In a tough retail environment sales gains are always a welcome sign, and so is profit growth of 25%. The Gap, Inc (GPS) reported quarterly net income of $307 million or 44 cents per share which was in-line with analysts’ estimates. Revenue was actually better than expected coming in at $3.59 billion thanks to improved sales at the value oriented brand Old Navy. The sales gains at Old Navy showed that the reorganization in those stores is finally paying off with same store sales up 10%, and it reversed a trend of sales declines for five straight years. Sales in the company’s higher end Banana Republic stores remain sluggish, but not worse than expected.

Some analysts had feared that discounting would harm margins, but according to Gap’s CEO Glenn Murphy it was the opposite. The apparel retailer actually claimed the best margins in a decade thanks to strict cost cutting as they improved profit margin to 13.9% from 11.1% a year ago. In light of the difficult environment, Gap has closed stores and reduced the size of those in operation striving for a more efficient store, and inventory control has been essential. In fact, inventory per square foot was down 9% in the quarter. However, the company is deploying some of these savings in advancing their marketing goals. Gap has begun to advertise more heavily on television recently as they hope to attract shoppers to their stores during this crucial holiday season.

Bloomberg opinion columnist Jonathan Weil has a talent for navigating balance sheets of often complex financial firms. In his latest piece, he writes about Wells Fargo (WFC), the bank who rejected the idea that it needed TARP funds in the first place, yet has to date neglected to repay the government for the loan. It is an interesting point as many investors, including a big one out of Omaha, have bought the stock of Wells Fargo because it held the mantle of conservative management among the too big to fail set. Whether it is because of worse than expected loans made by Wachovia or their exposure to the real estate market particularly in California, the bank has not been among the first group to repay the TARP. The Wachovia acquisition came with a large amount of loan guarantees from the government, so WFC lessened their risk where possible.

As Weil explains, the reason for the delay in repayment of government funding is plainly obvious when you start digging just a bit in the balance sheet. Quite simply they haven’t got a significant capital cushion to pay back the TARP in a way that leaves them adequately capitalized for any future weakness.

Wednesday morning the Commerce Department released figures that homebuilding activity in the U.S. had unexpectedly fallen in October. The reasoning was that increased joblessness in addition to doubts that the homebuyer tax credit would be renewed weighed on homebuilders. Homebuilders slipped to an annual pace of only 529,000 homes which is 11% lower than last year and the lowest result since April. Multifamily homes such as condos and townhouses slumped 35 percent, far more than single family homes. Economists had expected to see a slight rise in homebuilding activity in the month, which only adds to the surprise. Economists, always ready with an answer, pointed out that the wettest October in a century could have been a factor. Building permits also saw an unexpected drop to only 552,000 annual rate.

Homebuilder stocks were mostly unscathed by the news as investors took solace in the fact that the tax credits were indeed renewed which will hopeful further induce buyers into the market. Pulte Homes (PHM) was among the most active of homebuilder stocks following an upgrade to Buy at Citigroup (C). Citi raised their price target to $12 as the recent acquisition of Centex is a positive for the company and they were “undeservedly out of favor.” The stock is trading 4% higher in afternoon trading on this gutsy call.

“The problem with Gamestop is you need to be able to have both good hardware and software sales. Not until later next year do I expect Grand Theft Auto. We had Rock Band, Guitar Hero. Those are all played out. I can’t get behind GameStop not because they’re not a great company but because they don’t have enough good stuff to sell.” — CNBC’s Mad Money 11/17/2009

The quote above is a bearish recommendation on GameStop (GME) from Jim Cramer in Tuesday night’s Lightning Round, but we think he has missed a great opportunity. Cramer refers to his lack of faith in both video game hardware (consoles) and software (games) sales this holiday season. There is no doubt that the conventional wisdom of video games being resilient to recessionary spending trends has proven to be less true than most believed.

Not exactly sure what is not to like about Salesforce.com’s (CRM) performance in the last quarter, but the stock is getting hammered down more than 7% in post market activity. Earnings per share doubled from a year ago to 16 cents, which equaled the consensus of the 30 Wall Street analysts that cover the stock. Record sales of $331 million increased 20% over a year ago and also surpassed Wall Street’s predictions of $324 million. Operating cash flow of $36 million rose 107% compared to a year ago. Furthermore, the company raised its guidance for earnings and revenue to slightly higher than the analysts’ view.

There is no doubt that the results appear strong, but perhaps the growth was not impressive enough to maintain such a lofty valuation. Coming into the day Salesforce was trading at a P/E or nearly 108x, and the forward looking P/E approached 80x. The PEG ratio for expected earnings growth over the next five years is nearing 3x, which is a stretch. Clearly, this stock is trading based on its potential in the future rather than its ability to earn today.

Two of the world’s largest retail chains reported earnings on Tuesday morning. Both Target (TGT) and Home Depot (HD) topped the analysts’ earnings expectations, but each of them failed to impress as investors worried about the upcoming holiday shopping season. In the case of each of these stocks the market has sold off following them beating earnings.

