All looks well at General Electric (GE - Annual Report).

The second quarter orders were a record, up 32%; we grew our backlog. We’ve got very strong global demand, up 21% in revenue. We continue our focus on margin expansion. Year-to-date we’re up 120 basis points; we’re up 70 basis points for the quarter. This is a big initiative inside the company, and one that we’re committed to….

Globalization and emerging markets, GE is very advantaged in these markets and these are just booming right now.

Infrastructure continues to be a real solid point for the company. Demographics as it pertains to both global growth and some of the action in GE Money is great. All of our focus on ecomagination, energy and investment/reinvestment is very solid.

If you look at what’s the same, we still see high liquidity in the marketplace. The U.S. consumer seems fine. Unemployment is at low levels, and we’re not seeing really any warning signs with the U.S. consumer….

On balance, we think we’re well-positioned in this environment. There’s no big surprises, and we feel like we’re in good shape as we look at the rest of the year.

(Excerpt from full GE conference call transcript)

Exxon Mobil (XOM - Annual Report) describes several reasons why investing in new projects can be risky, which helps explain why they haven’t invested as much as some would like (and why prices for oil are likely to remain high.)

Although increased volumes from the recent project start-ups in Russia, West Africa, and Qatar more than offset natural field decline, liquids production fell by 34,000 barrels per day, or 1% from the same quarter last year due to entitlement and OPEC quota effects in Africa….

ExxonMobile’s affiliate in Venezuela was not able to reach the agreement on the formation of a mixed enterprise and on June 27, 2007, the government took over our interest in the Serene rural project….

(Excerpt from full XOM conference call transcript)

And they didn’t even get to hurricanes, Iran, Iraq or terrorism. Makes you want to run out and drill an exploratory well, doesn’t it?

General Motors (GM) hopes to build a house of BRIC:

It was actually a very good quarter for other regions. Strong growth outside North America in the quarter, adjusted profitability of close to $700 million, $1.1 billion year-to-date. Revenue up 16%, share up 0.2%. I remind you our revenue does not include our business in China, as we carry it on the equity method so you would not see the growth in our business in China showing up in revenue. So this is really only on a consolidated basis.

Europe reported its best quarterly results since the second quarter of 1996, strong structural cost performance and favorable pricing. LAAM continues to leverage, it can only be termed explosive growth, reported the best quarter in ten years in both revenue and profitability. GMH reported a record second quarter adjusted net income with continued growth in China, India, and South Korea, as well as some improved performance in Australia….

Russia is a very fast-growing emerging market. 2.5 million units. It’s actually fast approaching one of the largest markets in Europe, actually, getting very close to France, Spain, Italy in terms of its size; and the U.K., as you can see. Our market share is up almost 4 points in Russia year-to-date.

Actually, we’re running behind in Brazil, we’re trailing in terms of market share in Brazil, but the driver of that is the market is up 50% in terms of its SAAR in the quarter. I would say the challenge in LAAM today is to keep up with the markets growth….

China, you can see the SAAR is up from 6.7 million to 8.3 million units. Our market share has not kept pace, so we’ve had some competitive pressures there, but nonetheless we’re still running pretty strong in China.

(Excerpt from full GM conference call transcript)

However, as if they needed any more challenges, they have subprime exposure that needs to be worked off.

ResCap lost over $900 million in the first quarter. We said that in the second quarter we expected that losses would narrow considerably and we expected better results. We did see that. Nonetheless, the $254 million is still a substantial challenge, it’s the largest business challenge for the GMAC management team in terms of restoring that business to where it needs to be. But it’s good to see the declining losses. We have sharply reduced our non-prime production, our non-prime exposure across warehouse lending, across some of our builder businesses. You saw run-off in the non-prime portfolio held for investment. We expect our run-off in the held for investment portfolio to be about $15 billion this year. So we’re basically reducing our exposure to non-prime and at the same time, we are seeing increased service fee income and lower structural costs.

So I would say the challenges continue here, but the first step in addressing the challenges is to stop deteriorating.

(Excerpt from full GM conference call transcript)

Citigroup (C - Annual Report) is also feeling the heat.

Net credit losses were up by $259 million, driven primarily by our global consumer business.

In consumer, key drivers are higher balances from organic portfolio growth and acquisitions; continued deterioration in the second mortgage portfolio; and the impact of the gray zone in Japan. In markets and banking, we continued to see a stable credit environment.

