Stock to Watch: Estee Lauder, H-P, Walmart, Abercrombie, Aeropostale
Business + Economy

Stock to Watch: Estee Lauder, H-P, Walmart, Abercrombie, Aeropostale

iStockphoto week’s gut-wrenching five days, with stocks down around 2% when the markets closed on Friday, ended with conflicting reads on the American consumer.  According to the Commerce Department, retail sales in July increased by 0.5%. Excluding gasoline sales, retail sales grew a better-than-expected 0.3%. However, the University of Michigan’s consumer sentiment reading fell to a disappointing 54.9.  This is the lowest sentiment reading in over 30 years.  Major earnings announcements this week may provide more color on the health of the consumer.

Estee Lauder’s Lipstick Indicator
During tough economic times, consumers cut back on big-ticket purchases. However, Estee Lauder (EL) has found that female consumers fulfill the need to splurge by purchasing increasing amounts of lipstick. In the nine months ending March 31, Estee Lauder’s makeup sales jumped 14%. Makeup made up 38% of net sales. When the company releases fiscal fourth-quarter financial results on Monday morning,  analysts estimate earnings will have declined to 24 cents per share, down from29 cents per share a year ago, due weakness in Japan and certain Q4 orders that were delivered in Q3.  For the full fiscal year, management estimates net sales grew 10 percent to 11 percent versus 2 percent to 4 percent for the industry. Estee Lauder’s brand portfolio includes Clinique, Prescriptives, Lab Series, Origins, M-A-C, Bobbi Brown, La Mer, Aveda, and Jo Malone.

HP: Ahead in the Cloud
Hewlett-Packard (HPQ) is expected to report fiscal Q3 earnings of $1.09 per share, up a penny from a year ago, when it announces its financial results Thursday afternoon. Last Thursday, H-P slashed prices on its TouchPad to better compete with other tablet computers like Apple’s iPad. Personal systems account for 30% of net sales. Investors will be more interested in HP’s enterprise business, which accounts for 46% of sales. On Friday, a Jefferies technology analyst upgraded HP to Buy, saying, “enterprise spending continues.” Over the long term, HP stands to benefit from the boom in cloud computing. Competitor Dell (DELL) announces earnings after the markets close on Tuesday. Earnings are expected to rise to 49 cents per share from 32 cents per share.

The Writing is on the Walmart
Earlier this month, Bloomberg reported that a leaked internal memo said Walmart’s customer traffic is falling. Analysts expect the company to report a 0.6% year-over-year sales decline in U.S. stores open at least a year. As consumers struggle with the weak economy, they are increasingly opting for deeper discounters like DollarGeneral and Family Dollar. Thanks to overseas sales and cost cuts, earnings are expected to grow to $1.08 per share from 97 cents per share a year ago. With over 9,000 locations worldwide, Walmart has unparalleled access to consumers. Last April, CEO Mike Duke said shoppers are “running out of money” at a faster rate than a year ago. Hopefully he’ll have better things to say when the company announces earnings on Tuesday morning. On Wednesday, rival Target (TGT) is expected to report 97 cents per share  in earnings, up from 92 cents per share.

Abercrombie Rocks, Aeropostale Drops
Clothing retailers Abercrombie & Fitch (ANO) and Aeropostale (ARO) announce quarterly financial results on Wednesday and Thursday, respectively. Earlier this month, Abercrombie said Q2 same-store sales—stores open for over a year—jumped 9.9%, exceeding expectations. Earnings are expected to grow 5 cents year over year to 29 cents per share.  On the other hand, Aeropostale same-store sales plunged 14% during the same period. “We are very disappointed with our second-quarter financial results that were clearly unacceptable,” said Aeropostale CEO Thomas Johnson. Aeropostale is expected to report a net loss of 3 cents per share versus net earnings of 46 cents per share a year ago. Economists and analysts will be interested in what the respective managements have to say about the slow back-to-school shopping season.