The Week Ahead: Spotlight on Retail

 | Aug 10, 2014 | 7:30 PM EDT  | Comments
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Stock quotes in this article:

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Exiting last week, 446 of the S&P 500 companies had reported their quarterly results -- and 73% reported a profit above the mean analyst estimate, while 64% said sales were above expectations. While that is modestly above historical trends, what stands out underneath the headline is that earnings growth of 8.4% was far stronger than the 4.9% that Wall Street had expected back on June 30, per data from FactSet. Sectors contributing to that upside were healthcare and materials.

One thing to keep in mind, however, is that earnings-per-share figures can be influenced by stock-buyback programs. Aggregate share repurchases grew 50% in the first quarter to $154.2 billion, and amounted to the third-largest quarterly total since 2005. So, when you're determining the overall EPS quality as you evaluate a company's quarterly performance, you should certainly examine its outstanding shares over the last few quarters.

Looking ahead, consensus expectations from FactSet say S&P 500 earnings are poised dip in the current quarter (see chart), but set to rebound in the December quarter. Some quick sandbox math shows that second-half earnings for the index is forecast to grow 7% over the first half.

I have two quick thoughts on this. First, the second half relies heavily on seasonal consumer spending -- back-to-school, Halloween, Thanksgiving and the Christmas holiday shopping season. As a result, one could argue that the upcoming week will be one to watch, despite any temptation one might have to sit on the beach or tube up at the lake. Second, once again, we can't ignore the influence of buybacks on quarterly EPS.

Quarterly Earnings -- EPS and Estimates
Source: FactSet

While we'll get the usual weekly data in the coming days, given the last two retail-sales flubs relative to expectations the focus, will particularly be on July retail sales midweek and that month's producer price index on Friday.

The retail-sales report, as well as the prior data, are bound to set the tone for the coming wave of retail earnings reports that begins this week with Macy's (M), Nordstrom (JWN), Kohl's (KSS), as well as Wal-Mart (WMT) and J.C. Penney (JCP). The outlook commentary from these companies will set the tone for consumer shopping expectations in the second half. For insightful commentary on that group, be sure to check out what Brian Sozzi says over the coming few days.

We're also due to see July's industrial-production data on Friday -- but, given recent numbers from the Institute for Supply Management and Markit Economics, this number is likely to serve more as confirmation than anything else.

Meanwhile, this week's PPI reading will be watched by the inflation hawks. Another hotter-than-expected figure -- which I would not be shocked to see -- would be bound to reignite talk of an interest-rate hike, as well as chatter over how the Federal Reserve is again behind the curve. Over the last few months we've seen higher prices emerge on a number of fronts, including in industrial and manufacturing reports from ISM and Markit Economics. If the PPI report does indeed point to more inflation, be wary of the homebuilders and other interest-rate-sensitive sectors.

Sticking with the inflation theme -- and ahead of next week's consumer price index -- be sure to pay attention to Red Robin Gourmet (RRGB), Dean Foods (DF), Noodles & Co (NDLS) and newly public Papa Murphy's (FRSH). Listen for commentary regarding inputs costs and potential prices increases.

Other notable earnings that I'll be watching include the report from Cree (CREE), the LED chip and lamp company. This is a stock that many hate to love and love to hate -- and we own it in Thematic Growth Portfolio as a play on the expansion and explosion of LED lighting into the general illumination market. Cisco Systems (CSCO) and the commentary on enterprise information-technology spending will be closely watched, but the company's progress in cyber-security will also bear watching.

As I shared the last Friday Wrap, in recent weeks a third dimension has been influencing the stock market in addition to earnings and economics: international affairs. To start with, President Obama has not set an end date for the new military operations in Iraq. Meanwhile, we've seen another break in truce talks in Israeli-Hamas truce, and Ukrainian forces are battling pro-Russia insurgents. The international front, therefore, could continue to make the market more volatile than usual during August.

Below is more detailed look at what's coming at you in the week ahead. Be sure to check back midweek for The Corner of Wall & Main, in which Lenore Hawkins and I will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all. Be sure to join us again at the end of the week for The Friday Wrap, in which we'll put the whole week in context for you.

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Economic Calendar

Monday, Aug. 11

  • No major reports due

____

Tuesday, Aug. 12

  • JOLTS – Job Openings (June)
  • NFIB Small Business Optimism Index (July)
  • Treasury Budget (July)

____

Wednesday, Aug. 13

  • MBA Mortgage Index (Weekly)
  • Retail Sales (July)
  • Business Inventories (June)
  • Crude Inventories (Weekly)

____

Thursday, Aug. 14

  • Initial & Continuing Jobless Claims (Weekly)
  • Import & Export Prices (July)
  • Natural Gas Inventories (Weekly)

____

Friday, Aug. 15

  • PPI (July)
  • Empire Manufacturing Index (August)
  • Net Long-term TIC Flows (June)
  • Industrial Production (July)
  • Capacity Utilization (July)
  • Michigan Sentiment (August)

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Earnings Calendar

Monday, Aug. 11

  • Aramak Holdings (ARMK)
  • Caesars Entertainment (CZR)
  • Dean Foods (DF)
  • Globalstar (GSAT)
  • Harvest Natural (HNR)
  • Liveway Foods (LWAY)
  • Millennial Media (MM)
  • Nuance Communications (NUAN)
  • Priceline.com (PCLN)
  • Rackspace Hosting (RAX)
  • Rick's Cabaret (RICK)
  • Sysco Corp. (SYY)
  • Valero Energy Partners (VLP)

____

Tuesday, Aug. 12

  • Cree Inc. (CREE)
  • Consolidated Water (CWCO)
  • Flower Foods (FLO)
  • Fossil Group (FOSL)
  • JDS Uniphase (JDSU)
  • Kate Spade & Co. (KATE)
  • King Digital Entertainment (KING)
  • Lo-Jack Corp. (LOJN)
  • La Quinta Holdings (LQ)
  • Mastec Inc. (MTZ)
  • Opower (OPWR)
  • Valspar Corp. (VAL)

____

Wednesday, Aug. 13

  • First Majestic (AG)
  • Cisco Systems (CSCO)
  • Canadian Solar (CSIQ)
  • Deere & Co. (DE)
  • Extreme Networks (EXTR)
  • Papa Murphy's (FRSH)
  • Macy's (M)
  • Noodles & Co. (NDLS)
  • NetApp Inc. (NTAP)
  • Pinnacle Foods (PF)
  • Re/Max Holdings (RMAX)
  • SeaWorld Entertainment (SEAS)

____

Thursday, Aug. 14

  • Agilent (A)
  • Advance Auto Parts (AAP)
  • Applied Materials (AMAT)
  • Briggs & Stratton (BGG)
  • J.C. Penney (JCP)
  • Nordstrom Inc. (JWN)
  • Kohl's Corp. (KSS)
  • K12 Inc. (LRN)
  • On Track Innovation (OTIV)
  • Plug Power (PLUG)
  • Red Robin Gourmet (RRGB)
  • Sina Corp. (SINA)
  • Wal-Mart Stores (WMT)

____

Friday, Aug. 15

  • Actions Semiconductor (ACTS)
  • Constellation Energy (CEP)
  • Estee Lauder (EL)
  • UTStarcom Holdings (UTSI)

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