It’s shaping up to be an austere holiday season. Wal-Mart lowered its full-year forecast and warned sales would be flat through the end of January, the WSJ’s Shelly Banjo reports. The holiday shopping period “is going to be about as competitive of a market as we’ve ever seen,” Wal-Mart U.S. Chief Executive Bill Simon said. “Incomes are going down, while food costs, gas and energy prices—while abating—are still eating up a big piece of customer budgets.” Kohl’s also reported weak results and said it scaled back its inventories ahead of the holidays, as it worries about its ability to boost sales.
Wal-Mart’s downbeat outlook was a reminder that even though stock prices have been surging, a lot of Americans are struggling to find jobs, while those that are employed are still reeling from hits to their paychecks that are limiting their ability to spend, Banjo notes. And even though Americans are gradually feeling more comfortable borrowing for major items like cars and homes, shoppers are still skittish about taking on additional credit-card debt.
Morgan Stanley analysts have said that this year’s holiday season is likely to be the worst since the financial crisis in 2008, the FT notes. Cowen & Co. analyst Faye Landes said that retailers that slashed prices would squeeze their profit margins, but that those that didn’t would lose sales. “If you have to choose one it should definitely be don’t give up on sales, because once you’ve lost customers it’s hard to get them back,” she said.
THE DAY AHEAD:
Economists expect the headline Industrial Production Index rose by 0.2% in October. That would be slower than September’s pace, but there are some hopeful signs that manufacturing activity actually quickened, writes Ahead of the Tape’s Spencer Jakab. After a somewhat disappointing September for auto sales, U.S.-based manufacturers’ sales picked in October. General Motors, Ford and Chrysler had 16%, 14% and 11% growth in domestic unit sales, year-to-year, respectively. Continued strength in auto sales seems to be an outgrowth of easier credit terms for consumers and a rebuilding of household balance sheets.
Markets flash: Japanese shares rallied as the dollar breached the ¥100 mark for the first time in two months on comments by Janet Yellen during her confirmation hearing. (More on that below.) European markets are little changed and DJIA futures are up slightly.
Corporate bonds selling at record pace. Highly rated companies are selling bonds in the U.S. at the fastest pace on record, with total bond sales for 2013 surpassing $1 trillion, the WSJ reports. Investors said the deluge highlights worries that interest rates could rise, raising costs for companies, which are diving in now to take advantage of rates that remain low. Despite the record issuance, investment-grade corporate bonds haven’t had a stellar year. They have posted a 1% negative return this month and a 2.16% negative return so far this year.
Should CEO pay be capped? Switzerland will vote next week on a proposal limiting executive pay to 12 times that of a company’s lowest paid worker, the second time this year the country will use the ballot box in an attempt to rein in corporate compensation, writes the WSJ’s Neil MacLucas. The Swiss have grown more concerned about wealth disparity as the gap between a wealthy executive class and everyday workers grows. But critics say the initiative, if passed, will make Switzerland a less attractive place to do business. And executives at some companies, including Glencore Xstrata and Kuehne + Nagel, have said they would consider leaving Switzerland if the initiative passes.
EMC CFO: ‘Contractors need budget clarity.’ EMC’s finance chief says U.S. contractors need budget clarity after weaker-than-expected government sales in Q3 led the company to cut sales and earnings forecasts for the year, Bloomberg’s Sam Chambers reports. “Uncertainty makes it harder for us to predict our business, when you have an important sector that’s limping along from a budget point of view,” CFO David Goulden said. “It’s part of the global environment right now, everybody is impacted by it to a certain extent.”
Tech firms feel a chill inside China. Big U.S. computer and software companies are reporting a sudden chill in sales to China, the WSJ reports. IBM, Microsoft and Hewlett-Packard all reported declining sales to China in their most recent fiscal quarters. Executives at Cisco Systems suggest that Chinese customers, particularly those with government ties, may be cutting purchases of U.S. tech gear in response to U.S. restrictions on Chinese companies and revelations about surveillance by the NSA.
Auto-parts makers shift to high-tech gear. Once threatened, the U.S. auto-parts industry is profiting by focusing on high-tech electronics, software and fuel-efficiency boosting products instead of commodity parts, writes the WSJ’s Jeff Bennett writes. Delphi Automotive, for example, has moved away from low-margin steering wheels, ball bearings and spark plugs to technologically complex products, especially “active safety products,” such as adaptive cruise control, lane-departure warning systems and front and rear cameras, which help prevent accidents. These newer products also require stepped-up spending on R&D, and face competition from high-tech companies such as Google that are edging into automotive technology.
Icahn reports stake in Apple. Carl Icahn owns a stake of 3.88 million shares in Apple worth $2.05 billion, according to an SEC filing. The holding, as of Sept. 30, is part of Mr. Icahn’s drive to get Apple to deploy more of its cash to return value to shareholders, Bloomberg says. He sent a letter to CEO Tim Cook last month urging the board to increase stock repurchases. Mr. Icahn has indicated that he intends to buy more of the stock, which he said is undervalued.
Obama to allow insurers to keep canceled health plans. The White House announced a plan to allow insurance companies to continue offering existing policies next year even if they fall short of standards set by the health law, the WSJ reports. President Obama is depending on state insurance commissioners to allow carriers to ignore the law’s requirements for a minimum standard of coverage, and for carriers to agree to rescind cancellations. Some state insurance commissioners expressed reservations about the move, while others said they would allow carriers to take advantage of the extension.