The third component is a $465 million net increase in the loan-loss reserve. There were two major drivers of this increase. First in the U.S. Cards business, the increase was driven by a change in the estimate of loan losses that are inherent in the portfolio. It is important to note that the underlying credit metrics have remained largely stable in our cards business. This reserve build reflects our focus on staying ahead of the visible credit trends, by considering as many factors as possible in establishing our reserves.

Second, in the international cards business, portfolio growth and seasoning and the impact of recent acquisitions resulted in higher reserve levels.

(Excerpt from full C conference call transcript)

Wal-Mart’s (WMT - Annual Report) customers are feeling the pinch.

Consumers today are pressed by a number of factors. Higher energy, higher gas prices and higher interest rates are all stretching their paychecks. Families with school-aged children are expected to spend more than $500 this year on back-to-school products. Our price campaign is designed to make a difference for families by saving them money where it counts most: on items like backpacks, pencils and socks. We’re encouraged by the response we’re seeing in back-to-school in August. 14 states have tax-free days during the start of this month. In addition, several states have delayed some school openings and we expect the trend we have seen with other seasons to continue. People are buying closer to the event.

As reported by other retailers, we’re experiencing similar trends in soft sales of home products driven by the slow down in housing. In addition, Wal-Mart’s softness in the home and apparel categories has been compounded by the difficulties we have had this past year and have shared with you. The result is that home and apparel remain soft through the second quarter. We’re starting to see some improvement in certain home categories this month and we are pleased so far with the sales results and customer response to the test of the New Home that we are piloting in several markets.

We continue to see pressure in all areas of apparel and continue to take pricing actions needed to sell through our inventory. We’re seeing some positive trends in sleepwear and men’s sports apparel. In the children’s areas, licensed apparel is picking up momentum and as I mentioned earlier on, we do expect our kid’s apparel categories to rebound this month.

(Excerpt from full WMT conference call transcript)

I guess it is not surprising that the top companies are seeing an outlook as mixed as that of the overall economy.

Disclosure: Author is long IShares MSCI Japan Index (EWJ) at time of publication.

When Dell’s first test was to open retail stores that were nothing more than showrooms I thought they were missing the point. The beauty of a direct model is that you can customize things the way you want, while the beauty of a retail store is that you can walk out a few minutes later with product in hand. Retail stores without instant gratification equal nothing more than a real estate expense. Dell soon came to the same conclusion.

Things are different now. Dell to sell 2 desktop PC models in 3000 Wal-Marts:

Computer marker Dell Inc. plans to start selling personal computers at 3,000 Wal-Mart (WMT - Annual Report) stores in the United States and Canada as of June 10, launching a major drive to sell its PCs through retailers, a company spokesman said on Thursday.

You don’t get any more retail than Wal-Mart. This should be a true test as to whether the sands have shifted in favor of mass distribution.

Teradata: is it buyout bait? – Blogging Stocks

The deal should take six to nine months to complete. However, according to a report from The Daily Deal [a paid service], Teradata may not even hit the public markets. That is, it could be bought-out.By private equity firms? Well, given Teradata’s cash flows – and long-term contracts – it would be attractive to a financial buyer. But, the company would also make a great fit for major tech companies, such as Oracle (ORCL - Annual Report), IBM (IBM - Annual Report) and even Hewlett-Packard (HPQ - Annual Report). All of these companies have been quite acquisitive.

In all likelihood, NCR considered the potential of a sale before announcing the spin-out. However, any sale would likely result in capital gains (and therefore taxes) while a spin-off could be tax free to shareholders. Furthermore, if the spin-out is achieved buyers would have to wait two years to get their hands on it, or the taxes would be due retroactively. So we are betting against a deal, though it is a possibility.

Furthermore, we would scratch HP from the potential acquiror list. As noted in a recent InformationWeek Article (Inside HP’s Data Warehousing Gamble, January 8, 2007), HP CEO Mark Hurd ran NCR (and the Teradata division) and CIO Randy Mott installed Teradata systems at both Wal-Mart (WMT - Annual Report) and Dell (DELL).  Yet despite their extensive experience they chose to develop an in-house data warehousing system, Neoview. The InformationWeek article notes:

Mott says HP considered Teradata for its [internal] data warehouse, as well as a “go to market partnership” with the company.

