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What Investors Missed in the Market Last Week

By Daniel Miller - Mar 12, 2017 at 7:05PM

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Here are a couple of highlights from the markets last week, including a shrinking automaker and a thriving retailer.

As usual, eyeballs and attention spans focused on Friday's jobs report, and for the most part it didn't disappoint. In President Trump's first full month in office, the U.S. economy generated 235,000 new jobs in February, ahead of economists' estimates calling for 221,000 jobs. It was a solid report, but it wasn't enough to save the Dow and S&P 500 from their first weekly decline in at least a month.

In other news, there was plenty of action last week with companies making big moves or big headlines. Here are a couple of highlights.

Addition by subtraction

General Motors (GM 1.35%) investors who are sad to see its Opel/Vauxhall European operations sold are likely few and far between. In terms of market share, GM's Opel and Vauxhall brands consistently declined from 8.7% during 2000 all the way down to 5.7% in 2016. GM's European operations failed to turn a profit since the late 1990s and since then had lost roughly $22 billion total -- an absolutely depressing figure for investors.

Aerial view of General Motors headquarters buildings in Detroit.

General Motors' HQ in Detroit. Image source: General Motors.

The $2.2 billion deal definitely seems like a win for both parties. For General Motors, its 2016 results would have improved in multiple ways. Its capital expenditures would have required $1.1 billion less, and its target cash goal of $20 billion would be a less stringent $18 billion. On the flip side, its EBIT-adjusted margin would have jumped from 7.5% to 8.6% and its adjusted automotive cash flow would have jumped by $900 million. Even GM shareholders win, as the company will increase its current share-buyback plan by $2 million directly as a result of the sale of its European operations.

On the flipside, Peugeot S.A. (PUGOY), or PSA Group, also stands to benefit. When the company folds in General Motors' operations, it estimates annual synergies of 1.7 billion euros will be generated by 2026, most of which is expected annually by 2020. The combined entities will create a leading franchise in Europe, and the brands are complementary.

Of course, it's a complicated deal, and there are some catches for both companies. For GM, one of the last things holding up negotiations was Opel's pension liabilities. GM will retain $9.8 billion of the liabilities, which are underfunded by roughly $6.5 billion. For PSA Group, it gets access to GM's technology in the current vehicles. Until it transitions the units to PSA platforms, it isn't allowed to sell those GM-based vehicles into markets such as China.

A rare retail win

It hasn't been pretty over the past few years for apparel retailers. Most brick-and-mortar retailers have struggled with weak foot traffic and have been overtaken by the surge in e-commerce. But one retailer that managed to post a strong fourth quarter was The Children's Place, Inc. (PLCE -1.47%), the largest pure-play children's specialty apparel retailer in North America.

In terms of the numbers, its fourth-quarter revenue increased 4.5% compared with the prior year, to more than $520 million. Better yet, and something few retailers can boast recently, is that its comparable-store retail sales jumped 6.9%. Its adjusted net income moved 43.6% higher to $34.6 million, and its adjusted net income per share jumped an even higher 58% to $1.88 -- far ahead of analysts' estimates of $1.59 per share.

Management also announced that it approved a new $250 million share-repurchase program, and it even doubled its quarterly dividend to $0.40 per share.

"By any measure, 2016 was a spectacular year for The Children's Place," said President and CEO Jane Elfers. "We made significant progress on our numerous self-help initiatives. And our product assortment, supported by a foundation of superior design, sourcing, and merchandising capabilities, clearly resonated with our customers." 

Despite brick-and-mortar woes felt across the apparel retail industry, this was a shining example of how a specialty retailer can still strike gold in a niche segment -- we'll see if the company can sustain its success over the long haul. 

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General Motors Company
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