Penney gross margin slips on price-cutting

Penney gross margin slips on price-cutting

Stock Market Predictions

NEW YORK (Global Markets) - J.C. Penney Co Inc (JCP.N) forecast weaker-than-expected third-quarter earnings as more price cutting threatened to further dent its gross margin, sending its shares down 1 percent in morning trade.

The department store chain reported second-quarter profit in line with the average Wall Street estimate as merchandise available only at Penney stores boosted sales at its stores.

But early in the quarter, Penney found itself having to offer more discounts after sales were soft, lowering gross margin by 1.1 percentage points to 38.3 percent. The company said gross margin would also take a slight hit in the current quarter.

Penney CEO Myron Ullman, who is stepping down in November, said consumers are likely to remain stressed.

"The tumultuous last 10 days or so hasn't given our core customer, the middle income family, any reason to be more confident," Ullman said on a call with the investors.

U.S. consumer sentiment worsened sharply in early August, falling to the lowest index level since 1980, according to a survey released on Friday by Thomson Global Markets/University of Michigan.

Unemployment has been above 9 percent for about two years now while wages have stagnated, curbing middle class and less affluent consumers' ability to shop.

Penney reported that second-quarter net income was little changed from a year earlier at $14 million, or 7 cents per share. That was in line with Wall Street analysts' average forecast, according to Thomson Global Markets I/B/E/S.

Net sales were down 0.8 percent to $3.91 billion, largely because of its exit from its catalog business. Same-store sales were up 1.5 percent, a slower clip than Macy's, Dillard's and Kohl's Corp.

Penney forecast earnings per share in the current quarter will range between 15 cents and 20 cents, below analysts' average forecast of 23 cents.

Penney shares were down 1 percent at $26.56, while Kohl's (KSS.N) were up 1 percent, and Macy's (M.N) slipped 0.4 percent. The S&P 500 index .SPX was up 0.5 percent.

MARGINS UNDER PRESSURE

Penney, whose shoppers are more exposed to an economic slowdown than rival Macy's Inc or higher-end chain Nordstrom Inc (JWN.N), forecast sales at stores open at least a year, or same-store sales, to rise between 2 percent and 3 percent in the third quarter, helped by exclusive merchandise.

Penney in recent years has worked to remake itself into a fashionable destination with exclusive lines such as Liz Claiborne (LIZ.N) clothing and stores-within-its-stores for cosmetics seller Sephora and Spain's fast-fashion chain Mango.

Penney suffered dramatic sales declines during the recession. Sales are recovering, in part because of those higher end lines, but are still below 2008 levels.

Exclusive lines give shoppers a reason to choose one chain over another and lowers the risk of having to slash prices to stay competitive and take a hit to their gross margin.

But Wall Street Strategies analyst Brian Sozzi told Global Markets that Penney has further to go than Macy's or even Kohl's in offering merchandise to entice shoppers to pay up.

"Penney has more exposure to selling basic items," like white T-shirts, Sozzi said.

Macy's, Kohl's and Dillard's all reported steady or higher gross margin for the second quarter.

Earlier this week, department store peers Macy's, Nordstrom and Kohl's all raised their profit outlooks and forecast strong sales for the rest of the year. Late Thursday, Dillard's Inc (DDS.N) reported quarterly profit more than doubled.

U.S. retail sales in July posted their biggest gain since March, tempering fears that the world's largest economy might be slipping back into recession. Excluding autos, sales increased 0.5 percent, well above forecasts for a 0.2 percent gain.

Penney, which is in the process of selling its outlet business, said it was offering voluntary early retirement packages to certain employees. The chain will say next quarter how many employees are eligible and what the costs might be.

In June, Penney announced that Apple Inc's (AAPL.O) senior vice president of retail, Ron Johnson, will become CEO after Ullman steps down. Ullman will become executive chairman of the board.

(Reporting by Phil Wahba, editing by Gerald E. McCormick, John Wallace, Phil Berlowitz)

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Citi reinstates quarterly dividend at 1 cent

Citi reinstates quarterly dividend at 1 cent

Stock Market Predictions

NEW YORK (Global Markets) - Citigroup Inc (C.N) declared its first dividend in more than two years on Friday, announcing it will pay a penny per share on June 17, but analysts said the bank could take a while to pay the kinds of dividends that its rivals do.

The third-largest U.S. bank, which needed $45 billion in U.S. government bailouts to survive the financial crisis, said in March it planned to reinstate its dividend after shrinking its number of shares outstanding with a 1-for-10 reverse stock split.

