CHICAGO, Nov. 7, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Groupon (Nasdaq: GRPN), Starbucks (Nasdaq: SBUX), Gap Inc. (NYSE: GPS), American Eagle Outfitters Inc. (NYSE: AEO) and The TJX Companies Inc. (NYSE: TJX).
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Here are highlights from Friday's Analyst Blog:
Jobs Report Asserts Favorable Bias
The Bureau of Labor Statistics reported the creation of 80K jobs in October, modestly lower than the roughly 90K expectation. Private sector jobs totaled 104K, below the expected 120K level. We also have positive revisions to the prior two months, with 102K in net additions to the originally reported September and August numbers. The unemployment rate ticked down to 9% from 9.1%. Average work week remained unchanged, while average hourly earnings increased 0.2% after increasing at the 0.3% in September.
If we step back from today's October jobs report and scan the broader economic landscape, we see a clear improving trend in economic readings over the last two months after a period of sub-par performance in the summer months. It is becoming obvious now that the U.S. economy lost momentum in the middle part of the year as it faced high oil prices and disruptions resulting from the Japan disaster. The acrimonious debt debate in the summer and the subsequent rating downgrade further damaged confidence in the recovery.
But the economy made a decent turnaround in the third quarter as the restraining effects of those headwinds started to ease. We saw evidence of that not only in the third quarter GDP report, but also in the relatively high frequency measures of industrial production, consumer spending and labor market trends. Today's October jobs report builds on last month's positive reading and is broadly confirmatory of what we have been seeing lately in the weekly Jobless Claims data.
The big-picture takeaway is that the economic recovery is back on track. This is a big improvement relatively to the double-dip recession fears that were so prevalent in August and September. But the reality is that this growth pace will do little to bring down the nation's very high unemployment rate. As welcome as monthly job gains in the 120K vicinity are, they are barely enough to meet the incremental additions to the labor market every month. We need significantly more monthly job additions to bring down the unemployment rate.
In corporate news, Groupon (Nasdaq: GRPN) shares make their public debut today after the company successfully priced its IPO at $20 a share late Thursday, above the expected $16-$18 range of just a few days back. This gives the company a market value of approximately $13 billion. On the earnings front, we had better-than-expected results from Starbucks (Nasdaq: SBUX) after the close on Thursday. The company also announced a 31% dividend hike and added to its existing buyback program.
Gap's Comps Fall Yet Again
Gap Inc. (NYSE: GPS), one of the leading global specialty retailers, reported a 6.0% drop in same-store sales for the four-week period ended October 29, 2011. Results for the month also compared unfavorably with the year-over-year same-store sales growth of 4.0%.
Gap witnessed a contraction in same-store sales across each of its segments except Banana Republic North America. The company reported a decline of 9.0% in Old Navy North America segment compared with a positive 4.0% growth in the prior-year period. Gap North America's same-store sales declined 5.0% versus positive 7.0% in the prior-year period. The company's same-store sales in the international region plunged 7.0% compared with a growth of 2.0% last year.
Net sales for the four-week period ended October 29, 2011 declined 4.0% to $1.14 billion compared with net sales of $1.19 billion in the prior-year period, primarily due to sluggish performances across all of the company's businesses.
Third-quarter 2011 Sales
The company's third quarter ended October 29, 2011 witnessed a contraction in same-store sales across each of its segments. The company registered a decline of 5.0% in Gap North America business versus a growth of 2.0% in the prior-year quarter. Old Navy North America's segment declined 4.0% versus flat in the year-ago period. The company's Banana Republic North America business inched down 1.0% compared with an increase of 2% in the prior-year period. The company's same-store sales in the international region plunged 10.0% compared with a growth of 4.0% last year.
Consequently, Gap's overall same-store sales during the quarter declined by 5.0% compared with an increase of 1.0% in the previous year quarter. The company's net sales inched down 2.0% to $3.59 billion compared with $3.65 billion in the prior-year quarter.
Third-quarter 2011 Earnings Guidance
The company has issued its earnings guidance for third-quarter 2011 in the range of 35 to 37 cents per share.
Year-to-date Sales
On October 29, 2011, Gap completed 39 weeks of fiscal 2011 and reported a decline of 3.0% in same-store sales compared with an increase of 2.0% in the prior-year period. Net sales during the period remained almost flat year over year at $10.27 billion.
Gap operates in a highly fragmented market and competes with well-established rivals, such as American Eagle Outfitters Inc. (NYSE: AEO) and The TJX Companies Inc. (NYSE: TJX). Moreover, reduction in disposable income coupled with lower consumer discretionary spending arising from the recent economic downturn may dent the company's future operating performance.
Gap's shares maintain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Our long-term recommendation on the stock remains 'Neutral'.
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