Stocks ended the week lower after a number of the nation's most prominent department store and apparel retailers, led by Macy's (M), offered disappointing sales reports and dismal forecasts on their near-term results.
MACRO NEWS: In the U.S., retail sales rose 1.3% month-over-month in April, versus expectations for an increase of 0.8%. The core reading, which excludes autos and gas, was up 0.6%, versus expectations for an increase of 0.3%. The producer price index was up 0.2% month-over-month, versus expectations for an increase of 0.3%, while the core PPI reading was up 0.1%, matching expectations.
Business inventories bounced 0.4% in March, with sales up 0.3%, following respective declines of 0.1% and 0.3% in February. Initial jobless claims rose to 294,000 in the week ended May 7, versus expectations for 270,000 first-time claims. Import prices rose 0.3% in April, which was below the consensus forecast for them to be up 0.6%, while export prices rose 0.5% last month, which was better than the expectation for them to have been flat with the prior month.
Wholesale sales jumped 0.7% in March, while inventories rose 0.1%, marking the first increases in sales and inventories since September. In China, exports contracted by 1.8% in April from a year earlier and imports declined 10.9%. China's Consumer Price Index for April was in-line with expectations with a year-over-year increase of 2.3%, while the Producer Price Index came in better than expected with a decrease of 3.4%, versus the consensus expectation for a 3.7% decline.
Additionally, an article in the People's Daily appeared to warn against hoping for too much added stimulus and voiced the state view that China may suffer from a financial crisis and recession if the government relies too much on debt-fueled stimulus. Then, vice premier Zhang Gaoli reportedly said at a forum in Beijing that China will reduce leverage in the economy and is not resorting to large-scale stimulus but that it will still be able to meet its economic growth target for the year. Previously, China set a target for GDP growth in 2016 of 6.5%-7%... In Europe, euro-area first quarter GDP growth was revised 0.1% lower to 0.5% in the second reading.
COMPANY NEWS: Retail was in focus this weekend, and what investors saw was not encouraging. On Tuesday, Gap (GPS) tumbled 11.5% after the apparel retailer reported the fifth consecutive month of sales declines and also guided to first quarter earnings per share below analysts' expectations. On Wednesday, Macy's shares declined about 15% after the department store operator reported first quarter sales that missed analysts' expectations and slashed its fiscal 2016 EPS guidance, saying it is seeing continued weakness in consumer spending levels for apparel and related categories.
On Thursday, Kohl's (KSS) reported weaker than expected sales for the first quarter, joining its sector peers. The group's news flow didn't improve any on Friday, after Nordstrom (JWN) reported sales and earnings that fell short of analysts' expectations and slashed its profit guidance for the fiscal year, Dillard's (DDS) reported results that were well below analysts' estimates on both the top and bottom line and J.C. Penney (JCP) reported an adjusted loss that was not as steep as feared but on revenue that was below the consensus forecast...
On Wednesday, Disney (DIS) dropped 4% after the media giant's revenues and profits came in below expectations, which had been ratcheted up recently following the strong performance of several of its films at the box office...
Among other companies reporting earning this week, Electronic Arts (EA), Allergan (AGN), Teva (TEVA), SodaStream (SODA), Wayfair (W), Nvidia (NVDA) and Shake Shack (SHAK) advanced, while SolarCity (SCTY), Fossil (FOSL), Wendy's (WEN) and JD.com (JD) slumped immediately following their quarterly reports...
Office Depot (ODP) plunged 40% lower following the company's merger with Staples (SPLS) being terminated after a judge granted the Federal Trade Commission's request for a preliminary injunction to block the deal. Staples also dropped over 18% on Wednesday following the news, after which it announced an updated strategic plan and said it plans to explore strategic alternatives for its European operations.
Elsewhere on the M&A front, Krispy Kreme Doughnuts (KKD) agreed to be acquired for $21 per share by a unit of JAB Holding, which previously led a buyout of K-cup coffee cup maker Keurig Green Mountain and acquired Peet's Coffee & Tea and Caribou Coffee. Monsanto (MON) jumped more than 8% on Thursday after media reports indicated that a pair of giant German companies may be interested in pursuing an acquisition of the U.S. agricultural products maker.
Bayer AG (BAYRY) has held preliminary discussions internally and with advisers about a potential bid for Monsanto, said Bloomberg, and German peer BASF SE (BASFY) is also working with investment banks to consider a potential takeover of the seeds and herbicides provider, according to StreetInsider. Infoblox (BLOX) rallied nearly 25% the same day after Bloomberg reported that the company received a takeover offer from private equity firm Thoma Bravo...
Didi Chuxing, a one-stop mobile transportation platform in China, announced that Apple (AAPL) has invested $1B in the company. After losing its place as the most highly valued publicly traded company yesterday to Google's parent Alphabet (GOOGL), Apple recovered in morning trading and overtook Alphabet. However, the iPhone maker was not able to hold its lead and ended the day taking a back seat once again to the search giant...
LendingClub (LC), the largest player in the online lender industry, plunged more than 34% on Monday and ended the week with a loss of about 50% after the surprising resignation of Renaud Laplanche, its founder and CEO. Laplanche's resignation followed an internal review of sales of $22M in near-prime loans to a single investor, which led to the further discovery of another matter unrelated to the sale of the loans, involving a failure to inform the board's Risk Committee of personal interests held in a third party fund while the company was contemplating an investment in the same fund.
INDEXES: The Dow (DIA) lost about 1.2% to close at 17,535.32; the S&P 500 (SPY) fell about 0.5% to close at 2,046.61; the Nasdaq (QQQ) declined about 0.4% to close at 4,717.68.
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