But HP engineers had been developing data warehousing capabilities… and Mott needed to give that project a look and determine quickly if HP’s in-house technology was ready for wide use. For four months in late 2005, his team ran test loads in the lab. The [HP] system worked to Mott’s satisfaction.

So while there may indeed be a buyout in Teradyne’s future, we are betting it occurs in three years or so, and doesn’t involve Hewlett Packard.

Applied Materials’ profit surged 81% in its fiscal fourth quarter, but the results came up short of Wall Street expectations.

And in a subsequent conference the call with analysts, the world’s No. 1 vendor of chipmaking equipment said its fiscal 2007 year would get off to a slow start.

CFO George Davis singled out flat-panel-display manufacturing as the prime culprit for the slowdown.

Barron’s Tech Trader Daily on Circuit City (CC):

Circuit City has been holding meetings with the Street recently in which it is warning that average selling prices for flat-panel televisions are falling faster than the company had expected.

Associated Press on Wal-Mart (WMT - Annual Report):

“We are implementing our most aggressive pricing strategy ever across core categories, such as toys and electronics,” Scott said in a prerecorded phone message.

John Menzer, head of Wal-Mart U.S. stores, said there were “huge sales increases” among the discounted toys and in some electronics.

“We’re seeing a big growth in our new categories such as flat panel TV’s, MP3 players, laptops and cell phones.

MarketWatch on Home Depot (HD - Annual Report):

Home Depot Inc. on Tuesday said that it would be “opportunistic” in selling consumer electronics this holiday season, as it looks to drive sales during the critical shopping period.

On its third-quarter earnings conference call, the home-improvement retailer said that it planned to use its large-scale buying power to offer low prices on consumer electronics such as plasma and flat-screen television sets.

The only surprise in all this is why anyone would be surprised. From one end of the food chain (equipment manufacturers) to the other (retail) the story is all about too much capacity and faster than expected price reductions.

The consumer clearly appears to be tiring, as there have been very few positive surprises on the retail landscape either from earnings reports or same store sales. We don’t believe business can pick up the slack.
Watch List news:

Restaurant operator Yum Brands Inc.’s (YUM) second-quarter profit rose 8%, but softer recent sales in the United States, particularly at Pizza Hut, took a bite out of the stock.

Nash Finch Co. (NAFC), a U.S. wholesale food distributor, said second-quarter profit sank 58 percent, hurt by a one-time charge relating to subleased property and a decline in food distribution profit. Quarterly profit dropped to $4.13 million, or 31 cents per share, from a profit of $9.74 million, or 75 cents per share, during the second quarter last year. Analysts, on average, predicted a profit of 62 cents per share. Results include a $3 million, or 22-cent-per-share, charge relating to the impairment of some retail properties subleased to a longtime food distribution customer, as well as bad debt expense related to accounts and notes receivable owned by that customer. Revenue edged down 1 percent to $1.07 billion, from $1.09 billion last year.

Guitar Center (GTRC) posted higher quarterly earnings, but Motley Fool worries that growth is fading. Fortune, on the other hand, has a favorable write-up. A sample:

With dominant market share (most of its competitors are mom-and-pop stores and small regional chains) combined with plenty of room to grow, Guitar Center is an investment that rocks. And with Guitar Center trading at about $43, near its 52-week low, and at a multiple of 15, below its historical average of 19, the stock is a bargain.

SAC Capital and Related Funds Raise Stake in Marinemax (HZO) to 5.1%

PetMed Express 2Q Profit Up 34 Percent – The EPS results were $0.02 ahead of expectations despite lower than expected revenue as the company shifted from wholesale to retail focus.

Jewelry retailer Zale named Betsy Burton as president and chief executive officer, and its shares jumped. Burton had served as interim CEO since February.

MarineMax was down on the news of a strong quarter, because its guidance was perceived as weak. Looking ahead, the company raised the fiscal year 2006 earnings guidance to the range of $2.08 to $2.13 per share from the previous range of $2.05 to $2.13 per share. The company expects the earnings per share in the range of $2.15 to $2.25 per share for the fiscal year 2007. Wall Street analysts expect the company to report earnings of $2.12 per share in the fiscal year 2006 and $2.34 in the fiscal year 2007.

Nash Finch Co., a wholesale food distributor, said Monday its chief financial officer is leaving the company and outlined other changes that will result in a $4 million charge. Leanne M. Stewart, 41, senior vice president, chief financial officer and treasurer, will stay until a replacement is named. The company did not provide a reason for Stewart’s departure. The company has hired an executive search firm to find a replacement. This doesn’t sound like a key buying point.

