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May 23, 2001

Earnings Do Matter

The latest stock market rally has Wall Street's spin doctors claiming that only good times are ahead, and that what company earnings reports are like in the coming quarters doesn't matter. Ignore earnings!? The last time we heard those words of wisdom was right before last year's tech wreck, and investors are still stinging from that fiasco!

Smart investors won't be fooled into ignoring earnings for long. As soon as it sinks in that the economy is not going to turn around in the near future, they'll realize that it will be even longer before company earnings recover. The reason: inventory continues to pile up on the shelves, forcing companies to slash prices and lose profits. It's already happening in manufacturing and technology companies and now it's spreading to retailers...

Department stores Neiman Marcus and Dillards issued dismal earnings reports today. And the retailers don't foresee any change in future quarters. Retail stores have taken desperate measures to lure consumers into their stores by making huge markdowns on items. Still, Neiman Marcus chief executive Burton Tansky confessed that the store will slash prices even more to reduce inventory. Clearly, consumers are feeling the pinch of layoffs and high gasoline prices. As consumers rein in spending, just as businesses have done over the past few months, earnings will continue to plummet -- and stocks will follow them off the cliff!

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