The bank's payout pales in comparison to stronger rivals, amounting to a dividend yield of a tenth of a percent for the shares, compared with JPMorgan Chase & Co's (JPM.N) 2.3 percent.

Citigroup Chief Executive Vikram Pandit has said the bank will likely wait until 2012 to increase the amount of capital it returns to shareholders, through increased dividends or share buybacks.

The bank has posted five consecutive quarterly profits but it has struggled to generate the same level of earnings as rivals like JPMorgan Chase.

Bank investors are skeptical that the company will boost its flagging revenues enough to significantly increase payouts by next year.

"I'll believe it when I see it," said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel, which specializes in dividend-paying stocks.

The bank shrank its outstanding share count on Monday, to 2.9 billion from 29 billion, through the reverse share split. Citigroup's share count ballooned during the financial crisis, as the U.S. government stepped in three separate times to rescue the bank and then started selling off its resulting one-third common share stake.

In December, the government finished selling all of the common shares it took in the bank as part of its bailouts, but Citigroup is still struggling to grow its revenues.

Investors, who see reverse splits as cosmetic fixes to what are often fundamental problems, have not rewarded Citigroup. The bank's shares are down more than 7 percent since they started trading on a split-adjusted basis on Monday. They were down 1.7 percent at $41.71 on Friday afternoon.

Citigroup last paid a 1-cent dividend in February 2009 as it teetered on the brink of collapse during the crisis. The dividends it will pay out now amount to about $116 million a year, or about 1 percent of its full-year 2010 net income.

JPMorgan, which pays a dividend of a quarter per share, is paying out closer to a quarter of its 2010 net income in dividends.

In 2006 Citigroup paid out $10 billion of dividends, amounting to about 45 percent of its full-year earnings.

The bank first said it would reinstate a dividend in March, after a slew of stronger rivals received regulatory authorization to lift their dividends by as much as 20 cents a share and buy back stock.

The Federal Reserve concluded a second round of stress tests of the largest U.S. banks then, and gave some the green light to boost shareholder profits. But the Fed restricted 2011 dividend payouts to 30 percent of each company's expected earnings for the year.

(Reporting by Maria Aspan; Editing by Gerald E. McCormick, John Wallace and Richard Chang)

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Bankrate closes up 2.3 percent in market debut

Bankrate closes up 2.3 percent in market debut

Stock Market Predictions

NEW YORK (Global Markets) - Shares of Bankrate Inc (RATE.N), which publishes personal finance content online, rose in their stock market debut on Friday.

After spending the early part of the day in negative territory, Bankrate shares closed at $15.34, or 2.3 percent above their $15 IPO price in their first day of trading on the New York Stock Exchange.

North Palm Beach, Florida-based Bankrate collects and publishes rates and other financial data in areas including mortgages, car loans, banking fees and retirement savings. It began as a newsletter in 1976 and moved to the Web in 1996.

The company, whose main sources of revenue are advertising and lead generation, distributes its content to websites and print publications including CNBC, Bloomberg, The Wall Street Journal and The New York Times.

In the three months ended March 31, Bankrate's common stockholders lost $4.2 million on revenue of $99.1 million.

Bankrate was taken private for $571 million in 2009 by Ben Holding S.a.r.l, an entity owned by funds affiliated with private equity firm Apax Partners.

Based on its Friday close Bankrate now has a market value of around $1.53 billion, meaning that Ben Holding and Apax have more than doubled the value of their investment in about two years.

Ben Holding still owns just over 70 percent of the company.

"The company's trajectory is very good," said Bankrate Chief Executive Tom Evans, but added: "We are thinking about what the value of the company is over time, not how it trades on the first day."

On Thursday, in an IPO led by Goldman Sachs & Co (GS.N) and Bank of America Merrill Lynch (BAC.N), Bankrate and its owners sold 20 million shares at $15 each, raising $300 million.

(Reporting by Clare Baldwin and Jennifer Saba; Editing by John Wallace, Gerald E. McCormick and Steve Orlofsky)

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Fortress profit up but faces dividend questions

Fortress profit up but faces dividend questions

Stock Market Predictions

BOSTON (Global Markets) - Fortress Investment Group LLC (FIG.N) on Thursday said pretax distributable earnings rose 7 percent in the first quarter as assets under management increased.

But its shares fell 5.3 percent in morning trading as the company faced questions over its lack of a dividend.

Fortress, one of the first big hedge fund and private equity firms to go public, said its net loss attributable to Class A shareholders widened to $103 million from $84 million a year earlier as compensation costs and income tax expenses rose.

