Trader Talk

Wal-Mart's Big "Surprise"


Futures dropped 5 points on disappointing guidance from Wal-Mart .

We were expecting a poor December retail sales report, and for the most part it did not disappoint.

The biggest surprise was Wal-Mart, which reported a disappointing 1.7 percent increase in December same-store sales, and gave fourth quarter guidance of $0.91-$0.94 (prior view was $1.03-$1.07).

Wal-Mart down 8 percent pre-open.

Besides Wal-Mart, American Eagle , Gap , and Abercrombie also cut guidance. Abercrombie down 8 percent pre-open.

One bright spot: Target was down 4.1 percent, much better than the decline of 9.1 percent expected.

In apparel:

Deep discounting, as expected hurt margins at Limited , which now projects fourth quarter earnings between $0.55 and $0.70 (analyst estimate is $0.87).

Abercrombie, which reported a sales decline of 24 percent, about in line with expectations, said fourth quarter earnings would be "significantly below" the $1.00 to $1.05 previous guidance.

Gap reported sales below expectations and guided lower (2008 diluted EPS $1.27 to $1.30 from previous guidance of $1.30 to $1.35).

Department stores had sales that were mostly OK, but discounting hurt them:

Nordstrom's sales were better than expected, but because of discounting they too are experiencing margin pressure, so earnings will be below expectations.

Macy's sales were better than expected.

The outlier was Saks : a big miss, with comp store sales down 19.8 percent, twice the decline that was expected. Because of heavy promotions, they are expecting a "significant" decrease in gross margins.


1) The Bank of England cut rates 50 basis points to 1.5 percent (the lowest since the central bank was founded in 1694--now THAT is a record!).

2) Volume, or lack thereof. Yesterday's 3 percent decline occurred on volume that was lighter than any other 3 percent decline in the past 4 months.

3) Cardinal Health lowered its full year guidance (they are in their second quarter) on concerns over hospital spending.

    • Wal-Mart Warns on Profit, Sales Disappoint
    • Bank of England Cuts Rates to Record Low of 1.5%



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