Bad earnings news seems to run in themes. One company throws out a given excuse for an earnings miss. Then another does the same to see whether the investing public buys it. Soon, all sorts of businesses with the most tangential relationship to the event are jumping on the bandwagon. From the Y2K bug to Hurricane Katrina to the Sept. 11 terrorist attacks, extreme events have become a common scapegoat to justify quarters of poor performance.
Now we can add a new phenomenon to the list of ways companies have eased investors into bad earnings: a dearth of government stimulus checks.
Happy anniversary!
Remember those $600 checks the government sent out to jump-start the economy last year? Those bonuses spurred ample speculation about who would benefit most. Goldman Sachs, for example, issued a list of its top 10 estimate beneficiaries, including Wal-Mart Stores (NYSE:WMT), J.C. Penney (NYSE:JCP), Cheesecake Factory, and Best Buy (NYSE:BBY).
According to PNC Financial Services, about 35% of all small-business owners had expected to see some benefit from the stimulus package. Family Dollar (NYSE:FDO) predicted that shoppers would see the value proposition of its stores, while General Motors even thought people would plunk down their $500 check on a shiny new car. How's that working out for you, GM?
We'll be paying for the government's largesse for years and years to come, but many of the purported beneficiaries probably never even saw a dime from those checks. Just as they were hitting our mailboxes, we had to embrace $4-a-gallon gasoline, and oil ended up eating our bonus.
One lap around the lake
Now we're passing the anniversary of those checks' arrival, and you can hear a Greek chorus of companies chanting that the stimulus funds' absence will hurt their performance. Notably, Family Dollar and Wal-Mart have advised that this quarter will make for a tougher comparison. Even though Wal-Mart's been a winner pretty much throughout the year, it still expects comps to take a 100- to 200-basis-point hit when the quarter ends July 31.
Elsewhere, businesses such as GameStop (NYSE:GME) and Advance Auto Parts argue that their own second quarters won't be up to snuff because consumers won't have the extra coin for more spark plugs or copies of Grand Theft Auto IV.
Without a doubt, some businesses will truly feel the loss of last year's artificial boost to earnings. After all, hurricanes in the Gulf of Mexico routinely damage oil rigs. The deadly earthquake that hit China just before Olympics last year also damaged businesses there. And I'm sure solar stocks truly felt the impact of the polysilicon shortage back in 2007. Sometimes, themes can run true.
Although documentary photographer Dorothea Lange once said, "Pick a theme and work it to exhaustion," the next time your company's CEO tells you its profits were lower this quarter because the government wasn't handing out free money, give him or her detention. "The dog ate my homework" excuses just don't fly.
