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Whole Foods Market Has Rough Day While Cabelas Hurts the Gun Industry

By Matt Thalman – Feb 13, 2014 at 9:00PM

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Retail sales figures come in weak on first glance, but strong after realizing what really happened.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

This morning, investors were hit with some rather disappointing retail sales figures for January. On a seasonally adjusted basis, sales for the month dropped by 0.4% from December to January. That was also the largest decline for sales figures in more than a year-and-a-half. While this sounds terrible on the surface, the reality of the numbers tells us that things weren't all that bad. The bulk of the decline came from a weak auto industry in January. If these results are backed out, January was flat when compared to December. And although December's numbers were revised lower, sales rose 0.3% during the month if autos again are backed out. Many blamed the cold weather we have had this winter for the weak auto sales. 

Once investors got past the headline of the sales report, the major indexes climbed out of the hole they fell into in the early hours of the trading session, and actually finished on a very positive note today. The Dow Jones Industrial Average ended the day up 0.4%, the S&P 500 rose 0.58%, and the Nasdaq gained 0.94%.

As I mentioned above, excluding the auto dealers, sales figures for December and January were decent; but that doesn't mean all retailers posted strong numbers during that time. Shares of outdoor and hunting retailer Cabelas (CAB) dropped 7.95% during the regular trading session and another 2.72% in the after-hours session today after reporting weak quarter earnings this morning. Earnings per share was $1.32 on revenue of $1.19 billion, but analysts were looking or EPS of $1.41 on revenue of $1.2 billion. Furthermore, the company is only forecasting EPS of $0.32-$0.42 for the first quarter, while analysts were looking for $0.57 per share. The company does expect full year 2014 EPS to slightly increase compared to 2013, but that is likely due to the fact that the company plans to open 14 new stores this year. 

Cabelas stated that a sharper-than-expected decline in gun and ammunition sales played a large role in the earnings miss and drop in revenue. That information sent shares of Smith & Wesson (SWBI -0.17%) lower by 0.87%, while Strum, Ruger & Co. (RGR 0.07%) fell 1.21%. Both companies were much lower during the middle of the day, but pulled higher in the last few hours of trading. Neither has reported earnings yet; Smith & Wesson is scheduled to report on March 4, and Strum, Ruger is set sometime between February 24-28. After today's report from Cabelas, expectations of the gun and ammunition companies is likely to fall before they announce. With today's drops being muted, larger declines could be on the horizon.

One other big-name retailer that had a really bad day was Whole Foods Market (WFM), which fell 7.21% today. The drop comes after the company reported earnings last night after the closing bell. Revenue hit $4.24 billion and earned $0.42 per share, but analysts were looking for $4.29 billion in sales, and EPS of $0.44; so not the worst miss, but still a miss on both the top and bottom lines. The real problem, though, came with forward guidance and a slowdown of same-store sales, which hit 5.4% as opposed to the 6.9% we saw during the same quarter in 2013. As for the forecast, management believes its earnings will rise 7%-12% in 2014, which falls short of the 12%-15% that analysts were expecting. In addition to low forecast on earnings, revenue is expected to increase by somewhere around 11%-12%, which is below the 13% that Wall Street was looking for. While the company is still growing rapidly for a grocery store, Wall Street and investors never like to see growth slow, although it is inevitable. The average shareholder, though, should sit tight as the company, in general, is still very healthy. 

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Matt Thalman has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Whole Foods Market, Inc. Stock Quote
Whole Foods Market, Inc.
Sturm, Ruger & Company Stock Quote
Sturm, Ruger & Company
$54.58 (0.07%) $0.04
Smith & Wesson Brands, Inc. Stock Quote
Smith & Wesson Brands, Inc.
$11.83 (-0.17%) $0.02
Cabela's Incorporated Stock Quote
Cabela's Incorporated

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