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Wednesday September 2, 2015

Finances

Finances
 

Williams-Sonoma Reports Quarterly Earnings

Williams-Sonoma, Inc. (WSM) announced its second quarter results on Wednesday, August 26. The company's strong revenue and earnings were not enough to overcome disappointing third quarter guidance.

The company reported that revenue grew 8.5% during the quarter to $1.127 billion. Significantly, comparable brand revenue grew 6.3% compared to the same period last year.

"We are pleased to have delivered another quarter of solid performance, once again demonstrating the competitive advantage from our multi-brand, multi-channel, business model," said Williams-Sonoma President and CEO Laura Alber. "As anticipated, during the quarter, we incurred incremental supply chain costs primarily associated with the west coast port disruption to restore our in-stock inventory levels, allowing us to provide superior long-term customer service. We are focused on disciplined execution against our strategic growth initiatives."

Williams-Sonoma reported earnings per share during the quarter of $0.58. This number was in line with expectations.

Williams-Sonoma's earnings have been quite strong over the past few years, a trend that for the most part has held true this year. Indeed, the company's stock price reached a peak of $89.38 earlier this month. However, analysts found reasons for concern in this latest report, pointing out that operating margins and third quarter fiscal guidance both were below expectations. Not surprisingly, the company's stock price fell 6.3% after the earnings release.

Williams-Sonoma, Inc. (WSM) shares ended the week at $75.81, relatively unchanged for the week.

Best Buy's Outlook Brighter


Best Buy Co., Inc. (BBY) announced its second quarter results on Tuesday, August 25. The company reported strong earnings driven by improved sales in mobile phones and appliances.

The company reported that revenue during the quarter was $8.53 billion. This was a small 1% increase from $8.46 billion during the same period last year.

"In the Domestic business, our comparable sales increased 2.7%, excluding the impact of installment billing, driven by continued strong performance in major appliances, large screen televisions and mobile phones," said Best Buy Chairman and CEO Hubert Joly. "As we look forward, while we are cognizant of the recent financial market turbulence, we believe the combination of an opportunity-rich environment and the strength of our competitive advantages leads us to have a positive outlook about our future prospects, starting with the important back-to-school third quarter."

Best Buy reported earnings per share of $0.49. This was a 17% jump compared to earnings per share of $0.42 during the same period last year.

It was not too long ago that analysts were wondering whether Best Buy's brick-and-mortar operation could survive in a world increasingly dominated by e-retailers like Amazon. For Best Buy, the answer to its survival could hinge on a shift in product focus. This past quarter Best Buy experienced strong gains in sales of mobile phones and appliances. Comparable store sales for appliances increased 20.7%. Strong mobile phone and appliance sales also helped Best Buy gain market share. Investors hope this is a sign that the company's earnings will continue to grow and solidify into the future. Best Buy also announced that it will begin issuing a regular quarterly dividend of $0.23 per common share.

Best Buy Co., Inc. (BBY) shares ended the week at $35.97, up 25% for the week.

Burlington Stores Announces Earnings


Burlington Stores, Inc. (BURL), an off-price apparel retailer, announced its second quarter results on Thursday, August 27. The company's earnings beat analyst estimates for revenue and earnings.

The company reported that sales increased 9.6% during the quarter to $1.144 billion, about $30 million higher than pre-release estimates. Comparable store sales increased 5.6%.

"We are extremely pleased with our second quarter performance highlighted by a 5.6% increase in comparable store sales on top of last year's 4.7% increase," said Burlington President and CEO Tom Kingsbury. "We believe we are well positioned for the fall season and remain focused on delivering great value, highly desirable brands, an improved store experience, and fresh product to our customers every day."

Net income for the quarter was $14.9 million or $0.19 per share compared to a $900,000 loss during the same period last year. Analysts had expected earnings per share to be lower at $0.12.

On nearly every basis the second quarter was a significant improvement for Burlington compared to the first quarter of this year. During the first quarter comparable store sales rose only 0.8%, so a 5.6% increase this quarter was welcome. Investors have to be especially pleased with Burlington's earnings report as the company increased wages for employees during the month of July.

Burlington Stores, Inc. (BURL) shares ended the week at $53.50, up 9.3% for the week.

The Dow started the week of 8/24 at 16,460 and closed at 16,643 on 8/28. The S&P 500 started the week at 1,965 and closed at 1,989. The NASDAQ started the week at 4,352 and closed at 4,282.
 

Treasuries Rise as Rate Decision Looms

Treasury prices rose on Friday, August 28 amid ongoing speculation about whether the Federal Reserve will soon raise the benchmark interest rate. Treasuries were volatile all week in response to lingering weakness and uncertainty in the stock market.

Interviews this week with several members of the Federal Reserve produced divergent answers on whether the benchmark interest will be raised in September. St. Louis Fed President James Bullard and Cleveland Fed Chief Loretta Mester both said that an interest rate hike could be in order despite the health of stocks or the wider economy. Their opinion was not shared, however, by Fed Vice Chairman Stanley Fischer who believes that it is too early to tell if a rate hike should happen in September.

The difference of opinion even among Federal Reserve members means that investors will remain anxious regarding a pending rate hike. "We're in that volatile stage where the market is going to be pretty nervous going into the August jobs report next Friday, because I think that's going to be the key decider of whether the Fed ultimately decides to move off of zero or not," said Dan Heckman, Senior Fixed Income Strategist U.S. Bank Wealth Management.

If the U.S. economy is going to provide motivation for the Federal Reserve to raise interest rates, then a pair of economic reports released last week do not bode well for those expecting a rate hike. Personal income in the U.S. rose 0.4% in July, which was lower than expected. In addition, the revised Michigan consumer sentiment index was 91.9, less than the expected 93 rating economists were expecting. This was also below July's rating of 93.1

The 10-year Treasury note yield finished the week of 8/24 at 2.19% while the 30-year Treasury note yield finished the week at 2.91%.
 

Stock Market Volatility Drives Rates Down

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 27. The report showed interest rates falling this week as ongoing market volatility in China and the U.S. persisted.

The 30-year fixed rate mortgage averaged 3.84% this week. This represents a decrease from last week when it averaged 3.93%. Last year at this time, the fixed rate mortgage averaged 4.10%.

This week, the 15-year fixed rate mortgage averaged 3.06%. This is down from last week when it averaged 3.15%. The 15-year fixed rate mortgage averaged 3.25% one year ago.

"Given the recent volatility, mortgage rates could change up or down significantly by the time this report is released," said Sean Becketti, Chief Economist at Freddie Mac. "There are indications though that the unsettled state of global markets will make the Fed think twice before taking any action on short-term interest rates in September. If that's the case, the 30-year mortgage rate may remain subdued in the short-to-medium term, providing support for continued strength in the housing sector. Just this week, new home sales were reported to be up 26% year over year."

The money market fund finished the week of 8/24 at 0.3%. The 1-year CD finished at 0.6%.

Published August 28, 2015
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