Retail Sales Are a Drag

Stock futures down as July retail sales disappoint: are the cash for clunker critics right? U.S. stock futures turned down as July Retail Sales came in below expectations.

The critics of the cash for clunker program have argued that: 1) the program merely takes sales away from future auto sales that would have happened anyway, and 2) it would detract from spending on other items.

The critics appear to be correct. Motor vehicles and parts sales rose 2.4 percent, but everywhere else sales were disappointing.


1) Europe looking better? Second quarter GDP unexpectedly rose in both Germany and France; European bourses are up 1 to 4 percent prior to the U.S. Retail Sales number. The dollar and Treasuries are weaker.

2) Walmart up 2 percent after beating Q2 earnings estimates and raising the low end of its full-year guidance. Sales were disappointing, however, with same-store sales falling 1.2 percent - way below prior guidance of flat to up 3 percent.

Looking ahead, the retail giant sees U.S. same-store sales to be flat to up 2 percent in its current quarter. The company guides Q3 earnings inline with estimates ($0.78-$0.82 vs. $0.80 est.), while it raises the low end of its full-year guidance (now $3.50-$3.60 vs. $3.56 est.).

3) Despite an upside Q2 earnings surprise, Kohl's is down 1.5 percent after guiding below expectations for the second half. The problem: no pick-up in sales. While same-store sales only fell 2.3 percent in the prior quarter, second half sales at stores open for at least a year are expected to fall more - declining between 3 and 5 percent.

4) Dr. Pepper Snapple surges 7 percent pre-open after beating estimates ($0.62 vs. $0.50 est.) as volume and price increases helped. The beverage maker is also raising full-year guidance to $1.88-$1.96 vs. $1.77 est.

5) U.K. miner Rio Tinto filed a new plan for an IPO of its U.S.-based Cloud Peak Energy coal mining unit. The new plan would raise $500 million for the company, but this is half of the $1 billion it had hoped to raise in a filing it submitted last October. No pricing or timing of the offering has been announced, but plans are for the IPO to trade at the NYSE under ticker "CLD."

6) Food processor Bunge priced a secondary, 10.5 million shares at $65.50 per share, a bit below yesterday's close of $66.67.

7) Some bank stocks are higher as hedge fund manager John Paulson reported after the close yesterday that his form bought large chunks of Bank of AmericaRegions Financial, Capital One, and smaller stakes in Goldman Sachs and Fifth Third.

8) Solar companies reporting miserable earnings. LDK down 13 percent pre-open. Theoretically, this should be the best of time for solar manufacturers, since there is more interest in "going green" than any time in recent history.

But it hasn't happened: there is a huge glut of solar panels on the market due to the global slowdown, and financing for renewable energy projects have dried up.

Overnight, Chinese solar firm LDK Solar posted generally disappointing earnings, and gave disappointing guidance. Like homebuilding companies, solar firms are taking inventory writedowns, and LDK took a whopper: $193 million.

On top of that, the debt is truly horrific: $1.8 billion. According to Soleil, debt now stands at 30 times their estimate of 2010 EBITDA (4 times is considered high). Nor is it generating any cash from operations.

Still, it appears that Chinese banks will keep lending to the company. What does all this mean? The title of Soleil's report says it all: "Bankrupt anywhere but China."

This morning Barclays reduced its sector rating on the entire solar sector.



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