Disappointing earnings results from retailers sent stocks falling today as several big-box chains posted underwhelming results, among them Staples (SPLS +0.00%), T.J. Maxx, and Dick's Sporting Goods. By the end of the day, the Dow Jones Industrial Average (^DJI 0.56%) had lost 138 points or 0.8%, and the S&P 500 and Nasdaq both fell 0.7%.
Retail earnings reports are closely watched, as consumer spending makes up 70% of the country's GDP. Concerns about the Federal Reserve also seemed to weigh on investors, as Philadelphia Fed President Charles Plosser said an interest-rate increase could come sooner than expected if the economy continues to heat up. Markets had shuddered previously when Fed Chair Janet Yellen said interest rates could go up in 2015. Tomorrow, the Federal Open Market Committee will release the minutes from its most recent meeting, which are closely watched because they can give insight into the central bank's latest thinking about monetary policy.
Among retailers coming up short on earnings today was heavyweight Home Depot (HD 0.66%), though shares rose 1.9% on a positive outlook. The nation's leading home-improvement retailer said earnings per share improved from $0.83 a year ago to $0.96, though that was short of estimates at $0.99. Meanwhile, revenue ticked up 2.9% to $19.69 billion, also missing the consensus at $19.97 billion, as comparable sales improved 2.6% globally and 3.3% in the U.S, helping to boost operating margins. CEO Frank Blake noted a "slow start to the spring selling season" but said May sales were "robust," and the company raised its guidance for the full year. Home Depot now expects full-year earnings of $4.42, up from a previous projection of $4.38 and a penny ahead of analyst estimates. It also guided sales growth of 4.8%, matching expectations. Considering the upbeat guidance and strong housing numbers from April, Home Depot stock looks like a solid bet going forward.
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Moving the other direction today was Staples, which tumbled 12.5% as the company continues to struggle with headwinds in office retail. Adjusted earnings per share fell from $0.26 a year ago to $0.18, below Wall Street's expectations at $0.21. Same-store sales fell for the ninth straight quarter, dropping 4%, and overall sales fell 2.8% to $5.65 billion. That figure edged past estimates of $5.62 billion, but Staples' guidance was weak as well. The office retailer expects sales to continue to decline in the current quarter and sees an EPS of $0.09-$0.14, down from $0.16 a year ago and worse than estimates at $0.15. That projection does not include costs from restructuring costs as it plans to close down about 80 stores in the quarter, which could lead to an unadjusted net loss. Management is doing its best to transform the company into an all-encompassing retailer with a strong online presence, but Staples seems destined to shrink for several quarters, taking the stock price along with it. A turnaround seems a long way away after today's update.
