Retail Earnings Alert: Checking Out Best Buy, Staples and Walmart

On Thursday morning, investors were provided with further indications that the Federal Reserve will increase interest rates soon, including an encouraging unemployment claims figure and a few key earnings reports, and the major indices responded favorably.

The Dow Jones Industrial Average rose 35.68 points or 0.19% to 18,903.82, the Nasdaq Composite added 39.39 points or 0.74%, and the S&P 500 gained 10.18 points or 0.47%.

With the market continuing to flirt with all-time highs, one has to wonder when a downturn will occur. Don't get caught holding the wrong stocks when that happens.

Fed Chief Janet Yellen testified in front of Congress on Thursday and told members of the committee that a rate increase could be "appropriate relatively soon."

Investors took this as a nearly sure sign that the Fed would move rates higher by 0.25% during its December meeting, as rates on Treasury notes rose across the board.

The Department of Labor also reported that initial jobless claims for the week ended Nov. 12 fell to their lowest level since November 1973. Although economists were expecting claims to hit 257,000 for the week, they actually came in at 235,000.

Most investors see this as a good sign for the economy, but with the holidays approaching we need to remember that companies are hiring to fill seasonal spots, and one strong week doesn't prove a trend.

Other important news Thursday was earnings reports from several big retailers. Let's take a look at three of the biggest.

1. Best Buy (BBY)
Technology retailer Best Buy reported encouraging third-quarter earnings Thursday, and its shares rose 13.7%.

Best Buy reported revenue growth of 1.4% from a year earlier, while adjusted net income rose 37.5%.

Revenue of $8.95 billion beat analysts' estimate of $8.85 billion, while adjusted earnings came in at 62 cents a share, again above the forecast of 47 cents a share.

Looking ahead to the fourth quarter, management forecasts revenue of between $13.4 billion and $13.6 billion and earnings between $1.62 a share and $1.67 a share. Analysts had been expecting revenue of $13.7 billion and earnings of $1.58 a share in the fourth quarter.

Best Buy looks as if it has slowed if not stopped the affect that Amazon and other Internet retailers were having on its business. However, it is important to keep in mind that Best Buy still operates in a very difficult niche space where price of products wins.

2. Staples (SPLS)
The office supply retailer reported mixed third-quarter results on Thursday, but the stock still rose 3.9%.

Revenue declined by 4% from a year earlier to $5.36 billion, below the expected $5.4 billion. Same-store sales fell 4%, compared with an analyst estimate of a 3.2% decrease.

But adjusted earnings of 34 cents a share matched expectations.

The results weren't great, but they show that the company can and will likely survive the blocked acquisition of Office Depot.

Thursday's bounce in shares of Staples was likely because it gave investors hope that the company could become more profitable down the road, but investors may want to steer clear for now.

3. Walmart (WMT)
The king of retail's stock fell more than 3% on Thursday after Walmart missed on the top line but beat on the bottom line.

Walmart posted revenue of $118.2 billion, up from $117.4 billion a year earlier but below estimates of $118.6 billion. Earnings came in at 98 cents a share, lower than $1.03 a year earlier but higher than the 96 cents a share that analysts expected.

The company is making headway into ecommerce, reporting a 20.6% increase in global online sales.

Traffic rose 0.7%, helping increase same-store sales by 1.2%, but investors still weren't happy. The traffic increase was lower than past quarters, and lower food costs hurt the company's bottom line.

Walmart had fallen more than 4% during Thursday's trading session, but even the 3% decline seemed overblown, which could be due to the fact that Target reported results on Wednesday and showed strong growth for the third quarter.

Investors shouldn't get hurt if they decide to buy shares of Walmart Friday after the recent decline. 

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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