Earnings Preview: Retailers Will Be Prominent

The central banks have been moving to stave off a potential credit crunch by pumping money into the banking system. The action is being caused by a growing number of financial firms who are encountering liquidity problems.

Central bankers seem be aware that many recessions have been caused by a sudden swing from hubris to a credit crunch as rationality reappears; the recent moves to put more liquidity into the system is clearly an attempt to prevent history from repeating itself.

Although down materially last week, the U.S. markets remain in pretty strong shape. For the week, the S&P 500 and the Nasdaq were essentially flat with the Dow down slightly. Relative to 12 months ago, all three indexes are up by double-digit margins. Such returns are hardly a sign of fear being priced into stocks.

August has historically been a tough month for stocks. The combination of earnings season ending and summer vacations leads to increased volatility and a lack of catalysts driving stock prices higher. Adding to the mix over the very near-term will be options expiration, which will occur Friday, Aug 17.

There will be earnings reports from 159 companies during the week of Aug 13 – 17. Retailers will play a prominent role with Macy’s (M), Kohl’s (KSS), Home Depot (HD) and Wal-Mart (WMT) releasing quarterly results. Coincidently, the Census Bureau will release July retail sales data at the start of the week. Dow component Hewlett-Packard (HPQ) will also report on Thursday after the close of trading.

Going back to the economic calendar, June business inventories will be published on Monday. Tuesday features July PPI and the June trade deficit. Consumer inflation data [CPI] will be released on Wednesday, along with July industrial production and capacity, the August New York Fed index and the August NAHB Housing Market Index. Thursday features July housing starts and the August Phili Fed index. The preliminary University of Michigan consumer confidence index will be issued on Friday.

Will any of the earnings or economic data matter? It’s hard to say. The markets got a lift from Cisco System’s (CSCO) bullish report, but the gains were reversed by new credit worries. Probably, the best thing that can happen right now is a takeover of a large-cap company by a private equity firm, as this would reassure investors that the M&A market has not closed its doors. But given the current environment, this probably won’t occur, so investors should keep some Dramamine by their side.

Companies That Could Issue Positive Earnings Surprises during the Week of Aug 13 - 17

One brokerage analyst raised his second-quarter forecast on Deere & Co. (DE) over the past seven days, following positive revisions by two other analysts within the past 30 days. Combined, these revisions have pushed the consensus estimate up two cents to $2 per share. The Most Recent Consensus is more bullish at $2.03 per share. DE has topped expectations during the past four quarters by an average margin of 21 cents per share. Deere & Co. is scheduled to report on Wednesday, Aug 15, before the start of trading.

The TJX Companies (TJX) just raised its second-quarter guidance. Citing an 8% rise in July sales and a 5% rise in same-store sales, the company predicted second-quarter earnings would be “slightly above the high end” of previous guidance for profits of 34 to 36 cents per share. Brokerage analysts have not yet adjusted their forecasts in response to the new guidance, though the consensus estimate of 36 cents per share is two cents higher than the average projection of a month ago. The TJX Companies is scheduled to report on Tuesday, Aug 14, before the start of trading.

Companies That Could Issue Negative Earnings Surprises during the Week of Aug 13 - 17

Last week, Network Appliance (NTAP) cut its fiscal first-quarter guidance. The company said that revenues fell, on a sequential quarterly basis, to a range of $684 to $688 million and GAAP earnings would be between eight to nine cents per share. NTAP said the weak performance was caused by “continued softness in enterprise storage spending”. Nearly all of the covering brokerage analysts slashed their forecasts in response, causing the consensus estimate to plunge by seven cents to 10 cents per share. The networking equipment company beat estimates last quarter, but has missed twice during the past four quarters. Network Appliance is scheduled to report on Wednesday, Aug 15, after the close of trading.