Starbucks Fails to Provide Enough Jolt.

Yankee Candle Makes New Acquisition and considers selling itself.

Other News:

Wal-Mart Stores Inc. (WMT) expects 1 percent to 3 percent August sales growth at its U.S. stores open at least a year.

Target, Costco, Gap, Ann Taylor, and Pacific Sunwear all posted disappointing comparable store sales. Although JC Penney and Nordstrom did better than expected, JC Penney is cautious about whether it can continue.

Disclosure: Author is long Starbucks (SBUX) at time of publication.

For one, BJ’s stock is cheap and getting cheaper, trading at around five times its cash flow. That’s especially compelling to private equity firms routinely shelling out more than eight times cash flow for retail assets — and taking some heat lately for overpaying.

BJ’s has virtually no debt and owns about 40 percent of its real estate, both seen as positives to potential buyers.

“BJ’s is concentrated in the Northeast in good markets,” said an investment banker who did not want to be named. “There is $800 million to $900 million in real estate value in this company alone.”

It sends us back to the days when pundits were speculating that Lampert’s buyouts of Sears and K-Mart were all about the real estate. Boy were those pundits fooled when Eddie turned out to have an affinity for merchandising. Still, he may just be playing his cards close to his vest while waiting to put the last piece into the puzzle.

Could BJ’s be that piece? They are having trouble right now:

If you’re looking to harness cash flow and lever it up a bit, BJ’s could be a very good investment for someone,” said Patricia Edwards, managing director and retail analyst at investment firm Wentworth, Hauser & Violich. “It’s not a bad business, it’s just a tough business.”

BJ’s, based in Natick, Massachusetts is concentrated in the pricey U.S. Northeast. Its estimated 2007 earnings before interest, taxes, depreciation and amortization – a cash flow measure – is $333.49 million, according to Reuters Estimates.But the company is in the unenviable position of competing against two of the toughest players in the retail discounting sector — Wal-Mart Stores Inc.’s (WMT) Sam’s Club and Costco Wholesale Corp. (COST). BJ’s is the largest player in the Northeast, but it is only a matter of time before Costco and Wal-Mart, both hungry for expansion, move in with full force.

By buying BJ’s, Sears could fight Wal-Mart’s fire with fire – having its own discount/wholesale one-two punch.

Will it happen? We doubt it. All this is speculation – both the article and our own extension to SHLD. But it’s fun to speculate about mergers and acquisitions, and we didn’t want Reuters to have all the fun.

Jos a Bank (JOSB): Men’s clothing retailer JoS. A. Bank Clothiers Inc. said Thursday that sales at stores open at least one year, or same-store sales, increased 8.5 percent for the month of June, easily beating Wall Street expectations for a 4.3 percent boost.

BJ’s Wholesale (BJ): June sales fell 0.1 percent at its stores open at least a year as record-breaking rainfall hurt demand, and it lowered its quarterly profit forecast. Analysts, on average, expected 2.4 percent growth, according to estimates compiled by Reuters.

TJX Companies (TJX): Discount clothing retailer TJX Cos. on Thursday said June same-store sales rose 4 percent, beating both internal and Wall Street estimates, and prompting the company to estimate second-quarter earnings will be at or above the high end of its previous forecast.

Wall Street expected same-store sales, or sales at stores open at least a year, to add 2.7 percent, according to Thomson Financial.

Other Notable Retailers

Wal-Mart Stores Inc. (WMT) and other top U.S. retailers posted disappointing June sales on Thursday as soaring energy prices and record-breaking rains in the Northeast curbed consumer spending.

But mid-priced chains such as J.C. Penney Co. Inc. (JCP) and Kohl’s Corp. (KSS) reported strong gains, suggesting that some shoppers stayed away from more expensive department stores. Federated Department Stores Inc. (FD), owner of Bloomingdale’s and Macy’s, recorded lower-than-expected sales.

Overall, sales rose 2.8 percent at stores open at least a year — a key retail measure known as same-store sales. That was slightly below forecasts for a 3 percent gain, according to research firm Retail Metrics.

Apparel retailer Limited Brands Inc. (LTD), warehouse club operator Costco Wholesale Corp. (COST), and home decor chain Pier 1 Imports Inc. (PIR) were among the chains missing Wall Street’s sales targets.