Trader Talk

Can Retailers Meet Those High Expectations?

Germany and France both saw their second straight quarter of growth in their GDP (0.7 and 0.3 percent, respectively) as it looks like the recession is over in Europe. Heck, even Italy posted a positive GDP!

Elsewhere, retailers continue to report good numbers, but guidance is cautious and expectations are high.

1) Abercrombie & Fitch up 5 percent pre-open as they beat consensus expectations ($0.30 vs. consensus of $0.20) Their strategy of keeping prices high, and avoiding discounting when possible, has hurt sales and cost them market share: comp store sales were down 22 percent (ouch!) compared to the same period last year.

2) JCPenney rises 5 percent pre-open despite its Q3 earnings missing by a penny. Q4 guidance however falls within estimates ($0.70-$0.85 vs. $0.82 consensus).

Good news: margins significantly improved by over 2 percentage points in the quarter. Bad news: Still no topline growth - comp. store sales fell 4.6 percent in the last quarter and are expected to fall 4 percent to 6 percent in the current quarter.

3) Nordstrom down 4 percent pre-open, reported numbers after the close better than expected, though perhaps below whisper numbers. A positive comp store sales were a big plus, a slight minor was the increase in reserves for credit losses.

4) Disney is up 2 percent after better-than-expected Q4 earnings ($0.46 vs. $0.41 consensus) and revenues ($9.87 billion vs. $9.28 billion consensus). Cable properties ESPN, Disney Channel, and ABC Family provided much of the strength as media network income rose 26 percent on a 14-percent rise in revenues. That offset continued lower attendance and spending at its theme parks and disappointing studio entertainment results.

5) Bank of America Merrill Lynch analysts see copper prices averaging $7,125/ton next year and rising to $8,000/ton in 2011, noting that demand increases are expected to "emerge only gradually."

6) IPO Pricing:

a) Dollar General priced 34.1 m shares at $21, the low end of the $21-$23 range. DG was publicly traded until 2007, when it was taken private by a consortium led by KKR at a price of $6.9 billion. That consortium still owns 89 percent of the company, so the deal implies a value of a little over $7 billion, with

$4 b in debt.

Mark, Erin & I will be interviewing CEO Rick Dreiling right after the opening bell.

b) rue21 , a teen retailer, fared a bit better, pricing 6.77 m shares at $19, above the range of $16-$18.



Questions?  Comments?