NBR Complete Transcripts: 10-11-2007
Thursday, October 11, 2007Back-to-School Sales Worry Retailers for the Holidays
SUSIE GHARIB: More signs today that American consumers are feeling the financial squeeze from slumping home prices and high gas prices. The nation's major retailers reported weaker than expected September sales, prompting some to warn that their quarterly earnings will also be disappointing. As Erika Miller reports, the poor performance is also raising worries about consumer spending during the crucial holiday season.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Clothing stores catering to children and teens typically register sharp increases in sales in September, but not this year. Many chains, including Abercrombie and Fitch, American Eagle and Children's Place posted disappointing results. Other retailers, like Macy's, JC Penney, Nordstrom, Gap and Target, also fell short of expectations. Retail analyst Richard Jaffe says that trend does not bode well for the all-important holiday season.
RICHARD JAFFE, SPECIALTY RETAIL ANALYST, STIFEL NICOLAUS: If you don't sell enough in September, you end up with more product left over from the third quarter to carry into the fourth quarter. So, your back-to- school fashions are now trying to be sold during the holiday season and that's not good.
MILLER: Most retailers blamed unseasonably warm weather for crimping fall clothing sales. Analysts say high gasoline prices, the weak housing market and credit crunch are making consumers more frugal. Experts also point the finger at uninspiring fashions.
JAFFE: Even in tough times, if it's something you really want, you'll buy it. And in a very depressed economy, that want can make a real difference in your attitude. If you're able - if you're forced to cut back on a lot of larger ticket merchandise purchases, the apparel can be a source of comfort. And we actually in down economies, have seen apparel sales improve.
MILLER: Softness in September prompted many retailers, including Nordstrom, Limited Brands, American Eagle and Target to lower their earnings guidance today. But Wal-Mart bucked the trend, boosting its profit outlook for the third quarter. Bear Stearns analyst Christine Augustine, whose firm has done business with Wal-Mart over the past year, says the company is successfully reducing costs.
CHRISTINE AUGUSTINE, RETAIL ANALYST, BEAR STEARNS: What it tells me is that they have really tightened up on the expenses. And it's not just the store scheduling system. It's expenses at the corporate level. It's expenses at the operating level. They're really looking hard at everything. Everything is under scrutiny.
MILLER: After September's weak results, analysts are even more convinced that holiday sales will be disappointing. Many are predicting gains of just 3 or 4 percent for the industry, the slowest growth in five years. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Sin City's Foreclosure Sin
PAUL KANGAS: The national foreclosure rate doubled in September from the year-ago period. According to Realtytrac, there were nearly 224,000 foreclosure filings last month. Las Vegas made the top 10 cities with high foreclosure rates, reporting one foreclosure filing for every 150 households. As Stephanie Dhue reports, what happens in Vegas is being watched in the real estate industry nationwide.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In this gambling town, making money on real estate seemed like a sure bet just a few years ago. In 2004, home prices in Las Vegas skyrocketed 46 percent. But over the last year and a half, home prices have steadily declined and buyers have all but disappeared. Carol Smolen's three bedroom, three and a half bath home has sat on the market since July, with no offers.
CAROL SMOLEN, LAS VEGAS HOMEOWNER: I think people feel they must sell their homes before they can buy something and most people that are coming to look have not done that. They are coming to look to see what's on the market. They are kind of checking it out and they have this big concern looming that they are not going to be able to sell their homes and that's kind of a snowball effect.
DHUE: Smolen has already bought a new home and says she can afford to hold onto both. Not everyone is so lucky. The signs of distress are hard to miss. Las Vegas has 24,000 homes for sale. Many of them are vacant. And the city has one of the nation's highest foreclosure rates. Mike Brunson is a home appraiser. He describes how he felt during the market frenzy, pressured by builders to give favorable reports.
MIKE BRUNSON, CERTIFIED RESIDENTIAL APPRAISER, ASCENT APPRAISAL, INC.: This is too much too fast and there's really just far too much liability. People aren't giving us the time to analyze the real estate market and figure out what it's really doing. And the second half of it was when you did tell them what it was really doing, they didn't like those answers.
DHUE: Brunson shifted his business away from lenders and builders and now provides expert testimony in mortgage fraud cases. He thinks it will take two years for home prices here to stop sliding.
BRUNSON: The issue is, economic purchasing power has gone away. People can't afford housing anymore.
DHUE: Still, some see a good hand in Las Vegas real estate. Home prices have already fallen 8 percent and some sellers are now willing to make deals. One reason some people are betting the housing slump here won't last long is that commercial development is still strong. Take for example, MGM Mirage's city center project. Right now, 4,000 people are working on its construction and once complete in 2009, it will employ up to 14,000 people. In the next five years, the gaming industry is expected to pump $40 billion into hotel and casino projects, which should create 80,000 new jobs and demand for 40,000 homes. While Amstar Homes President David McEntire expects buyers to come back to the table early next year, he says now is the time to buy.
