Trader Talk

Europe Weaker, NOT

Wrong again: Traders Tuesday believed that Europe would be down 2 percent on what was termed a "disappointing" press conference with Merkel and Sarkozy.

Wrong. Most of Europe is up; even German, which saw disappointing gross domestic product numbers Tuesday, is only down fractionally. What happened? Well, Europe is moving, slowly, toward more integration, and Italian bond yields are back below 5 percent, the euro is rallying. All OK for now.

Producer Price Index (PPI), both core (ex-food and energy) and headline, were a bit hotter than expected. Food prices were up 0.6 percent, while energy was down 0.6 percent due to a drop in gasoline prices. This normally would not get tremendous attention, but many are watching PPI and the consumer price index because a weak number for both might give the Fed some cover should they need to start a third round of quantitative easing. Higher numbers makes it tougher to argue for QE3.


1. Dellearnings report from last night was the final confirmation that PC sales are being undercut by tablets: Servers & networking grew 9 percent year over year, services 6 percent, software & peripherals 1 percent, notebooks 1 percent, but desktop PCs declined 3 percent. Get it? Dell is going to do what all the other PC guys are going to do—ditch this low margin business and go bigger into services and data centers.

2. Target rises 6 percent after beating estimates ($1.03 a share vs. 97 cents a share consensus) on better-than-expected sales and improving credit-card operations. Same-store sales grew a solid 3.9 percent while profitability increased at its credit card unit as bed debt expenses plunged. Full-year guidance is now comfortably ahead of estimates and the discounter’s third-quarter outlook is also mostly above Street expectations (70 cents a share to 75 cents a share vs. a 71 cents a share consensus).

And for everyone who keeps insisting the consumer is stressed, I don't disagree, and I don't disagree that revenue is still tough to come by. BUT: The discounters and especially the department stores are much better situated to handle a downturn than they were in 2008. Inventories are not nearly as high as they were in 2008, costs are generally much lower (they fired a lot of store employees), and capital spending is lower—there's less emphasis on new store growth, more on e-commerce growth. Also, competition is not as intense, since new store openings have greatly decreased. ?

3. Chico’s jumps 11 percent after topping estimates by a penny. The women’s apparel retailer reported a very healthy 12.8 percent gain in comps and improving margins due to less discounting. The company also announced the acquisition of Florida-based retailer Boston Proper for $205 million, a deal that will be accretive to earnings this year.

4. Abercrombie & Fitch beats estimates (35 cents a share vs. 30 cents a share consensus) on better-than-expected sales growth. Same-store sales rose 9 percent, fueled by a 12 percent rise at its Hollister stores. Overseas sales surged 74 percent, and the apparel retailer expects even more international store openings in the 2nd half of the year.

Change your threads, PLEASE! Abercrombie is trying to prevent a potential image-damaging "situation" to its brand. The company issued a press release and has offered a "substantial payment" to "Jersey Shore" star Michael "The Situation" Sorrentino if he agrees to stop wearing the company’s clothes. ?

5. Deere falls 2 percent despite beating estimates ($1.69 s share vs. $1.67 a share consensus) and remaining optimistic for sales this year. The agricultural equipment maker’s top line was helped by strong demand, higher prices, and currency rates. Its sales strengthened 22 percent as North American equipment sales surged 49 percent. The firm raised its 2011 equipment sales to up 25 percent, ahead of the Street’s current forecast.

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