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Retail's double helix of weak sales, softening margins

A trader works on the floor of the New York Stock Exchange
Jin Lee | Bloomberg | Getty Images
A trader works on the floor of the New York Stock Exchange

We have now gone three days in a row where the S&P 500 has failed to break to new highs.

Everything in Europe is in the red, except Portugal, over concerns over Ukraine. The problem: a bailout will be needed to keep them in western Europe, but it will be very hard to fund.

Elsewhere

1) More of the same in retail: earnings fell or beat on the top line, yet revenues were mostly light. Those that did give guidance were at the low end or below expectations.

If you want a clear example of the "double whammy" facing retailers, look no further than Chicos, which put up a big miss on earnings. The company missed consensus, and suffered an 80 percent plunge from last year's results. The double whammy: 1) sales tumbled, with comparable store sales down 3.4 percent, well below expectations; and 2) margins were also lower by 2.5 percentage points, clearly due to higher promotional activity. They gave no guidance, but the dividend increased.

Best Buy posted a strong beat, but its top line was light, and comparable store sales slid 1.2 percent. The company offered no guidance, but CFO Sharon McCollam said "in light of overall economic concerns, we are assuming that the industry declines in the consumer electronics category that we saw in the fourth quarter will continue. As a result, it is reasonable to expect that total company revenue and comparable store sales will remain slightly negative...in the first half of the year."

Kohls beat on top and bottom line, 2014 guidance of $4.04—$4.45, on the cautious side of of consensus of $4.39. Revenue guidance was expected to be up 0.5 to 2.5 percent, and comparable store sales flat to up 2 percent.

Sears loss was not as great as expected, but comparable store sales still down 6.4 percent, and they gave no guidance. They are still losing money, but one positive note: Sears and KMart seemed to be seeing positive same store sales for February.

Zales beat on bottom line, yet the top line was (again) light. Meanwhile, L-Brands saw a modest beat on bottom line, and was slightly light on revenues. Its 2014 guidance checked in below expectations, and it was upgraded at Buckingham to a "Buy" rating.

Hilton was light on bottom line, while it gave 2014 guidance within a range of 57—61 cents per share, below expectations of 65 cents per share. Global revenue per available room (RevPAR) is expected to be up 5 to 7 percent.


2) Federal Reserve chair Janet Yellen is testifying today in front of the Senate Banking Committee. The economic data has been disappointing since she last testified in the House on February 11th, so she will not doubt be questioned carefully about that.

Yesterday, Boston Fed President Eric Rosengren, who is not a voting member, said that if the recent weakness in the economic data is due not to temporary factors (weather) but was due to a more "underlying fundamental" weakness. Given that, he said he would support a pause in the Fed's tapering program.

3) About-face! In an interview on our air on February 5th, Tom DeMark said the S&P 500 could fall to 1,100 if certain conditions were met. However, DeMark told Bloomberg those conditions didn't emerge, and he now believes the S&P will probably rise to about 1.885 within the next three weeks.

4) Food companies Noodles & Company and Roundy's slide after giving weaker-than-expected outlook. NDLS sees 2014 EPS of 50 cents per share versus estimates of 54 cents. CEO Kevin Reddy said the harsh winter weather is anticipated to shave off three cents from first quarter earnings. RNDY sees 2014 earnings per share within a range of 27—40 cents, well below the Street's current view of 74 cents.

By CNBC's Bob Pisani

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street