Stocks tumbled today on mostly weak earnings reports from retailers, as Wal-Mart (WMT 1.32%) disappointed the market this morning, finishing down 2.4%. As nearly 10% of non-automotive consumer dollars are spent at Wal-Mart, the retailer tends to affect the broader market, and its drop led the blue chips down 1%, or 167 points, while the other major indexes fell nearly that much with the S&P 500 losing 0.9%, and the Nasdaq shedding 0.8%.
Today's selling came despite mostly strong economic data, as initial unemployment claims last week hit a seven-year low yesterday, at 297,000. The metric tends to be volatile, however, and the four-week moving average fell slightly, from 325,250 to 323,250. Continuing unemployment claims also dropped to a six-and-a-half year low, at 2.667 million, and the moving average fell below 2.7 million for the first time since 2007. Both figures indicate strong job growth continuing into May. Elsewhere, manufacturing reports out of New York and Philadelphia for May were much stronger than expected, but the Federal Reserve reported a surprising drop in industrial output last month, which fell 0.6% on flat expectations. Finally, consumer prices crept up 0.3% last month, or 2% on a year-over-year basis, its fastest growth since last summer. While that figure indicates inflation is still under control, rising prices are beginning to creep back under economists' radar.
In its earnings report today, Wal-Mart echoed other retailers, blaming the weather for slow sales in its first quarter, as well as a higher tax rate. The world's largest retailer turned in a per-share profit of $1.10, down from $1.14 a year ago, but said poor winter weather cost it $0.03 per share. Both figures were short of analyst estimates at $1.15, and sales increased 0.8%, to $114.2 billion, but that also missed expectations of $116 billion. Adjusting for currency translation, sales would have grown 2.1%, essentially matching estimates. There were some bright spots in the report, as comparable sales at its smaller Neighborhood Market format grew 5%, compared to a dip of 0.1% at Wal-Mart stores nationwide, and e-commerce sales jumped 27%, a faster pace than rival Amazon.com's, though Wal-Mart's are growing from a much smaller base. Finally, Wal-Mart's current-quarter guidance was weaker than projected, as the retail giant sees EPS of $1.15-$1.25 versus $1.24 last year, accounting for increasing health-care costs among other factors. Analysts had expected a profit of $1.28 per share.
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On the other side of the aisle, J.C. Penney (JCPN.Q) shares were flying after hours, up 19% after its earnings report soared past expectations. The struggling retailer showed signs of returning to health, as comparable sales rose 6.2% in the quarter, an indication that consumers are returning following a disastrous transformation effort under former CEO Ron Johnson. Overall sales were up 6.1%, to $2.8 billion, topping estimates at $2.71 billion, and the department-store chain saw improvements on the bottom line as gross margin jumped improved 230 basis points, to 33.1%, SG&A expenses fell 490 basis points, to 36%, and its operating loss decreased 49%, to $247 million. Finally, its net loss of $1.15 per share beat estimates of a $1.25 loss. Looking forward, the company sees mid-single-digit comparable sales increases for the rest of the year, a significant improvement in gross margin, and break-even free cash flow. The road back to profitability will certainly be a long one, but for now, J.C. Penney is on the right track.
