January Retail Sales Surprise Mostly to the Upside, No Whining on Weather

January retail sales surprise mostly to the upside, with little whining about the weather. They did it again: despite a lack of clearance inventory, tough comps, and snowstorms, most retailers posted gains in January.

There was very little whining about the bad weather...this seems to imply that the impact on earnings due to weather may be relatively limited...

Several big names raised guidance: Gap and JC Penney and Limited . LTD blew out its numbers, sales up 24 percent (Victoria Secret up 35 percent!), way above expectations of a 7 percent increase, on top of raising guidance...Aeropostale had a positive comp when everyone thought they would print a negative number...Costco had a great month up 9 percent...some softness in Kohls and JC Penney , Target , all a bit below expectations.

Futures were little changed as initial jobless claims came in a bit lower than expected, and Productivity came in stronger than expected.


1) Several signs that the capital markets are coming back.

IPOs gone wild. I noted yesterday that the IPO market was off to a strong start with all 10 IPOs trading above their offering price. Late last night, Kinder Morgan—the largest independent operator of refined petroleum

product pipelines in North America—anounced they were beginning the IPO process, seeking to sell 80 million shares, at $26-$29. That would be north of $2 billion, and that would only be about 11 percent of the company. It could go public as early as next week at the NYSE under the symbol KMI. Kinder Morgan is one of a group of billion dollar plus IPOs waiting in the wings, including HCA, Toys R Us, and Skype.

Another sign: Blackstone , one of the largest private equity firms in the world, reported blowout numbers: $0.46 vs. $0.30 expected. Should open at a multiyear high.

2) Starwood is the first hotel to report earnings, beat estimates, guidance of $0.22-$0.26 is in line with consensus of $0.24. North America and Asia Pacific revenue per available room (revPAR), which multiplies the property's room rate by its occupancy rate, increased 10.2 percent in North America and 20.3 percent in Asia.

3) Merck beat on bottom line, but 2011 guidance is below expectations and withdrew long-term guidance of annual high single digit EPS growth through 2013, citing "greater EU austerity measures and the additional impact of U.S. health-care reform."

More commentary on companies battling rising commodity costs:

4) Dow Chemical rises 1 percent as it easily beat estimates ($0.47 vs. $0.35 consensus). Sales jumped 22 percent helped by a 12 percent rise in volumes primarily from improving demand for its plastics and specialty materials. Sales in emerging markets remained very strong (many markets up more than 30 percent). Feedstock and energy costs rose $685 million, but that was overcome by a 10 percent increase in prices.

5) Kellogg reported earnings inline with estimates thanks to reduced general expenses. Sales fell 1 percent and margins shrunk as input costs rose. CEO John Bryant noted the company has implemented "selected price increase" to offset the higher raw materials costs.

The food maker reaffirms guidance for the full year of $3.33-$3.40, but that falls below Street expectations of $3.46.

6) Yum Brands saw earnings top Street estimates ($0.63 vs. $0.60 consensus). Same-store sales rose 5 percent in the U.S. and surged 19 percent in China. But despite that tremendous sales growth in China, margins in that country was flat. How come? Not just because of higher commodity costs (up 20 percent), but also because of higher labor costs in that country (up 34 percent!). The fast food giant noted that "higher labor costs had a more negative impact on restaurant margin as the year progressed."

7) BJ Wholesale jumps 13 percent after announcing it would explore strategic alternatives, including a possible sale. Speculation has swirled since July that the warehouse club could be a takeover target of a private equity firm. Retailers have been attractive to private equity firms recently, with J. Crew and Jo-Ann Stores both receiving buyout bids.

Meanwhile January comps rose just 2.7 percent, as severe snow storms on the East coast negatively impacted sales by 2.5 percent.

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