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Opening the Lid on Five Disclosures

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five.

Morningstar markets editor Jeremy Glaser said that several new disclosures came out this week that should be on investors' radars. He is here with me to share the rundown. Thanks for joining me, Jeremy.

Jeremy Glaser: You're welcome Jason. It's always good to get things off your chest to start the new year.

Stipp: So what do you have for the Friday Five this week?

Glaser: Well this week, we are going to talk about the Fed, Kodak, Yahoo, Barnes & Noble and finally, retailers.

Stipp: So the Fed actually is going to give us a little bit more information about interest rates, with perhaps some more communications. What does this mean for investors?

Glaser: This has been a big push for Chairman Ben Bernanke for a while now. To bring more transparency to the Federal Reserve, he has started doing press conferences, which is something that Alan Greenspan, of course, never did. But he also now wants to have each of the members of the Federal Reserve say, this is what they think the future path of interest rates is going to look like. So, not only a vague promise that rates are going to stay low until the middle of 2013. They will say, I think the rates are going to stay low until the fourth quarter of 2014 or 2015, or however long they think that these rates are going to stay low.

This is going to be interesting for investors in a few ways. First it's going to show just how much divergence there is among the governors. I think it's easy to think of the Fed as a monolith, but it really isn't. It's individuals who have different ideas--some people are more hawkish, some people are more dovish--on when we should start to raise rates again and how worried we should be about inflation. So we will see how big that spread is, which could give somewhat of a hint of how long it's going to take for rates to rise, and I think it might give us more of an early warning of when those rates are going to come again.

But I think that we need to keep in mind that although they are going to be giving these predictions, they are just predictions. They are not fact. If the facts on the ground really start to change, those interest rates could move very quickly; there could be surprise moves. So it gives us a little bit more information, but it certainly doesn't take away the uncertainty of the future path of interest rates.

Stipp: In corporate news this week, Jeremy, you might say that there were some negative developments for an iconic company. What does that mean for investors and what does it mean for the industry in general?

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Glaser: It certainly was not the best week that Kodak has seen in a long time. They are probably not going to make that a Kodak Moment. But certainly, it's a company that has been struggling for a long time. From when their film business was under attack from Fuji in the '90s, up until the way that they just were never able to fully catapult themselves into the digital arena, they have seen a lot of problems.

And they said this week that unless they are able to make a lot of money from a patent portfolio that they are looking to sell, they are going to have to file for Chapter 11 bankruptcy. Although they have been troubled for a while, and ... their stock price has indicated that they have been in duress and that bankruptcy was going to happen sooner rather than later, to actually see such a formally blue-chip company, such a really highflier in corporate America, to be filing Chapter 11, certainly is a pretty momentous event.

It reminds you that, while buy and hold is a great strategy, maybe every 100 years or so, you should definitely check in to make sure that those blue-chips are still blue-chips, and that they are going to be there for you in the future.

Stipp: Another company that has had more than its share of promises is Yahoo. They named a new CEO this week. Is the way forward for Yahoo any clearer now?

Glaser: We have talked about Yahoo a lot, and with their issues with their Asian subsidiaries, with all sorts of issues that they are having. And this week, somewhat surprisingly, they announced that Scott Thompson, who used to run PayPal, which is part of eBay, is going to come onboard as the CEO of Yahoo.

This is surprising, not because we didn't think they were going to get a new CEO to replace the interim CEO, but because this is a guy who doesn't have a lot of media experience, who doesn't have a lot of search experience, and really is more of a technically minded individual. Right now, it really seems like the stuff that Yahoo needs to focus on really are those media properties and ... finding a way to monetize all the people who are coming to their sites, and the amount of traffic that they have now.

The board said this isn't going to stop the discussions of selling Yahoo Japan or their Alibaba stake--that they still are committed to unlocking that value in some way and to keeping Yahoo as a stand-alone company. But it's not immediately clear how Scott Thompson is really going to help Yahoo thrive on its own.

Stipp: Investors this week really threw the book at Barnes & Noble, you could say, after a couple of disclosures from the company. What's the story there?

Glaser: Barnes & Noble is having a lot of trouble, and the fact that a bookseller isn't having the best of times right now maybe is not the most surprising disclosure in the world. But the fact that they cut their guidance so sharply for the fiscal year 2012, which is already half over, is really somewhat shocking.

They went from saying that they were going to lose anywhere from $0.10 to $0.50 a share to losing a $1.30 a share; that's a pretty big change, and it shows that there is a lot of trouble within that business.

They also said that they are looking to spin out the NOOK e-reader tablet business, which is something that has had really great revenue growth, but there hasn't been a lot of profitability there, because they have been spending a lot of money to invest behind that platform.

It's not really clear if NOOK will still be able to have a lot of those advantages they do now, without that Barnes & Noble brand attached to it, without that physical distribution in the Barnes & Noble store--so they may have to go back and rethink this one a little bit, or really see how they can get that value.

But certainly, they are in trouble, and I think there was some hope that maybe after Borders filed, [Barnes & Noble] would be able to take some of those customers who still want to go to a physical bookstore and maybe be able to buy some time. But that's looking less likely, and though Barnes & Noble still has some valuable properties, it looks like they could be seeing some trouble going forward.

Stipp: Lastly, Jeremy, what we thought was a pretty strong retail season from Black Friday through the Christmas season turned out to be a little bit more mixed. What was the news on retailers that we got?

Glaser: We got some mixed numbers in same-store sales during the holiday periods for a lot of different retailers. It certainly reinforces a theme that we have seen a lot, which is that the luxury retailers are doing much better than some of the more mainstream retailers. With the exception of Macy's, which had a good quarter, a lot of the mainstream retailers like Kohl's and Target, had OK quarters, but really missed some of their internal estimates, and also some of the analyst estimates. Meanwhile other companies, like Nordstrom and Saks, really had better-than-expected results, and some of those higher-end consumers are still out there spending money.

This is something we have been tracking for a long time. It seems like it's going to continue that high-end customers, who maybe aren't as leveraged are really out there, continue to spend money, while lower-end consumers who maybe still have some personal balance sheet issues, who are still trying to pay down credit card debt or trying to save more, are being a little bit more frugal.

Stipp: Well, Jeremy, I am going to go out on a limb and disclose that we will be back next week with another Friday Five. But thanks for joining me today.

Glaser: You are welcome, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.