Trader Talk

Weak Open; Comparing Wal-Mart and GE

Europe is weak this morning, and U.S. S&P futures began dropping shortly after Germany's Q2 GDP came out — a gain of only 0.1 percent sequentially was a disappointinment.

European banks like ING and Barclays are down 3 to 4 percent.

I said yesterday that traders are not optimistic that the Merkel-Sarkozy meeting would result in an affirmative statement about a commitment to eurobonds. As proof, I cite The Independent in London, which ran an article this morning titled "Support for eurobonds would cost Merkel's job," noting that her Free Democrat coalition partners bluntly warned her that supporting eurobonds would risk bringing down her government.

And the Free Democrats are liberals!

What we will likely hear: how to enforce fiscal discipline in the eurozone, and support for a modest expansion of the European Financial Stability Fund (EFSF).


1) Wal-Mart rises 4 percent after earnings beat estimates by a penny despite a disappointing 0.9 percent decline in U.S. comps amid lighter traffic.

On the flip side, international sales were quite strong, rising 7.1 percent on a constant currency basis. Looking ahead, the discounter expects current quarter earnings of $0.95-$1.00 (inline with $0.97 consensus) on comps of down 1 percent to up 1 percent.

Q3 guidance was essentially in line with expectations. Still, most of the growth is from Sam's and international. And U.S. Wal-Mart (74 percent of sales)? Their low-end consumer is still stressed by inflation and unemployment.

It's fashionable to complain that WMT is the same price today as it was in 1999 ($51). True, but you could say the same about the S&P first hit 1,200 at the end of 1998! Close yesterday: 1,204.

And I'll take WMT any day over General Electric , which hit $50 in 1999 and is $16 today, or Microsoft (MSFT), which hit $50 in 1999 and is now $25, or even Cisco (CSCO), which hit $50 in 1999 ($75 the next year), $16 today.

2) Great report from Home Depot , which is up 3 percent on the news. The company topped estimates ($0.86 vs. $0.83 consensus) and boosted its outlook. Comps rose a better-than-expected 4.3 percent, significantly more impressive that the slight decline in sales its rival Lowe’s reported yesterday. The home improvement retailer also raised its guidance for the year to $2.34, above estimates of $2.30.

3) Saks falls 3 percent despite reporting a narrower-than-expected loss (loss of $0.05 vs. loss of $0.09 consensus). Comps jumped 16 percent in the quarter and margins improved on more full-price selling. The upscale department store sees comps growing at a mid to high single digit rate in the second half.

Some signs of deflation for the consumer? After implementing price increases to offset rising costs over the past year, will consumer food companies begin cutting prices amid the recent pullback in commodity prices and the declining consumer sentiment?

J.M. Smucker did just that this morning — slashing its coffee prices by 6 percent. Coffee commodity prices have plunged 21 percent since May, but are still down about 40 percent from a year ago.

4) Buybacks continue: Cliffs Natural Resources announced a 4 million share buyback (about 6 percent of the float). Correction Corp of America (CXW) a $150 millon buyback, Forest Labs (FRX) a $350 million buyback from Morgan Stanley (about 3 percent of shares outstanding); Myriad Genetics (MYGN) a $200 million buyback; WebMD Health (WBMD) a $75 millon buyback.

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