difficulties just add to the struggles of an already battered Sears retail operation. Going into Christmas and 2009, the analysts covering the company aren't ready to sell a turnaround story just yet. Forecasting earnings of $1.10 on average for next year, Sears sits at a forward P/E ratio in the low 30s. Far too high in this climate, as general merchandise competitors Wal-Mart (WMT) and Target (TGT) have forward P/E ratios in the 15 range. On the lower and higher end of clothing and appliances, J.C. Penny (JCP) and Home Depot (HD) respectively, sport forward multiples of 13.

Why does Sears deserve such a premium? Perhaps the market knows, as it has been able to stay irrational for much longer than anyone anticipates, but today all these Retail Blues have turned into Stock Greens for Sears. SHLD has rebounded with the market to the tune of 13% to price around $36/share in today's trade. Sears can and surely will survive the economic turbulence of North America, but the question for Investors is where can it possibly go?

To put it in perspective, Sears as a retailer, is executing far less successfully that either Wal-Mart or Target, and would have to beat estimates by 100% in the next year to be valued by the market the same way. But Sears is not just a retailer some will say, its also a holding company! Sears as a holding company, doesn't appear to be doing much of anything of late, except of course buying shares of Sears.

This one will continue to under perform its peers in the year to come.

Disclosure: Author holds no position in the above mentioned companies

Wal-Mart Optimistic on Economy as others slash outlooks

The clout and reputation of Wal-Mart (WMT) precedes it even in the most trying consumer and economic times. Not only is WMT the only component of the Dow to be in positive territory for the year it is one of those American bedrock companies that span the nation and its shopping consciousness.

With Wal-Mart reporting an almost 10% rise in year over year profit for the quarter it is becoming crystal clear that even a tight-wallet shopper needs the inexpensive wares provided by his or hers neighbourhood Sam's mega-store. Now not totally economy-proof, Wal-Mart was forced to make some forecasting concessions itself, however nothing in the drastic realm of Electronics retailer Best-Buy (BBY) from just a day ago.

Wal-Mart for the quarter earned $0.80/share ($0.77/share excluding items) compared to analyst expectations of $0.76/share. In the upcoming quarter Wal-Mart forecasts called for profit from $1.03-$1.07 per share, which came slightly below analysts average estimates of $1.11. However CEO Lee Scott's recorded comments of being "optimistic for the holidays" leads Investors to believe that the company banks on its pricing power and essential shopping wares as a way to flatten out the economic downturn.

Of course it is true that people will still have to buy all sorts of things! The positive for Wal-Mart is that it sells just about everything. As Best-Buy's economic comments put a damper on the future of electronic consumer spending, citing a "seismic" downturn of the consumer, no such epic troubles seem ahead for Wal-Mart stores across the country and abroad. Granted in trying times, shoppers on a whole may stall big-ticket item purchases but Wal-Mart's base of essential needs products and cost-effective middle-wares will likely attract shoppers who scale back from more boutique retailers.

While Wal-Mart may seem like one of those boring stocks, in this type of market boring is productive. A dividend yield of about 2% is sombering as other attractive companies being taken down by the stock market sell-off sit at yields in excess of 5-6%. The fact remains that Wal-Mart has been steady all year and will likely continue to be steady in the year to come.

View the full WMT chart at Wikinvest

Call it boring all you want, but in the down-turns its the tortoise that continues on less scathed.

Disclosure: Author is long BBY, holds no position in WMT

Economy Problems, What Problems? Wal-Mart's Solid Earnings

On a trading day spurred by earnings reports and a spike in Energy prices, Wal-Mart (WMT) took center stage yet again. Wal-Mart reported earnings, and the numbers were well received on Wall Street. Even if US sales growth was only about 6% the rest of Wal-Mart's International Empire gave Investors plenty to smile about and bid up.

The results, an overall increase in profit of 4% and sales of 8%, not headline grabbing by themselves, but with as vast a global footprint as Wal-Mart, impressive nonetheless. The increasing International focus was crucial, making up 25% of income. The giant retailer produced income of $1.02/share, which was inline with analyst estimates even if top line revenue came in slightly below ($106.27Billion v $106.9Billion). Although company executives were less than enthralled at the economic proposition for consumers in the US, providing profit guidance for 2008 within the range of analysts certainly put some of the worst fears at ease.

Net sales in its International operations were the key drivers of growth with an 18% spike in sales. The highlight of these International successes came from its British grocer Asda. Asda exceeded virtually all forecasts for 2007 and showed the strong diversity, especially abroad of the Wal-Mart ever-extending reach. Seems like no matter what the economic picture is, low prices will attract consumers. Wal-Mart seems to be getting back to this core motto, which is something seen very favourably by Investors.

For the year, the US operations still weigh heavily on the bottom line as US sales in 2007 accounted for $240Billion while International sales were only $90Billion. However the shift in focus and growth will be on the International stage and Wal-Mart is too big of a player to let itself be handcuffed by weakening economic metrics at home.

