Are Target’s troubles merely anomalies, or symptomatic of the economy’s problems, despite relatively strong earnings reports?
The retail giant lowered its outlook, telling investors it now expects 78 cents a share for the just completed (July-ending) quarter, well below earlier guidance of 85–$1.00. They cited promotional markdowns and lower than expected sales in Canada; meanwhile, U.S. sales are “essentially flat.”
Obviously this has much to do about Target’s data breach, but it’s also indicative of the general pressure on the sector.
Take restaurants, which still continue to report choppy sales. On Tuesday, Bloomin’ Brands—owners of Outback Steakhouse, Carabbas Italian, Flemings Prime Steakhouse—missed on earnings and lowered its outlook as well. CEO Elizabeth Smith said that “dinner traffic did not recover as expected following the weather events of the first quarter.”
Then there are firms that are just minting money. Have you tried to rent a car this summer? The exact phenomenon is happening in airlines: prices are up in both. Thank you, Avis Budget, which beat on top and bottom lines and raised full year guidance and expects record results in the third quarter. The stock’s price and trading volumes are up in early trading.
Then there are stores with image problems, like Coach, which reported earnings above expectations amid what many analysts call a fading brand. The company is now emphasizing its “brand transformation,” and they will need it. North American same store sales were down 17 percent year over year, an improvement over the 21 percent decline in the prior quarter, yet China sales, however, were up 20 percent.
1) French bank Credit Agricole reported earnings today; they are the largest outside shareholder of Portuguese bank Espirito Santo, which was bailed out by the Portuguese central bank on Monday. Their 15 percent stake in the Portugese bank was effectively declared to be worthless: they wrote down the value of the stake to zero on a €708 million euro write-down, practically wiping out any profit the bank made in the quarter.
CEO Jean-Paul Chifflet said, “We can only regret having been misled by the family with which Crédit Agricole was trying to create a true partnership to build the biggest private bank in Portugal.”
2) China’s services PMI, a private sector survey of the services industry compiled by HSBC/Markit, fell to its lowest levels in 9 years. The China data has been choppy: separate surveys of the manufacturing sector last week were strong.