Barclays downgrades Groupon on shift to low-margin business model

CHICAGO, Tue Aug 21, 2012 – Barclays Capital downgraded Groupon Inc. to “underweight” from “overweight” and cut its price target on the stock as the company faces a slowdown at its core daily deal business, forcing it to rely on its lower-margin discount business.

Shares of the company looked set to open down 2 percent on the Nasdaq on Tuesday morning.

The company is also making changes at the top, but investors have been skeptical that CEO Andrew Mason has the ability to turn the business around.

“The sale of products or “Groupon Goods”, which practically didn’t exist two quarters ago and represented an immaterial amount of first-quarter sales, represented the vast majority of incremental sales growth in the second quarter,” Barclays analyst Mark May said.

A continuation of this trend could hurt Groupon’s margin profile, he added.

Groupon often takes inventory risk with its Goods business, which was launched in the third quarter of 2011, as it buys products in bulk at a discount and sells them to customers at higher prices. However, Groupon Goods may not be as profitable as its original daily deals.

Citi cuts retailers on lower high-end consumer spend

NEW YORK, Wed Jun 27, 2012 – Citi Investment Research & Analysis downgraded retailers Macy’s Inc., Nordstrom Inc. and Saks Inc. to “neutral” from “buy,” citing contraction in spending by high-end consumers.

April-May comparable sales at high-end department stores fell 3 to 4 percentage points from a year earlier, Citi said.

Confidence among high-end consumers slowed to 80.7 in May from 86.0 in April, the brokerage wrote in a note.

High-income consumers, who account for about half of spending in the United States, will likely be hurt by a volatile stock market, it added.

“We are incrementally more concerned about the health of the consumer, given the softening U.S. economic outlook and declining consumer confidence,” Citi analysts said.

The brokerage said it expects slowing same-store sales to pressure Macy’s repurchase program, and cut its price target on the retailer’s stock to $37 from $49.

Aggressive investment will limit upside for Nordstrom, Citi said, lowering its price target on the stock to $52 from $63.

It also cut its price target on Saks to $11 from $14 and said it expects weakness in the women’s designer apparel to likely weigh on its same-store sales growth.

Macy shares were down nearly 2 percent in premarket trading. They closed at $34.20 on the New York Stock Exchange on Tuesday. Shares of Saks fell about 3 percent in premarket trading. They had closed at $10.03 on Tuesday on the same exchange.

Nordstorm’s stock had closed at $48.62 on Tuesday.

S&P downgrade proves absurd as investors prefer assets in U.S.

NEW YORK ― Four months after Standard & Poor’s stripped the U.S. of its AAA credit rating and said the world’s biggest economy was no longer the safest of borrowers, dollar-denominated financial assets are doing nothing but appreciating.

Government bonds have returned 4.4 percent, the dollar has gained 7.6 percent relative to a basket of currencies, and the S&P 500 Index of stocks has rallied 1.7 percent since the U.S. was cut to AA+ from AAA on Aug. 5. The cost for the nation to borrow has fallen to record lows since S&P said the U.S. was no longer risk-free, with the average monthly yield in November on 10-year notes below 2 percent for the first time since 1950.xxDemand for American assets is increasing as consumer confidence, manufacturing and employment show the U.S. is strengthening as Europe struggles to save its currency union and the developed world weakens. U.S. gross domestic product will expand 2.19 percent next year, compared with 1.55 percent for the Group of 10 nations, Bloomberg surveys of economists show.

“The U.S. is our favorite market,” Hiromasa Nakamura, a bond investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of about $42 billion, said in a telephone interview. “The level of debt is high but I think they will deal with it,” he said. “Financial dislocations are continuing and investor money is flowing to the reserve currency, the U.S. dollar.”

When it lowered the U.S. rating, S&P, the world’s largest provider of credit analysis, said the failure up to then of Democrats and Republicans to agree on budget cuts made the U.S. less creditworthy, downplaying the country’s ability — unlike individual European nations — to print as much money as it needs to pay its debts. Congress cleared a $1 trillion spending bill on Dec. 17 that lawmakers called a bipartisan compromise.

“It is the ability to print one’s own currency to pay government bond investors back under any circumstances that makes a government bond a government bond, i.e. a (credit) risk- free asset for hold-to-maturity investors,” Elga Bartsch, the chief European economist at Morgan Stanley in London, said in a report this month to clients.

Investors have looked past S&P’s warning even as government borrowing surpasses $15 trillion for the first time and the budget deficit exceeds $1 trillion for a third year.