The markets finished last week on a high note, after shaking off a weaker-than-anticipated May jobs report. The U.S. added 138,000 new jobs in May, which was far below estimates of about 185,000. But the disappointing news didn't end there, as the number of job gains in April and March were revised lower.
The weak report, however, doesn't make a trend, and the economy has consistently added jobs over the long term. So this won't affect the Federal Reserve's course on interest rates.
In other news, here are some highlights from a handful of companies making big moves or big headlines last week.
When good isn't good enough
Retailers, including fashion brand companies, can't catch a break this year. Even if retailers post results above expectations, which hasn't happened all that often, Wall Street presses the sell button if forward guidance isn't strong. We've seen it time and time again, and Michael Kors (CPRI -3.82%) is a recent example.
While Michael Kors did manage to top analysts' estimates by a meager $10 million, the top line declined by 11.2%, from last year's $1.20 billion down to $1.06 billion during the fourth quarter. One metric that hit investors in the gut was surely the company's comparable sales, which were down 14.1% -- but that figure was offset by 159 new store openings over the past year to push retail sales up 0.5%. On the bottom line, Michael Kors recorded adjusted earnings per share of $0.73, down from the prior year's $1.02 but ahead of analysts' $0.70 estimate.
What sent shares lower wasn't its current performance but its forward guidance. Management now expects to generate between $910 million and $930 million of revenue during the first quarter of fiscal 2018, which was below analysts' estimates of $944.2 million. Sure enough, the company's stock price started to decline as its top line stalled:
On top of that, management still expects high-single-digit declines in comparable sales. This is the unfortunate reality for retailers right now: Even if the quarter meets or beats estimates, the stock will often sell off if the future isn't rosy.
Image source: Getty Images.
A peaking cycle
Analysts have been warning for about a year that the U.S. new-vehicle sales cycle was plateauing -- albeit at a very high level -- and that trend continued as automakers reported May sales results last week. Light-vehicle sales in the U.S. declined 0.5% during May, even with holiday discounts and incentives, as the industry put the finishing touches on its historically strong spring season.
Ford Motor Company (F 0.47%), in desperate need of some good news after ousting CEO Mark Fields, reported a solid month compared with the industry. Ford's total sales reached 241,126 units last month. That was a 2.2% increase over the prior year, and it was even enough to top General Motors (GM 4.37%), its chief rival, which generally outsells every other automaker in the U.S. market. GM's sales checked in with a 1.3% decline, down to 237,364 units sold during May.
There were some other red flags in the auto industry last week. According to a Wells Fargo report, fewer subprime borrowers are paying off their automotive loans early, suggesting that consumers with weaker credit scores might be struggling to keep up with payments. Part of the matter is rising average transaction prices in the U.S. over the past couple of years -- which brings us to another red flag.
To help offset rising new-vehicle prices, many consumers have opted to extend the length of automotive loans. According to Experian, during the first quarter of 2009 the number of new-vehicle loans 73 to 84 months long was only 11.7%. Through February 2017, that percentage jumped to 33.8%. These longer loans pose somewhat of a threat to the automotive industry, as they could extend the purchase cycle: Perhaps a consumer now waits an extra year to purchase a vehicle because of being underwater on the loan for a longer period. There's also more default risk if the consumer is stretched too far on the new vehicle purchase.
We'll have to see how it all plays out, but one thing is clear: The automotive industry isn't going to get any easier for major automakers over the near term.
