Weekly Comment

August 18, 2014

Overview

U.S. stocks finished the week slightly higher despite of, or perhaps because of, worrisome developments in Ukraine.  Ukraine's claim to have destroyed Russian armored vehicles that had crossed the border seemed to unnerve world markets but only made the United States look more like a haven.  The fact that U.S. economic data continues to portray a growing economy, while Europe looks about ready to make it a triple-dip recession, Japan reported a 6.8 percent decline in second quarter output, and new bank lending fell sharply in China to its lowest level since October 2008, added to the appeal of U.S. securities. For the week, the Dow Jones Industrial Average rose 108.98 points (0.66 percent), the S&P 500 Index advanced 23.47 points (1.22 percent), and the Nasdaq Composite gained 94.03 points (2.15 percent). Elsewhere overseas we had what these days passes for good news: a Gaza cease-fire was extended (following a brief flurry of Hamas rocket attacks and Israeli retaliation) and the Iraqi Prime Minister stepped aside providing hope that a new leader can attain sufficient unity to generate a credible response to Islamic extremists...perhaps with U.S. support.


In the News

Cree  (CREE-44.00) Dimmed Light

            Cree, the light-emitting diode maker, reported that fiscal fourth (June) quarter adjusted EPS of $0.42, up from $0.38 in the year-earlier period and just above the consensus estimate of $0.41 aided by a lower-than-expected tax rate. While revenue grew 16 percent to $436.3 million, this figure fell short of the average expectation of $444 million. During the period, Cree's operating margin narrowed to 7.3 percent from 8.2 percent a year earlier. Cree forecast fiscal first-quarter adjusted EPS of $0.40 to $0.45 on revenue of $440 million to $465 million. The prior average analyst estimates had been for EPS $0.46 on revenue of $469.78 million. Cree said that the LED industry has benefited from the U.S. phase-out of several varieties of incandescent light bulbs. Cree has a partnership with Home Depot (HD) to sell its consumer LED bulbs. Investors nonetheless focused on  the near-term and the stock was down 11 percent for the week and now trades 42 percent below its 52-week high. 

Kate Spade (KATE-31.65) Bagged

          Kate Spade shares plunged on Tuesday after the Company warned on its second quarter earnings conference call that sales could slow in the second half of the year. Shares of the retailer, which initially rallied after reporting second (June) quarter EPS of $0.05 on revenue of $266 million as compared to expectations of break-even on revenue of $238 million, when the Company said sales would increase at a "high-single" digit rate in the second half of the year, down from a 30 percent gain in the first half. The Company said its profit margin goals may also be delayed by a year due to the slower than expected ramp up of Kate Spade's "Saturday" brand. Kate Spade also lowered the store expansion target to 100 stores from 134. The Company also said the wind-down of its Juicy Couture brand is "substantially complete," and that it is now reporting that segment as discontinued operations. While the stock recovered almost 10 percent from its Tuesday low, it finished the week down 17.5 percent for the week.


The Week Ahead

Once again this week, scheduled economic news should show steady, if unimpressive growth, as compared to increasingly worrisome results emanating from Europe. More than economic reports, Federal Reserve Chair Janet Yellen's keynote address at the annual Jackson Hole conference may be a market-mover.  The conference this year is will focus on labor-market dynamics. Retailers will dominate this week's earnings calendar.  While results are expected to be generally mixed, earnings for home improvement retailers Home Depot (HD) and Lowe's (LOW) are forecast to be up over 15 percent. The Treasury auctions scheduled for this week are on Monday: $29 billion of three-month bills and $25 billion six month bills; Tuesday: $25 billion one-year notes; and Thursday: $16 billion four-year eight-month TIPS. 


Economic Indicators       

  Expected

 Last Period

Tues., Aug. 19

July Consumer Price Index

+0.1 percent

+0.3 percent

Thurs., Aug. 21

July Leading Indicator

+0.6 percent

+0.3 percent

Aug. Philadelphia Fed Survey

20.0

23.9

July Existing Home Sales

5.01 million

5.04 million

Source: Bloomberg

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Aug. 18

Urban Outfitters

2Q

$0.49

$0.51

Tues., Aug. 19

Dick's Sporting Goods

2Q

$0.65

$0.71

Home Depot

2Q

$1.45

$1.24

TJX Co.

2Q

$0.73

$0.66

Wed., Aug. 20

Amer. Eagle Outfitters

2Q

$0.00

$0.10

Eaton Vance

3Q

$0.62

$0.52

Hain Celestial

4Q

$0.89

$0.65

Hewlett-Packard

3Q

$0.88

$0.86

L Brands

2Q

$0.62

$0.61

Lowe's Companies

2Q

$1.02

$0.88

PETsMART

2Q

$0.93

$0.89

Smucker (J.M.)

1Q

$1.37

$1.24

Staples

2Q

$0.11

$0.16

Target

2Q

$0.80

$0.97

Thurs., Aug. 21

Aeropostale

2Q

($0.58)

($0.34)

Buckle

2Q

$0.53

$0.52

Dollar Tree

2Q

$0.64

$0.56

Gap

2Q

$0.69

$0.64

GameStop

2Q

$0.18

$0.09

Hormel Foods

3Q

$0.48

$0.42

Intuit

4Q

$0.07

$0.00

Nordson

3Q

$1.13

$0.99

Ross Stores

2Q

$1.08

$0.98

salesforce.com

2Q

$0.12

$0.09

Toro

3Q

$0.83

$0.68

Fri., Aug. 22

Footlocker

2Q

$0.54

$0.46

Hibbett Sports

2Q

$0.31

$0.40

Source: Thomson First Call










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