Three reports were unanimous that sales gained, but to different degrees: Market research firm Retail Metrics Inc. said sales rose 1.1% last month, Thomson Reuters tallied a rise of 0.6% and a tally by International Council of Shopping Centers (ICSC) and Goldman Sachs Group Inc. (NYSE: GS) showed a 0.1% increase.

“Let the retail recovery begin,” said Michael Niemira, chief economist at ICSC. “This is the start of a better performance and better fundamentals.”

Retailers such as Target Corp. (NYSE: TGT), Aeropostale (NYSE: ARO) and Kohl’s Corp. (NYSE: KSS) raised their guidance for the current quarter ending October 31. But the encouragement was reserved as it pertains to the fiscal holiday quarter that starts next month for most retailers. Fundamentals key to consumer confidence – particularly unemployment, which rose to 9.8% last month – are still serious concerns.

“While our outlook for the third quarter has improved, we remain cautious in our expectations for fourth quarter results in both of our business segments,” said Gregg Steinhafel, Target’s chairman, president and chief executive officer.

Of course, retailers didn’t have to do much to beat last year’s September, which was relatively poor.

“You want to be careful how much you’re reading into the improved numbers,” Michael McNamara, vice president for research and analysis at SpendingPulse, an information service by MasterCard Advisors that estimates sales for all forms of payment, including cash, checks and credit cards in an interview with The New York Times.

For instance, jewelry sales increased 1.2% last month, McNamara said, “but that is still about 5% lower than we were in September 2007 and about 10% lower than the sector was in September 2006.”

“In some respects the sector has turned the clock back to 2005 sales,” he said.

While the bleeding at retailers may not have stopped, it has likely slowed as leading indicators such as the financial markets and consumer sentiment show improvement. The Standard & Poor’s 500 Index has risen more than 55% since its March lows, while the Reuters/University of Michigan Index of Consumer Sentiment was up to 73.5, its highest level since the start of 2008.

Among the biggest retail gainers on the stock market today (Thursday) from the news were American Eagle Outfitters (NYSE: AEO), which gained 8.88% to close at $18.14 and Abercrombie & Fitch Co. (NYSE: ANF), up 5.51% to close at $34.46.

Source: Will Rise In September Retail Sales Carry into Holidays?

Goldman Sachs Group Inc. (GS) reports tomorrow (Tuesday), while JPMorgan Chase & Co. (JPM) reports Thursday, and Citigroup Inc (C) reports on Friday.

While the chief executives of several of the largest U.S. banks were quick to announce favorable showings for the first two months of the year, analysts are concerned that the strong showings may not have carried over into March, and that the performances of some of these money-centered banks may disappoint.

Contradictions hit the financials last week as diverse reports about Morgan Stanley (MS) and Wells Fargo brought even more confusion to a sector that cannot seem to stay out of the daily headlines. On one hand, analysts expect Morgan Stanley to write down an additional $1.2 billion worth of bonds; subsequently, the firm may suffer its second straight quarterly loss.

On the other hand, Wells Fargo expects earnings to far surpass Wall Street’s projections as its Wachovia Corp. acquisition has enhanced its mortgage-lending capabilities at a time when rates are at historic lows and when the U.S. housing market is showing some signs – be they ever so slight – of rebounding [Indeed, a Money Morning report from just last week made this same point].

Bear in mind that since the financials have led the charge in equities during the past five weeks, investors may be looking for any excuse to take some recent profits.  Intel Corp. (INTC), which reports tomorrow, Google Inc (GOOG), which reports Thursday and General Electric Corp. (GE), which reports Friday, figure to be crucial announcements.

The March inflation gauges highlight the economic calendar, and economists hope that price pressures remain far off of their radar screens.  The retail sales data should lend a bit more insight into the current plight of the consumer.

Market Matters

Alcoa Corp. (AA) kicked off earnings season with more of whimper than a bang.  While the aluminum producing giant lost about $500 million during the quarter, the company expects to benefit from the infrastructure programs promoted in the economic stimulus package – key areas that could enhance demand for its products.  Bed Bath and Beyond Inc. (BBBY) reported better-than-expected quarterly results and even received a favorable analyst upgrade.

With the season set to kick off in a big way in the weeks to come, Thomson Reuters has called for a 37% drop in profits at Standard & Poor’s 500 Index companies, the eighth consecutive quarterly decline (though that prediction came before the Wells announcement).

Economically Speaking

A light week on the calendar still provided plenty of headlines on the economic home front last week.  Corporate executives painted a rather bleak picture of the short-term future for U.S. industry as the Business Roundtable issued a quarterly outlook that turned negative for the first time in its survey’s history.  The majority of those participating expect their companies to experience layoffs and reductions in business spending during the coming six months.