DAVID MCENTIRE, PRESIDENT, AMSTAR HOMES: By sheer virtue of the fact that we don't have any more land to build on, the stakes are higher than they've ever been, the opportunities are greater than it's going to be tomorrow.
DHUE: But today, the market is in transition and builder incentives are having some unexpected consequences.
MCENTIRE: We're seeing the cancellation rates exaggerated as a byproduct of the incentives in the market. Folks are writing a contract and then continuing to shop and where they find a better incentive, they are canceling one and going into another one.
DHUE: What's in the cards for Las Vegas depends on if the overall economy is dealt a blow from the housing downturn and how much that dampens travel and tourism. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Las Vegas.
"Bill of Health"-Hospital Safety Flight Plan
PAUL KANGAS: In most jobs, mistakes are inevitable. But that's not what you want to hear if you're flying in a plane or about to go under the surgeon's knife. In his latest "Bill of Health," Jeff Yastine looks at how lessons from commercial aviation about minimizing human error can make hospitals safer and more efficient.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: When we step on an airplane, most of us take it as a given that we will wind up safely at our destination. Air travel is considered routine. But those safety levels are due in part to something called "crew resource management" or CRM. It's a way of communication and teamwork that flight crews have used for decades. CRM lowers the chance of human error causing a catastrophic problem during the flight. Now, if only that were the case in hospital medicine. One government report estimates that up to 70,000 people die each year in hospitals as a result of preventable human errors.
UNIDENTIFIED MALE: What went wrong? Communication, yes -loss of situational awareness is what we say in aviation.
YASTINE: And that's where trainers from an aviation group called Lifewings...
UNIDENTIFIED MALE: Over and over and over again, and they still made a mistake.
YASTINE: ...come into play
UNIDENTIFIED MALE: The best and the brightest in this room can make a mistake, period.
YASTINE: Jim Brigadier is a 30-year retired Marine Corps pilot and a Lifewings medical risk management instructor.
JIM BRIGADIER, MEDICAL RISK MANAGEMENT INSTRUCTOR, LIFEWINGS: In aviation, we have been evolving of this in a period of over 30 years. We are at what we call six sigma, which is statistical perfection. If you're flying from Fort Lauderdale to San Diego, you have a 99.9996 percent chance of making it. That's good. We're trying to bring this to the same level, working as a team together to eliminate the mistakes.
YASTINE: A landmark 1998 report from the National Institutes of Health first documented hospital error rates and the deaths they cause. It was a generally a problem that only came to light when a medical malpractice case was filed. Today, some states publish hospital error rates on the Internet and Medicare links hospital reimbursements to patient safety. Dr. Stanley Marks is a surgeon and chief medical officer at Memorial healthcare system in Hollywood, Florida, where the months-long Lifewings process is underway.
DR. STANLEY MARKS, CHIEF MEDICAL OFFICER, MEMORIAL HEALTHCARE SYSTEM: If you reduce harm in a healthcare system, certainly you do it because it's the right thing to do. But additionally, you get efficiencies. Patients are moved through the system much more efficiently. Costs are lower. Errors cost money. Not only do they cause pain, but they cost dollars. And if we can do things harm-free, we will absolutely be more efficient and more cost effective.
YASTINE: The bigger question is whether the lessons learned by flight crews really work in a hospital environment. Studies from groups like the Federally-funded Agency for Healthcare Research and Quality say they do. For these nurses, technicians and doctors, this is just the start of their education, which will continue for months as trainers help them apply in the hospital the lessons learned about cutting human error in the air. Jeff Yastine, NIGHTLY BUSINESS REPORT, "Bill of Health."
"Commentary"-Cognitive Fitness
SUSIE GHARIB: In tonight's commentary, a few thoughts on something called "cognitive fitness." Explaining what that is and why it matters is Tom Stewart, editor of "The Harvard Business Review."
TOM STEWART, EDITOR, HARVARD BUSINESS REVIEW: The jowly, corpulent tycoon of yesteryear has become today's corporate athlete, actually, a corporate tri- athlete, able to run a company, swim with sharks and ride a business cycle. That takes talent and drive, but it also demands mental and physical fitness. Lugging a briefcase is nothing like loading 16 tons, but it takes stamina to stay sharp during long work days and despite long- distance travel. There's a lot of pseudo-science about cognitive fitness.
There's also, thankfully, an increasing amount of real science. Tony Schwartz, head of the consulting group, The Energy Project, emphasizes that it's important to manage your energy, not your time because energy is a renewable resource and time is finite. Work he has done at companies like Sony and Wachovia Bank shows that a few simple rituals -- taking breaks from your work, getting up and walking around, turning off your Blackberry during meetings - improves performance. Psychiatrists and neuroscientists are studying cognitive fitness, too. Richard Gilkey (ph) and Clint Kilts (ph) of Atlanta are two of them; another is John Medina, from Seattle. Their studies confirm the powerful positive effect cognitive fitness has. It can even delay the mental effects of aging. Where does it come from? Movement, puzzles, creative play, actively seeking out new experiences. It's not a whole lot more complicated than physical fitness. You've just got to do it. I'm Tom Stewart.
