Dismal Earnings Point to Consumer Preference for Discount Goods

Last week, the consumer price index proved that inflation is heating up and retailers are starting to raise prices. With the exception of warehouse clubs and off-price retailers including BJ's Wholesale Club (BJ | Quote | Chart | News | PowerRating) and Ross Stores Inc. (ROST | Quote | Chart | News | PowerRating), retail earnings this week are likely to be dismal, but may be better than some analysts expect. Gap Inc. (GPS | Quote | Chart | News | PowerRating), Saks Inc. (SKS | Quote | Chart | News | PowerRating), and Limited Brands Inc. (LTD | Quote | Chart | News | PowerRating) are all expected to report a drop in sales in the second-quarter, more evidence that consumers are flocking to discount stores such as Wal-Mart Stores Inc. (WMT | Quote | Chart | News | PowerRating). Even Target Corp. (TGT | Quote | Chart | News | PowerRating), which touts trendy clothes and low-prices, is expected to report a 5% drop in quarterly sales.

Besides retailers, this week will offer up a number of technology, computer and internet companies. But Monday and Tuesday will bring the two largest home-improvement chains.

On Monday, get set to hear from Lowe's Companies Inc. (LOW | Quote | Chart | News | PowerRating) before the bell. The second-largest home improvement reports quarterly results one day ahead of larger rival Home Depot (HD | Quote | Chart | News | PowerRating). Lowe's is expected to report second-quarter earnings of $0.56 per share on revenue of $14.1 billion, according to Reuters Estimates. If you're short, you may want to cover at the start of the regular session as this stock has a tendency to narrow its pre-market moves in the regular session, doing so in four of the last seven quarters we've tracked. On May 19, 2008, Lowe's fell 3.6% in pre-market trade after the company's first-quarter earnings beat by a penny a share and revenue missed. It narrowed its losses in that day's regular session, closing with a 2.6% decline.

On Tuesday, Hewlett-Packard Co. (HPQ | Quote | Chart | News | PowerRating) releases its results after the close. In the near-term, H-P has narrowed three out of the past four quarters between the after-hours and next day regular session after an earnings event. In the long-term, H-P is split between widening and narrowing its share move between the after-hours and next day regular session after an earnings event. It has moved more aggressively in the same direction the next day in ten of 17 quarters. On May 20, 2008, H-P fell 0.5% in after-hours trading after topping estimates and guiding in-line with the Street. It widened its losses the following regular session, closing down 3.6%.

On Wednesday,

Salesforce.com, Inc.

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