Week in Preview: FOMC Meeting, Consumer Sentiment, Retail Earnings

Trey Thoelcke
Updated
shopping
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Federal Open Market Committee (FOMC) meets again on Tuesday. Though the August meeting of the FOMC is generally uneventful, this time there is speculation about whether the FOMC will resort again to some quantitative easing -- a way of pumping additional money into the financial system. Fed chairman Ben Bernanke has already hinted at such a move, given that economic growth has clearly slowed. Last week's disappointing employment numbers are the latest confirmation of that. The question is whether the Fed's decision to take action will happen at this week's meeting, perhaps aggravating deflation fears, or if it'll wait until the September meeting, at which point it risks impacting the upcoming mid-term elections.

The August TIPP Optimism Index and the University of Michigan Consumer Sentiment Index will provide additional signals about the perceived state of the economy this week. Other economic data scheduled for release include the following:

  • Tuesday: wholesale trade numbers for June and preliminary productivity numbers for the second quarter

  • Wednesday: the Treasury budget for July and trade balance numbers for June

  • Thursday: the Import Price Index for July, as well as last week's initial jobless claims

  • Friday: business inventories for June, the Consumer Price Index for July and retail sales for July

Retail Sector Moves into Earnings Spotlight

During the three months that ended in July, Nordstrom (JWN) reported strong same-store sales and increased its quarterly dividend. Analysts surveyed by Thomson Reuters expect the upscale retailer to report that earnings per share came to 66 cents, a 27.2% rise from a year earlier. Second-quarter revenue is expected to have grown 12.0% to $2.4 billion. So far, analysts predict year-over-year growth of both earnings and revenue in the third quarter as well. Earnings results have come in within three cents per share in the past four quarters, falling short in the first quarter.

The Seattle-based retailer's long-term earnings per share (EPS) growth forecast is 11.4%, which is better than that of rival Saks (SKS). The earnings multiple of 12.4x is less than the industry average, as well as the trailing price-earnings (PE) ratio of 15.8. The First Call recommendation has been to buy JWN for more than 90 days. The mean price target on shares is currently $43.76. Shares have fallen 16.3% in the past three months, dropping below the 200-day moving average for the first time in more than a year, and they ended the week at $33.96.

Analysts anticipate that Cincinnati-based Macy's (M) will report earnings of 28 cents per share, up 28.6% from the same period of last year. During the three months that ended in July, Macy's announced the new Material Girl line and declared a quarterly dividend, and revenue for that period is expected to have risen 6.4% to $5.5 billion. Looking ahead to the full year, analysts foresee earnings of $1.87 per share (+24.6%) on $24.7 billion (+5.0%) in revenue. Macy's earnings have met or beat analysts' expectations in the past five quarters.

Macy's long-term EPS growth forecast of 9.4% exceeds that of competitor Dillard's (DDS). Its 10x earnings multiple is less than both the industry average and the trailing PE ratio of 12. Analysts on average recommend buying the stock, and their mean price target is $26.79 a share. At $19.44, the share price is up 11.7% in the past month, after sliding through most of May and June from a 52-week high of $25.25.

Texas-based JCPenney (JCP) announced green goals and completed a debt offering during its second quarter. Earnings for that period are expected to total only seven cents per share, but that's up from break-even in the same period of last year. The company's revenue for the three months ending in July is expected to total $4 billion, or 2.4% more than a year earlier. Thus far, the consensus forecast is for sequential and year-over-year revenue growth in the third quarter. JCPenney's per-share earnings have met or beat analysts' expectations in the past five quarters.

The long-term EPS growth forecast of 13.6% tops that of rival Kohl's (KSS). The earnings multiple is 13.2x, but that's less than the industry average and the trailing PE ratio of 18.2. The consensus recommendation remains to buy JCP. The mean price target on the shares is $33. The share price was $21.81 at Friday's close, up a couple of bucks from a recent 52-week low.

Speaking of Kohl's, it is expected to report modest earnings growth this week. Many more retailers are scheduled to post their results the following week, including Abercrombie & Fitch (ANF), Dollar Tree (DLTR), Gap (GPS), Home Depot (HD), Limited Brands (LTD), Sears (SHLD), Staples (SPLS), Target (TGT) and Walmart (WMT).

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