The Zacks Analyst Blog Highlights:Wal-Mart Stores, Macy's,Nordstrom, Kohl's and Tesla Motors

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Aug 13, 2014, 09:30 ET

CHICAGO, Aug. 13, 2014 /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 the Wal-Mart Stores Inc. (NYSE:WMT-Free Report), Macy's Inc. (NYSE:M-Free Report), Nordstrom Inc. (NYSE:JWN-Free Report), Kohl's Corporation (NYSE:KSS-Free Report) and Tesla Motors, Inc. (Nasdaq:TSLA-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

Is the Worst Over for These 4 Retailers?

The year 2014 opened on a soft note for several U.S. retailers, given the not-so-convincing performance of the emerging economies and a severe winter that locked consumers indoors. However, following the weather improvement through the second half of February, businesses seemed to gather steam. U.S. retail sales, which account for a third of consumer spending, rose 1.5% in March (as stated by The US Census Bureau), as pent-up demand drove shoppers back to stores after a rebound from the winter freeze.

However, the encouraging trend did not last long as consumers constrained spending due to the weak start to the year. Retail sales barely rose in April and May and edged up just 0.5% in both the months, which signals that consumers were not ready to splurge on shopping. In June, U.S. retail sales increased less than expected with growth of just 0.2%.

However, we note that revenues improved in the months of April, May and June from the first the first three months of the year with improvement in weather conditions. This suggests that the second quarter results of the large retailers could be better than the first.

In fact, many economists expect better U.S. retail sales trends in the second half of the year based on favorable economic data and an improved consumer and business outlook. Per Reuters, improvement is seen in nearly all areas from employment to manufacturing, with recovering housing outlook after slumping in late 2013 following a run-up in mortgage rates.

According to data from the Bureau of Labor Statistics, the unemployment rate was almost the same at 6.2% in July, compared with 6.1% in June and 6.3% in May. The recent Conference Board's data on Consumer Confidence Index reflected a 4.5 points improvement in July to 90.9, up from 86.4 in Jun 2014 and 82.2 in May.

Let us look at the sales trend of some retailers who are scheduled to report this week.

Wal-Mart Stores Inc. (NYSE:WMT-Free Report)

Though Wal-Mart does not report monthly sales like many of its counterparts, it should be noted that the retail giant has been posting negative comparable store sales for the last five quarters in a row. We expect weak traffic and do not expect to see much improvement in the upcoming second quarter fiscal 2014, as we believe shoppers are still spending cautiously.

However, as per Redbook Research's latest reports, the second quarter fiscal 2014 results are expected to be relatively better than the preceding quarters as its sales largely depend on broader retail market trends.

Wal-Mart carries a Zacks Rank #3 (Hold) and is scheduled to report its second quarter fiscal 2014 results on Aug 14 before the market opens.

Macy's Inc. (NYSE:M-Free Report)

Macy's, one of the leading department store retailers, reported a sluggish first quarter, following an exceptionally difficult winter. Business trends were soft from January to March, with the exception of the Valentine's Day shopping period. However, with sales trend improving in April with improving weather conditions, we believe the company is poised to do well in the second quarter.

Macy's has also been taking steps such as integration of operations, consolidation of divisions as well as developing e-commerce business and online order fulfillment centers to increase sales, profitability and cash flows. Management is also optimistic about capturing sales opportunities with its fresh inventory along with My Macy's localization initiatives, omnichannel integration and Magic Selling. Macy's carries a Zacks Rank #3 and is scheduled to report its second-quarter fiscal 2014 results on Aug 13 before the market opens.

Nordstrom Inc. (NYSE:JWN-Free Report)

Despite adverse weather conditions in the first quarter, this upscale department store operator registered improved comps driven by ongoing technological investment towards expanding online presence and enhancing merchandise offerings. However, the company believes the fiscal year 2014 will remain challenging due to a highly promotional environment. Nordstrom holds a Zacks Rank #4 (Sell) and is scheduled to report on Aug 14 after the market closes.

Kohl's Corporation (NYSE:KSS-Free Report)

This specialty departmental store operator has also been posting sluggish sales results in the past few quarters owing to a tough retail environment and harsh weather conditions. Comps declined 3.4% in the last reported quarter, which compared unfavorably with a decline of 1.9% in the prior-year quarter and a 2% decline in the prior quarter. Some firms believe that comps should improve sequentially in the second quarter fiscal 2014 (scheduled to be reported on Aug 14 before the market opens) versus the first quarter, despite sluggish traffic. Kohl's currently has a Zacks Rank #3.

Bottom-Line

With improving macro-economic environment, we can see growth in top-line in most of the retail stocks. However, the revenue growth is sluggish as consumers are gradually and cautiously spending. In fact, they are more interested in products carrying higher discounts, which in turn are harming the retailers. The extremely promotional retail environment is also pushing up competition among the retailers. We expect these headwinds to subside by the end of the year.

Tesla Up on Rating Upgrade Despite Flaws Cited in Model S

Tesla Motors, Inc. (Nasdaq:TSLA-Free Report) garnered some negative publicity for its Model S sedan on the day its stock climbed 4.51% on the back of a rating and target price upgrade by a Deutsche Bank analyst. The news doing the rounds was a result of Consumer Reports' revelation that Model S cars have been found to develop some snags during long-term usage.

Some of the flaws discovered include blanking out of the center touch screen (which performs several key functions), noise from the roof and problem with the front trunk lid release. Most of these problems were found to emerge after the car was driven more than 10,000 miles. Additionally, the car's outside door handles, which automatically extend when the driver approaches or touches them, failed to work on occasions. Tesla fixed this problem through a software update.

Edmunds.com, a California-based automotive data and pricing company also recently reported some problems with Model S including stalling of the car, which required replacement of the main battery pack; freezing of the touchscreen; a creaky steering wheel and problems in opening the sunroof.

However, Tesla fixed all these issues free of charge for both Consumer Reports and Edmunds.com, as the cars were covered by warranty. Moreover, the company admitted that the early models of the car had some flaws which have been fixed in the later models. Tesla conducts a product excellence meeting on a weekly basis to actively address any flaw pointed out by customers.

It is worth noting that Consumer Reports had earlier named Model S the best car of 2014 in its survey of about 260 vehicles. It evaluated cars on the basis of over 50 tests along with reliability ratings provided by subscribers and scores earned by the cars in government and insurance industry crash tests.

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