Say what you will about boring old Wal-Mart as a stock, but it has held up and is relatively at the same point it was a year ago, while still paying out 22 cents a quarter. It isn't too bad, but the yield at under 2% certainly has room to grow. Yes it is a Market Place Behemoth, a retailer with a 200Billion market cap, but if there's something safe to own, with great International potential upside, Wal-Mart would be a safe bet.

Disclosure: Author does not own WMT

What a Difference a Day Makes, Markets rebound Tuesday

Four Days of heavy sell-offs for North American Markets were met with enthusiastic buying as earnings, financial executive appearances and economic data supported a more bullish tone. Technology led the rise with the Nasdaq gaining more than 3.5% while the Dow Jones and S&P followed with gains of 2.5-3%.

Earnings from Wal-Mart (WMT) pushed stocks higher at the open as the benchmark retailer said it was expected a solid Christmas shopping season. Investors applauded the earnings beat and forecast and sent shares up more than 6%.

In the financial sector, a day after E*Trade Financial (ETFC) plunged 59%, a somewhat rebuttal to the bankruptcy fears from another analyst sent E*Trade soaring back 40%. A swing trader's dream stock the last couple of days, but the risks with this company still remain. E*Trade has assured it is well capitalized to absorb loan write-down losses and that bankruptcy is not in its future. In other financial circles, Bank Of America (BAC) reported that it will write down $3Billion more in losses, while Goldman Sachs (GS) CEO Lloyd Blankfein spoke at a conference showing the street once gain how brilliant the business and trading side of Goldman is. The context of Blankfein's talk; Goldman will not be taking any more write-downs and is still shorting Sub-Prime sectors. I for one think that Goldman's earnings will once again be stellar and prove to Investors it is not only Best of Breed on the Street but seemingly in its own Pantheon of Investment Banking. Shares of GS rallied heavily today, up almost 9% coming back to $233/share.

Technology was a big winner, as the Nasdaq paced gains, with Apple (AAPL) up 10%, Baidu (BIDU) up 13%, VMWare (VMW) up 13%, Google (GOOG) up 5% and Research In Motion (RIMM) up 9% all regaining some lost ground. I said very recently (Link) that Technology would be back and investors should look for strong fundamentals to find winners during the panic-stricken sub-prime selling crisis. Now by no means does today mean that all that can be forgotten and momentum will continue but it does provide a foundation for bullish sentiment.

There are several economic measures coming, including two key metrics this week; Producer Price Index - (PPI), and Consumer Price Index - (CPI), Wednesday and Thursday respectively. Now although the housing indicator released today showed a slight percentage gain, compared to the estimated percentage loss, the outlook pointed to things indeed getting worse from here on out before they get better for the home building sector.

Disclosure: Author owns GS, BAC, AAPL, GOOG

Markets Experience Sharp Selloff after hitting New Highs

Thursday began as another bullish day in the extended rally for the North American markets as the Dow Jones set record highs on sales guidance from mega-retailer WalMart (WMT). Technology also got off to a good start as earnings estimates and price targets were getting bumped higher virtually across the board.

Apple (AAPL) received two price target bumps this morning from analysts at Merrill Lynch and Goldman Sachs pushing shares to an all time high above $170. Similar highs were seen in momentum favourites Research In Motion (RIMM), Google (GOOG), Baidu (BIDU) and VMWare (VMW).

Just before 2pm in this afternoon's trading the markets were up over half a percentage point. It appears whispers travelled and the buyers dam broke and flooded into a massive sell-off. Within minutes the Nasdaq was in the red and major technology stocks saw their new highs evaporating. Cautious comments from JP Morgan regarding Chinese Internet portal Baidu's revenue for the upcoming quarter sparked slight profit taking which seemed to snowball throughout the technology sector. Further adding to the panic were comments made in Europe by European Central Bank Council member Axel Weber who insinuated that 1) the ECB may need to raise rates in order to keep inflation in check, and 2) that inflation should be priority number 1, not economic stability.

There was concern with the Federal Reserve's half point rate cut that the action signified a more worrisome approach to economic stability, rather than inflation. These comments out of Europe show that the ECB seems to be standing firmer towards the side of inflation concerns.

These comments seemed to rekindle trader fears of Inflation and pushed the selling further. A rally that was built around the Fed cutting rates by half a percentage point will certainly not hold up well if there's talk of a potential rate hike being needed to curb inflation. The sectors that have been gaining the most during the rally were the ones hit the hardest; Technology and Energy.

Investors should take heed that the indices were brought back after the drop, meaning that the Dow was able to hold and close above 14,000. If inflationary comments come further to light this could add tremendous volatility for the markets ahead, but investors should be concerned with specific company fundamentals, especially as the earnings season gets into high gear.

Disclosure: Author is long AAPL, GOOG