Yellen stands by Fed strategy. Fed Vice Chairwoman Janet Yellen signaled that no big changes would come to the central bank under her leadership if she becomes its next chief, the WSJ’s Jon Hilsenrath and Victoria McGrane report. Fed officials are trying to decide “at each meeting” whether the moment is right to begin trimming the bond purchases, she told members of the Senate Banking Committee at a nomination hearing. “There is no set time,” Ms. Yellen said. The committee plans to vote on Ms. Yellen’s nomination as soon as next week. She is expected to then win confirmation from the full Senate.
U.S. probes currency trades. Attorney General Eric Holder says groups of traders from several major banks may have influenced currency benchmarks to benefit their employers. “The manipulation we’ve seen so far may just be the tip of the iceberg,” Mr. Holder told the NYT. “We’ve recognized that this is potentially an extremely consequential investigation.” No one has been accused of wrongdoing, and any improper actions probably would have involved only a corner of the overall market. But the priority that investigators are giving the case reflects the significance of the market in the world’s major currencies itself. With trading of more than $5 trillion a day, it dwarfs any stock or bond market.
Motorola Solutions, an electronics maker based in Schaumburg, Ill., named acting finance chief Gino Bonanotte to the CFO role on a permanent basis. Mr. Bonanotte had served as acting CFO since Ed Fitzpatrick departed the company by mutual agreement in August after 15 years with the firm and more than four years as CFO. Motorola Solutions didn’t immediately disclose updated compensation information for Mr. Bonanotte, if any, but in August it said his salary was increased to $365,000 and he would be granted 3,032 restricted stock units and options to acquire 16,040 more shares.
Bemis, a packaging maker based in Neenah, Wis., said Scott Ullem resigned as CFO. He will remain with the company through the end of the year to help with the transition of his duties. Bemis has begun a search for his replacement, and named Jerry Krempa, its controller, as its principal accounting officer, effective immediately. In 2012, Mr. Ullem received total compensation valued at $1.8 million, including a $500,000 salary, a $407,875 bonus and stock awards valued at $909,418, according to its most recent proxy statement.
Rent-A-Center, a Plano, Texas-based chain of rent-to-own stores, said that its co-founder and chief executive, Mark Speese, would retire at the end of January and be succeeded by CFO Robert Davis. Mr. Davis, a 20-year company veteran who has been CFO since 1999 and is also its treasurer, was also elected to its board of directors, and Rent-A-Center said Mr. Speese will remain chairman after he retires. Mr. Davis’s salary will increase to $750,000, the company said in a regulatory filing, $200,000 a year below what his predecessor received in 2012 but a more than $300,000 raise from what Mr. Davis made that year. Last year, Mr. Davis received total compensation valued at almost $1.2 million, including a salary of $446,700, a $229,716 bonus and equity awards valued at $453,159, according to its proxy.
THE WEEKEND READER
Every Friday we select a handful of in-depth articles we think are worth a bit of your valuable weekend time, either because they peel back the layers on a compelling business story, or somehow make us look at business in a different light.
Bill Gates: Here’s my plan to improve our world. The Microsoft co-founder’s involvement with projects to increase the lifespan of the world’s poorest has been well-documented. In Wired, Mr. Gates describes his philanthropic approach of looking for problems that markets and governments aren’t paying attention to and then investing for big returns — “a way to put in a dollar of funding or an hour of effort and benefit society by a hundred or a thousand times as much.” Mr. Gates says that companies, particularly technology companies, have a huge role to play. Take Big Data. “Right now researchers are using satellite images to study soil health and help poor farmers plan their harvests more efficiently,” he writes. “We need a lot more of this kind of innovation. Otherwise, Big Data will be a big wasted opportunity to reduce inequity.”
Hertz CEO talks disruptions. “Micromanaging” is not a bad word Hertz CEO Mark Frissora tells McKinsey & Co. Leaders that want to set strategy need to “get into the guts of the business and see what happens there,” he explains. That gut work also helps Hertz executives better detect and adapt to the technological disruptions hitting the car rental industry. “Online intermediaries are all selling car rentals. Essentially, all they do is use a piece of software that makes it convenient for the consumer to shop and compare,” he says. Hertz’s acquisition of Zipcar, the urban service which allows consumer to rent cars via an app, demonstrates his company’s goal to embrace transformational technology. “It’s better to use a new technology to transform your own business than to watch your competitors beat you to it.”
The McRib ‘flaunts its faultiness.’ The McRib, the occasionally offered “restructured pork patty pressed into the rough shape of a slab of ribs” from McDonald’s, has been mentioned in song, in movies and in at least one lawsuit. An entire episode of the Simpsons revolved around tracking down the elusive “Ribwich.” Ian Bogost adds to the McRib-opedia in the Atlantic with a couple of thousand words on a sandwich that “flaunts its faultiness.” In fact, “that very manufactured falseness is itself what we desire, in food as much as in smartphones—what is high-tech if not designed fakery?” He adds that the purpose of the mystery sandwich is to make the McNugget—another McDonald’s product—seem normal by comparison. Bogost lays on the barbeque sauce pretty thick, but there is no denying the importance the McRib plays in the restaurant chain’s bottom line. In 2012, McDonald’s moved its annual appearance from October to December, boosting fourth quarter profits.
Senior Director, Coldwell Banker New Homes Division
With over 200 condominium, townhome and loft projects successfully marketed
“Fewer properties for sale with such remarkably low interest rates make it a great time to sell but a more difficult time to buy”