It always seems a little premature to talk about the holiday season while the Thanksgiving menu is still in the planning stages, but there’ll be plenty of discussion on Wall Street about December and shopping this week as top retailers report their earnings.
The third quarter was rough for retailers, with a slow back-to-school season threatening to override a strong September and a modest October. Earnings are not expected to be as solid as in other sectors, but most investors seem to have already made peace with that — or have already sold off some of their retail holdings.
So as Wal-Mart Stores Inc., Home Depot Inc., Kmart Holding Corp. and other retailers issue quarterly reports this week, the focus won’t be on past numbers, but rather the outlook for the holiday season. Investors will be quick to sell companies that don’t seem ready to make the most of the holidays.
Last week, stocks continued their gains of the previous two weeks, though at a much slower pace. The bullish buying spree that marked President Bush’s re-election and fresh signs of growth in employment gave way to more cautious attitudes. While November and December remain the stock market’s two strongest months, investors will look very carefully before buying, analysts said.
For the week, the major indexes extended the market’s winning streak to three weeks. The Dow Jones industrials gained 1.46 percent, the Standard & Poor’s 500 rose 1.54 percent and the Nasdaq composite climbed 2.28 percent.
Jobs report sparks hope, questions
The government’s October jobs report showed 337,000 new jobs created in that month, a huge boost that far outstripped Wall Street’s expectations. But while the numbers certainly helped extend the market’s rally, the report also created fresh questions. New hires need to be trained, and that takes time, money and effort. And in the meantime, production can slip.
On Wednesday, Wall Street will pay close attention to a pair of reports from the Federal Reserve on industrial production and capacity utilization for October. The first is a relatively simple measure of manufacturing and production in the United States. Economists are expecting an 0.4 percent increase in production, up from the 0.1 percent hike in September.
The second report measures how efficient U.S. manufacturers are. Analysts expect a reading of 77.4 percent of the total U.S. industrial capacity in use. That would be a rise from September’s reading of 77.2 percent. Stronger figures in both reports would show that new hires are being integrated relatively seamlessly, while lower-than-expected data would point to growing pains as America’s economy gets on track.
Two other important economic reports are due out in the week ahead. On Tuesday, the Labor Department will release the Producer Price Index for October, which measures wholesale prices. The index is expected to rise 0.5 percent, compared with a 0.1 percent hike for September. On Wednesday, the Consumer Price Index, measuring the cost of goods for consumers, will be released. The CPI is expected to rise 0.4 percent, compared with 0.2 percent in September.
Two to watch: Wal-Mart, Home Depot
Two of the biggest retailers announcing earnings in the week ahead are Dow components Wal-Mart and Home Depot. Wal-Mart is considered a bellwether for the entire retail sector, and finds itself hoping for a very strong holiday season after what’s expected to be a disappointing third quarter. The retail giant is forecast to have third-quarter earnings of 54 cents per share, up from 46 cents a year earlier, when it reports on Tuesday before stock trading begins. Wal-Mart has fallen 6.9 percent from its high of $61.05 on March 4 to close Friday at $56.85.
Home improvement giant Home Depot, reporting Tuesday morning, is less exposed to holiday volatility, but still hopes to see strong sales of decorations and other holiday items. Home Depot closed Friday at $43.22, a new 2004 high. It has risen 31.4 percent from its 2004 low of $32.90 on Aug. 6. It’s expected to post earnings of 56 cents per share, up from 50 cents per share a year ago.
Other retailers reporting earnings in the week ahead include Kmart on Monday; BJ’s Wholesale Club Inc., Staples Inc. and Borders Group Inc. on Tuesday; and Barnes & Noble Inc. and The Gap Inc. on Thursday.
HP, Disney set to announce
Among other notable companies reporting earnings, Hewlett-Packard Co. will report Tuesday after the session, and is expected to earn 37 cents per share, up from 36 cents a year ago. The stock has fallen 26 percent from its 2004 high of $26.12, reached on Jan. 26. The company hopes to show improvement in its corporate sales, which were a sore spot in its second quarter earnings and led to a management shake up.
The Walt Disney Co., reporting Thursday after the session, has recovered substantially from its 2004 low of $20.89, set on Aug. 13. Disney closed Friday at $26.80, just 4.3 percent shy of its 2004 high of $28 on Feb. 12. The media and entertainment conglomerate is expected to earn 17 cents per share, the same as a year ago.