However, Roundtable Chairman Harold McGraw III, who is also the CEO of The McGraw-Hill Cos. Inc. (MHP), expressed confidence in the Obama administration’s ability to generate renewed business activity. McGraw said he also believes the economy may be close to a bottom.

On the other hand, minutes from the latest U.S. Federal Open Market Committee policymaking meeting that U.S. Federal Reserve Chairman Ben S. Bernanke and friends revised their expectations (to the downside) for the economic recovery. While they anticipate that gross domestic product (GDP) will flatten (from its current contraction state) by the end of the year, unemployment is expected to continue its downward spiral well into 2010.

Though initial claims for unemployment benefits surprisingly fell last week, they remain at very high levels, and total claims (those looking for jobs over extended periods) jumped to a record high. While the trade deficit narrowed to its lowest level since November 1999, the improvement is more indicative of the sluggish economy and the reduced global demand for any and all goods and services.

Retailers posted their results of March sales and the numbers were mixed at best.  While Wal-Mart Stores Inc (WMT) had long been the one “steady Eddie” during this economic downturn, the world’s largest retailer reported March sales that missed expectations (though the company does expect its quarterly results to be strong, thanks to a stellar February).  Stores that target teens like Abercrombie & Fitch Co. (ANF), Aeropostale Inc. (ARO) and American Eagle Outfitters (AEO) each posted disappointing numbers, though analysts point out that Easter (and many spring breaks) fall later in the 2009 calendar (April 12 this year versus March 23 a year ago) and most holiday shoppers are waiting until the last minute these days.

Still, more than 50% of those retailers reporting beat Wall Street expectations, and some even issued favorable guidance for the quarter as a whole.  Of note, The TJX Cos. Inc. (TJX) (TJ Maxx and Marshalls) and Penney Co. Inc. (JCP) both posted better-than-expected sales results and increased their outlooks for the three-month period.

Weekly Economic Calendar

Source:  As Earnings Season Heats Up, U.S. Banks Will Make or Break the Stock-Market Rally

• U.S. retailer American Eagle Outfitters (AEO) announced yesterday (Tuesday) that second-quarter earnings fell to $59.8 million, or 29 cents a share, from $81.3 million, or 37 cents a share for the same period the year prior, MarketWatch reported. Despite the drop, American Eagle stock gained 55 cents, an increase of 4%, to close at $14.29 the day of the announcement.

• Darden Restaurants Inc. (DRI) warned investors that quarterly profit would not meet expectations due to a drop in traffic at its chain restaurants such as Red Lobster and the Olive Garden, Reuters reported. Darden stock dropped over 12% with a decline of $4.01 to close at $28.25 yesterday (Tuesday).

• Crude oil for October delivery gained over $1 to cross the $116 per barrel threshold yesterday (Tuesday) on the threat of Hurricane Gustav disrupting supply chains and continued unrest in Georgia. “Prices surged because Gustav appears to be strengthening as it moves toward the Gulf,” Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. (MF) in New York told Bloomberg News. “The news from Georgia is also helping send prices higher. Tension is ratcheting up instead of cooling down.”

• The U.S. Federal Deposit Insurance Corp. had 117 banks on its “problem list” of banks in its quarterly report released yesterday (Tuesday). It’s the highest level since mid-2003 for the list and up from 90 banks in the first quarter, Bloomberg News reported. “Quite frankly, the results were pretty dismal, and we don’t see a return to the high earnings levels of previous years any time soon,” FDIC Chairman Sheila Bair said at a news conference.

• Hewlett-Packard Company (HPQ) yesterday (Tuesday) completed its $13 billion acquisition of Electronic Data Systems Corp. (EDS), a move expected to increase competition with rival IBM Corp. (IBM). The EDS acquisition is H-P’s largest since the company bought Compaq Computer for $19 billion in 2002, according to MarketWatch.

• Citigroup Inc. (C) will pay nearly $18 million in refunds and settlement charges for taking $14 million from customers’ credit card accounts from 1992 to 2003, The Associated Press reported yesterday (Tuesday). Citi will issue refunds to the 53,000 customers and will pay $3.5 million in damages and civil penalties to the state of California.

• GT Solar International Inc. (SOLR) said yesterday (Tuesday) that it swung to a $5.1 million profit for the quarter ended June 28. The company lost $5 million over the same period last year. Revenue nearly quadrupled from $15.4 million in 2007, to $57.1 million.

• Mining giant Rio Tinto PLC (RTP) announced a 55% jump in first-half profit, boosted by its takeover of Alcan Inc. and strong Chinese demand. “While the equity markets are currently focused on downside risks, we believe there are potential offsets on the upside based on continued strength in commodity demand, low inventory levels and a supply side which continues to face multiple constraints,” Chairman Paul Skinner said in a statement. “The group continues to perform strongly, and the outlook remains positive.”

Source: Global Investing Roundups Wednesday, August 27th, 2008