7 reasons to worry about next week

Watch your step on the way down.

By Motley Fool Pick of the Day May 13, 2011 1:05PM

By Rick Aristotle Munarriz

 

You don't need to look too far to bump into pessimism.

 

Remember the recovery in the housing industry? We're still waiting on that one. Real-estate portal Zillow.com is reporting that home sale prices fell 3% during the first quarter, off by more than 8% over the past year. According to Zillow, real-estate prices have dipped for 57 consecutive months.

 

That's a nasty streak, unless you happen to be in the market for a new home without one to sell. It gets worse.

 

There are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.

 

Company

Latest Quarter EPS (Estimated)

Year-Ago Quarter EPS

Winn-Dixie (WINN)

$0.10

$0.38

Urban Outfitters (URBN)

$0.25

$0.31

Aeropostale (ARO)

$0.20

$0.48

Gap (GPS)

$0.39

$0.45

Brocade (BRCD)

$0.10

$0.13

salesforce.com (CRM)

$0.27

$0.30

Sears Holdings (SHLD)

($1.12)

($0.03)

Source: Thomson Reuters.

 

Clearing the table
There will likely be more companies posting lower earnings next week; these are just a few of the names that really jump out at me.

 

Let's start with Winn-Dixie Stores. The southeastern grocer emerged from bankruptcy protection five years ago with a sparkling balance sheet and free of its more cumbersome leases. Has the 484-unit supermarket chain earned its second chance? It hasn't been so hot lately, trading in the single digits since last summer.

 

Urban Outfitters, Aeropostale, and Gap are three of the better-known mall store chains, aiming to dress up teens and hipster adults with trendy duds. Gap's Old Navy chain may aim for a different target audience of penny-pinching families, but all three retailers aren't bouncing back the way they were supposed to once the recession came and went.

 

There are a ton of specialty retailers posting their fiscal-first-quarter results, so the bottom-line weakness at Urban Outfitters, Aeropostale, and Gap isn't a universal cause for alarm. Most of the apparel retailers and particularly the department store chains are slated to post healthy year-over-year improvement. The problems at Urban Outfitters, Aeropostale, and Gap are therefore concept-specific.

 

If Wall Street's right, all three companies will have a lot of explaining to do next week.

 

Brocade has been stuck with its single-digit share price for even longer than Winn-Dixie. You would have to go back four years to find the last time that the networking solutions provider was trading in the double digits. This should be Brocade's third straight quarter of posting year-over-year declines on the bottom line.

 

When the cloud-computing revolution was getting started, salesforce.com was the willing poster child. Companies turned to salesforce.com for cheaper Web-stored enterprise software than traditional business platforms.

 

Fellow Fool Tim Beyers was concerned with the largesse of salesforce.com's option-granting expenses during its most recent quarter. This won't be the culprit behind the projected dip in profitability come Thursday. Analysts back out the impact of options in drumming up their guesstimates. In fact, salesforce.com's guidance calls for a small quarterly loss on a reported basis.  

 

Finally, we have Sears. The company behind the Sears and Kmart department store chains has come a long way since its darling days as a mail-order wonder -- and that isn't a good thing. Sears has been posting negative comps for years, and it's unlikely that the Kardashian sisters can come to the rescue. Losses are turning into steeper losses during the seasonal lulls outside of Christmas.

 

Sears Holdings hasn't cratered as an investment because of the lofty values of its underlying real estate, but maybe bulls want to rethink that position after reviewing Zillow's painful data.

 

Why the long face, short-seller?
These seven companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks.

 

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

 

The more I think about it, the less worried I become.

 

Longtime Fool contributor Rick Munarriz wonders if his contrarian heart will ever be happy. He does not own shares in any of the companies in this story. salesforce.com is a Motley Fool Big Short short-sale pick and a Motley Fool Rule Breakers recommendation. The Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. 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 Fool has a disclosure policy.

3Comments
May 15, 2011 6:36PM
avatar
Welll, lets think about this for a minute.  What I see is, stiff competition, in stores not being able to command enough of a price to make a decent profit.  Their input costs are higher, we all know that.  Input costs are higher on almost every other industry that has reported, but, the retailers are unable to pass it along.  This tells me that shoppers are being ultra conservative.  The necessities are still being bought, they have to be, they are necessities.  The non necessary items evidently are not being bought.  In other words, money is tight.  If they want to sell it, they have to sell it at less of a profit.  The shoppers are taking the extra time to compare pricing, or, they are doing without non-necessary items.  They are not being as frivolent.  The impulse buying is down.  Money is tight, or should I say, people are tight.  This makes since, since they are trying to figure out how they are going to pay for everything else, that keeps rising in price.  We already have inflation, you are seeing it everywhere, even if the Feds won't admit it.  Hold onto your pocket books people, it will get worse.  If it is necessary, you had better be stocking up on it.  It will be getting more expensive.  It has to.  The value of the dollar has been declining thanks to QE1 & QE2.   Most of what you are buying is not manufactured here.  That makes imports more expensive.  Thank NAFTA, GAFT, and CAFTA for that.  Ross Perot told us, we wouldn't listen.  The Big Swoosh of jobs leaving this country has already happened.  Imports is what we are stuck with now.  Congratulations, you voted wrong, now you will pay the price.  Better stock up!  Spend your money now, because it will be worth less as time goes on.  The feds are making sure of that.
May 16, 2011 6:39AM
avatar
yes it is going to get worst. thank you washington with your great idea's you showed America obama you can't balance a check book, everything on credit. and now you think raiseing gas prices will help, people can't afford the gas so how will those tax dollars help. hang it up obama and just pack and leave.
May 16, 2011 10:05AM
avatar
Sorry, I do not remember a recovery in the housing market. What I do remember is analysts in 2008 saying the housing market wouldn't begin to recover until early in 2012, if we are lucky.

Beyond that, this article has a firm grasp on the obvious.

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