Pretax distributable earnings were $103 million, or 20 cents per share, up from $96 million, or 19 cents per share, a year earlier.

Fortress says pretax distributable earnings are the best way to measure its performance because the figures exclude compensation costs tied to the equity interest of principals who took the company public in 2007.

"I'd say overall our initiatives are tracking well," Chief Executive Daniel Mudd said on a conference call with investors.

Several analysts on the call mentioned the company's lack of a dividend, which it suspended during the financial crisis of 2008. Other asset managers took similar actions at the time but have since restored or increased dividends as funds have rebounded.

Mudd said he could not offer any sense of timing on when the company's board may make a decision to resume payments or not. Management has not made a recommendation to the board on the question to date, he added.

Assets under management were $43.1 billion at March 31, up from $30.2 billion a year earlier but lower than the $44.6 billion it reported on December 31, 2010.

The increase from a year ago was due mainly to the acquisition in April 2010 of Logan Capital Partners, which had $12.5 billion in assets under management at the time.

Fortress said first-quarter redemptions totaled $614 million. During the period, assets under management fell in the company's private equity funds and credit hedge funds.

Total segment revenue -- including incentive income and fees -- was $244 million in the quarter, up from $207 million a year earlier. Analysts surveyed by Thomson Global Markets I/B/E/S on average had $211 million.

(Reporting by Ross Kerber; Editing by John Wallace and Maureen Bavdek)

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Travelers to post loss, slow buybacks after storms

Travelers to post loss, slow buybacks after storms

Stock Market Predictions

NEW YORK (Global Markets) - Devastating tornadoes like the twister that hit Joplin, Missouri, last month will push Travelers Cos Inc (TRV.N) to a second-quarter operating loss and force it to slow down share buybacks, the property insurer said on Friday.

The company also warned of worst-case-scenario industry losses on the recent tornadoes in the United States. Travelers is the second major property insurer, after Allstate Corp (ALL.N), to warn of at least $1 billion in second-quarter catastrophe losses from the series of deadly twisters.

Two companies losing nearly $2.5 billion in less than two months is especially noteworthy, since the entire insurance industry lost $13.6 billion to U.S. catastrophes in all of 2010.

Travelers' and Allstate's peers are likely to experience much of the same. MetLife (MET.N) said late Friday its auto and home insurance business lost as much as $153 million more than expected in April and May.

Travelers shares closed 3.1 percent lower, making them one of the biggest drags on the Dow Jones industrial average .DJI and the second-biggest decliner among S&P insurance shares.

Yet one analyst said there was a silver lining in all the catastrophes that could benefit the company.

"We think the record level of worldwide catastrophe losses will provide a catalyst for firmer insurance rates, and see (Travelers) well positioned to leverage that trend," said Standard & Poor's equity analyst Cathy Seifert in a research note, maintaining a "strong buy" rating on the company.

BUYBACKS AT RISK

The global insurance industry has had an unprecedented start to the year. Even without a major hurricane having made landfall, insurers are on track to post their largest catastrophe losses ever, due largely to earthquakes in Japan and New Zealand and a series of once-in-a-century tornadoes.

Analysts have said buyback programs across the industry were at risk, after years of heavy share repurchases that were driven by limited catastrophe losses and few other good options to deploy growing cash piles.

Analysts polled by Thomson Global Markets I/B/E/S had on average expected Travelers to earn $1.29 per share on an operating basis this quarter. Since late April, eight analysts have cut their second-quarter estimates, according to Thomson Global Markets data, but all of them still expected a profit.

As of Friday, none of the 18 analysts reporting earnings estimates on the company had expected it to lose money this quarter. Travelers has beaten Wall Street's average earnings estimate by at least 20 cents per share for the last three quarters in a row.

$1 BILLION LOSS

The difference this time is the weather. Travelers said Friday that its after-tax catastrophe losses for April and May were likely to be between $1 billion and $1.05 billion.

That is double what the company said it would expect to lose for all catastrophes in an average year, based on its long-term modeling.

As a result, the company will buy back less than $250 million in stock in the second quarter. In the first quarter, repurchases topped $1.1 billion.

In the second half of the year, Travelers said repurchases would be about $400 million in excess of operating income. As of late January, the company's total authorization for repurchases was $6.5 billion.

Travelers shares closed down $1.87 at $59.21. At those levels the stock was at its lowest point in nearly two months.

(Reporting by Ben Berkowitz; editing by John Wallace, Dave Zimmerman, Gary Hill)

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