Target easily topped estimate reporting profit was 18% better than a year ago or $.58 per share. Trends improved in both the retail and credit card divisions of Target over the last quarter. However, in the market’s view there were two things that tainted this performance. First, sales disappointed coming in at only $14.8 billion as analysts had anticipated nearly half a billion more. We have seen the market is much more sensitive to top-line growth than it is to bottom-line so far this earnings season, and this is no exception. In afternoon trading the stock had fallen three percent, even though this marked the first increase in earnings in the last eight quarters.

Shares of SunPower (SPWRA) are suffering on Tuesday morning as they disclosed a review of “unsubstantiated accounting entries.” Of course, the stock is down nearly 18% just after the open on Tuesday as many investors are headed for the exits. We cannot blame those investors for dumping shares right now because any time accounting principles are questioned it can be very hard to regain lost credibility. Financial markets rely on the integrity of financial data, and any accounting crisis inherently brings a lot of uncertainty. Most investors will automatically assume the worst and past experiences with the likes of Enron and Worldcom have show the need for caution.

According to SunPower, the issues were identified in an internal investigation of their Philippines manufacturing unit. There are issues in their accounting for cost of goods sold and and which years these costs should be counted towards. It is believed that cost of goods sold were overstated by $1 million in 1Q of this year, but were understated by $14 million in 2Q and $2 million in the third. The results for the last two years will likely need to be amended once the investigation is complete. Furthermore, the guidance for the year ahead cannot be relied upon as it is subject to change as well. If there is one thing we know, it is that the market hates uncertainty. Analysts have downgraded from bullish ratings at Piper Jaffray (PJC) and FBR Tuesday morning, and more may be on the way.

When Peter Lynch coined the now famous term “invest in what you know”, he was thinking in terms of stock selection. However, this term can be broadly applied to what Devon Energy (DVN) announced Tuesday. Devon has decided to realign their capital investment focus to what they are best at; producing oil and natural gas fields onshore in North America. The large energy company announced today that they will sell their international and Gulf of Mexico assets in hopes of raising between $4.5 and $7.5 billion after tax in the process. The capital will then be put to work growing their domestic and Canadian onshore businesses and also to reduce debt. Devon believes that streamlining their focus should provide a boost to earnings, cash flow, production and reserves as early as 2011. Incidentally, that is the same timeframe in which Devon hopes to have the sales finalized.

The move is being met with optimism from the market and DVN is trading higher by about 5% on Monday afternoon. While the assets on the auction block account for 7% of the proven reserves (equivalent of 2.8 million barrels of oil) and 11% of production, the projects are comparatively quite expensive and require 29% of Devon’s capital expenditures budget. Clearly, redirecting this capital could yield tremendous benefits. There is no doubt that Devon is getting much more bang for their buck right now producing oil and natural gas onshore in North America.

“Look at Sprint Nextel. Up more than 10% today, its the hottest stock in the S&P 500, raised to Outperform from Neutral at Credit Suisse. On its way to six bucks a share, they like the progress of the turn around.” — CNBC’s Squawk on the Street 11/16/2009

It is not a surprise that the residential construction industry has been rocked by the recession of the past few years. The fall in home values was one of the dominos that set in motion what has become known as the credit crisis that affected so many other industries in one way or another. Firms like Beazer Homes (BZH) were faced with monumental challenge of making their living off of building new homes, but the market was already dealing with a supply overhang. Residential builders halted many projects and were forced to write-down the value of the land that they had purchased near the height of the bubble.

There is no doubt that real challenges remain for the industry, and it will take quite some time for sales and earnings to return to peak levels. However, instead of relying on business as usual efforts and patiently waiting for the market to rebound, Beazer Homes recently announced that they have been busy at work retooling their sales process through the use of technology. Recently, the company announced their efforts to grab a larger piece of the recovery through a customized customer relations solution with Salesforce.com (CRM) and an agile consulting firm Bluewolf.

JDS Uniphase (JDSU) is having a terrific morning on Thursday as it has gained nearly 11%. When a stock breaks out like this, we always look for a catalyst for the move and in this case the primary reason seems to us to be an endorsement from Jim Cramer. We often cover Cramer’s Mad Money show on our blog because of this reason; he moves stocks, specifically stocks that he spends a fair amount of time on. There are small examples of the “Cramer Effect” all the time, but a recent example was when he discussed a bullish thesis on mining stock Freeport McMoran (FCX) and in the absence of any other news he created frenzied buying the next day. The stock finished that day with its largest one-day gain in history rising 11%. It appears that there is something similar going on with JDSU Thursday.

“I’m telling you JDSU could be our next big win. It’s been a long road… We think it’s going to change now that the axe raised the price target to $8.50. JDSU is a leading player. Major exposures to the mobile Internet, the fabulous 3-d glasses, just to remind you they have a clear vision and it’s exciting and fun to watch. Getting better and better by the quarter.”– CNBC’s Mad Money 11/11/2009

“Let’s get to the AMAT news because you see the stock reacting in rather nicely, up 3% on this news. Applied Materials just absolutely blowing through all forecasts here. The company reporting 13 cents a share against the 3 cents that Wall Street was anticipating on much better than expected revenue as well. $1.53 billion against the $1.317 or $1.32 billion consensus. Look at the new orders as well, $1.47 billion. The expectations were about $1.24 billion. If you were looking for cap-ex improvements by some of the major chip makers out there…”– CNBC’s Closing Bell 11/11/2009