"Last Word"-"Phantom Phone Sounds"
SUSIE GHARIB: And finally tonight, do you ever feel your cell phone or Blackberry vibrating, even when you're not wearing it? These phantom vibrations happen to a lot of people who wear their wireless devices for long stretches of time. There are even new names for this weird feeling like "ring-xiety" or "faux cell alarm." That's because some people feel that their phone is part of them, according to Stanford University's persuasive technology lab. And Paul, some people report being so connected to their phones that all they have to do is anticipate a call and the phone begins to ring. Now don't tell me that you're one of those people.
KANGAS: No, but when they get their phone bills, it'll be a wake-up call.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with a strong rally as those weak retail sales were overshadowed by Wal-Mart's boost in earnings guidance and rallies in Asian and European markets helped and so did a drop in the trade deficit. In a steady advance, the Dow was well into record territory by 1:30 this afternoon, posting a 113-point gain, while the NASDAQ was up 20 points. Then came a burst of selling in the high tech stocks, which sent the NASDAQ plummeting to a 52-point loss at 3:30 p.m. and the Dow off 120 points. Some late buying however trimmed the losses. The Dow Jones Industrial Average closed off a more moderate 63.57 at 14,015.12. The NASDAQ Composite was down 39.41 at 2,772.20. Standard & Poor's 500 fell 8.06 ending at 1,554.41. In the bond market, the 10-year note climbed 4/32 to par and 28/32, putting the yield at 4.64 percent.
Most active big board issue on nearly 27 million shares, Ford Motor Co (F) moving up $0.53. As you heard, UAW has begun negotiations on a new labor contract with Ford. Citigroup (C) did well, up $1.18.
EMC Corp (EMC) an $0.18 rise.
Then a new issue, Virgin Mobil USA (VM), this is a joint venture between Sprint Nextel and Richard Branson's Virgin Group, which is privately owned, 27 1/2 million shares, initial public offering today priced at $15, opened at $15, the high of the day $16.63. Then it backed off a little, but still closed above its offering price.
Wal-Mart Stores (WMT), the star of the Dow, up $1.31. As you heard, the company boosted its third quarter earnings guidance. It was $0.62 to $0.65 and now it sees $0.66 to $0.69 will be the figure.
General Motors (GM) doing well, up $1.86. Sixty six percent of the UAW workers at GM ratified the new four-year labor pact there and today Citigroup repeated a "buy" on GM stock, boosted its price target from $41 to $46 a share.
Pfizer (PFE) a $0.09 loss.
Co vale do Rio (RIO) down $0.15.
Then General Electric (GE) lost $0.21.
Qwest Communications (Q), tenth in volume, down $0.15.
Pepsico (PEP) fell $1.83 despite third quarter earnings rising 11 percent. Excluding items, they came in at $0.99 a share, $0.03 above the Street estimate. But the Gatorade sales for the company were disappointing and the company also sees operating costs rising because of higher commodity prices.
A very weak retail sector overall today, JC Penney Co (JCP) down $4.73. September same store sales dropped 4.6 percent and the company cut its third quarter earnings estimate from $1.28 down to as low as $1 a share.
Nordstrom (JWN) another retailer weak, down $3.64. The company cut its third quarter earnings forecast from about $0.62, down to only $0.51 a share.
And the Men's Wearhouse (MW) off $4.32 after cutting its third quarter guidance of $0.73, down to about $0.68 a share.
But finally, a retailer on the upside, Aeropostale (ARO) gaining $1.79. September same store sales rose 1.3 percent. The company repeated its third quarter earnings forecast of $0.43 to $0.45 a share. A year ago, they earned only $0.41.
Ruby Tuesday (RT), the restaurant chain, down $2.57. Lower first quarter earnings, $0.21 versus $0.37 last year. Same store sales dropped 4.8 percent.
Winnebago Industries (WGO), the RV manufacturer, closed up $0.28, but during the day, it was high as $32.35 after reporting higher fourth quarter earnings, $0.49, up from $0.30 last year and revenues rose 16 percent.
NASDAQ's most active, Apple (AAPL) down $4.56, even though Goldman Sachs boosted its price target on Apple stock from $165 to $190 a share.
Google (GOOG) under a little profit taking pressure, off $3.39.
Baidu.com (BIDU) tumbled $34.39. JPMorgan cut its third quarter revenue estimate for Baidu from $67.9 million to $65.7 million.
Research in Motion (RIMM) getting hit by some profit taking, off $5.88.
And then Intel (INTC) $0.45 loss.
Cisco Systems (CSCO) fell $0.47.
Microsoft (MSFT) $0.32 drop there.
Sandisk (SNDK) off $2.98.
Amazon.com (AMZN) hit for a $5.32 loss.
And Qualcomm (QCOM) down $0.83.
Cortex Pharmaceuticals (COR) down $1.07, losing over 59 percent of its value on word the FDA will not approve the company's new drug application for its attention deficit disorder treatment because of toxicity concerns.
Those are the stocks in the news tonight.
