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Thursday April 24, 2014



Is Tiffany & Co. a Diamond in the Rough?

Tiffany & Co. (TIF) released its quarterly earnings on May 28. The iconic jewelry retailer's quarterly results were better than expected and show that the company's overall strategy, particularly in Asia, is delivering results.

Tiffany & Co. announced total net sales of $895 million, representing an increase of 9% for the quarter. This increase was particularly impressive in the Asia-Pacific region where net sales totaled $223 million, representing an increase of 15% over the same period last year.

Tiffany & Co. also reported increased net earnings during the quarter. Net earnings totaled $84 million, an increase of 3% from the same figure last year.

Michael Kowalski, Tiffany & Co. Chairman and CEO, commented on the company's performance. "While first quarter sales and earnings exceeded our expectations, we are maintaining our earnings forecast for the full year, mindful of continuing soft sales results in the Americas and the negative translation effect of a weaker yen. However, we remain focused on exciting initiatives for this year, including jewelry introductions highlighted by our GREAT GATSBY and ZIEGFELD collections, the HARMONY engagement ring and a reinterpretation of our iconic ATLAS collection." Mr. Kowalski went on to announce that Tiffany & Co. is planning to open 14 new retail locations this year and will completely redesign its website.

Tiffany & Co. recently released its GREAT GATSBY collection. The impetus for the collection was that Tiffany & Co. designed much of the jewelry for the recently released hit film The Great Gatsby.

After their impressive earnings report, Tiffany & Co. (TIF) shares reached a 52-week high of $81.25 during the middle of last week. The shares ended the week at $77.78.

Costco's Earnings Show that Bigger May Still Be Better

Costco Wholesale Corporation (COST) released its quarterly earnings report on May 30. The company continues to perform well as it has over the past year. Costco's stock price has risen almost 30% in the past year rising from about $86 per share to over $115 per share on May 30.

Costco reported revenue of $24.08 billion, which represents an increase from the comparable quarter last year when Costco reported revenue of $22.32 billion. Costco reported net income of $459 million, which represents an increase from the $386 million in net income reported the same time last year.

Some analysts worry that the company is now overvalued and that its actual growth will not be enough to keep pace with its rising stock price. However, others counter that this concern is tempered by the fact that the company has significant growth opportunities in Europe and South America.

Additionally, Costco is currently engaged in a lawsuit with another company featured in this week's report, Tiffany & Co. Tiffany & Co. announced in a press release on February 14 of this year that it has brought suit against Costco for trademark infringement among other causes of action. Tiffany alleges that for a number of years, Costco sold diamond engagement rings in its wholesale stores and identified the diamonds in-store as "Tiffany" diamonds. Tiffany seeks three times the amount of any profit Costco generated from selling the rings and $2 million in punitive damages.

Costco Wholesale Corporation (COST) shares ended the week at $109.67, down 4.1% from last week's close.

Lions Gate Roars Into 2013 with Impressive Annual Earnings

Lions Gate Entertainment Corp (LGF) reported its annual earnings on May 30. The strong results come on the heels of the Cannes Film Festival where Lions Gate procured key distribution deals for Mockingjay Parts 1 & 2, the two-film final installment of the popular Hunger Games trilogy. The first movie of the three-part Hunger Games trilogy made over $691 million worldwide when it was released in 2012. Catching Fire, the second movie of the three-part Hunger Games series, will be released on November 22 of this year.

Lions Gate reported total revenue of $2.71 billion for the fiscal year ending March 31, 2013. This represents an increase from last year's annual revenue of $1.59 billion.

Lions Gate reported net income of $232.13 million. The last time Lions Gate reported net income instead of a net loss was in fiscal year 2007.

"We completed a stellar fiscal 2013 with an outstanding fourth quarter that reflected strong contributions from our young adult franchises as well as the rest of our theatrical slate and our home entertainment and international businesses," stated Jon Feltheimer, Lions Gate CEO. "We are performing ahead of plan for all our metrics, and we're pleased with the financial strength of our diverse portfolio of businesses and our strong and growing momentum building Lions Gate into a next generation global content leader."

Several trends bode well for Lions Gate stockholders. They have just finished a successful run with the Twilight series. Additionally, they now have three more Hunger Games movies in the works and they have also purchased the rights to another popular young adult series, Enders Game.

Lions Gate Entertainment Corp (LGF) shares reached a 52-week high of $30.57 on May 31. Lions Gate shares ended the week at $28.80.

The Dow started the week at 15,307 and closed at 15,116. The S&P 500 started the week at 1,653 and closed at 1,631. The NASDAQ started the week at 3,498 and closed at 3,456.

"Up, Up and Away!" Treasury Yields Fly to a 13-Month High

Treasuries fell last week pushing 10-year Treasury yields to their highest level in 13 months. The 10-year Treasury yield reached 2.19% on Wednesday, May 29. This represents an increase of 18 basis points from last week's closing yield of 2.01%.

Two factors converged last week causing investors to sell treasuries in hopes of higher returns. First, the Federal Open Market Committee (FOMC) hinted in its latest meeting that the Fed may curtail bond purchases as early as this summer. The Fed has been purchasing $85 billion in securities each month since the end of last year. Second, consumer confidence rose to its highest level in five years.

The Fed has continually stated that it will continue purchases at some level as long as the unemployment rate is above 6.5% and inflation is below 2.5%. Currently the unemployment rate is at 7.5% and inflation for the 12-months ending April 30 was 1.1%. Consequently, the purchases are likely to continue for some time. However, given the comments at the last FOMC meeting, there is currently a debate over when the Fed will start tapering those purchases and by how much.

In an article that commented on the FOMC's March statement, T. Rowe Price Chief Economist Alan Levenson said, "In effect, the Fed stated it would gradually adjust its monthly asset purchases based on changes in its job market outlook before it stops buying entirely." Levenson went on to say that he expects the Fed will begin slowing its purchases of securities sometime this summer.

This environment of uncertainty has caused some investors to sell treasuries in advance of a change in the Fed's bond-buying program. "We're going to see higher yields," said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. "The Fed laid out their views on tapering. It all goes back to the data. The pressure is going to remain on the Treasury market until there's clarity at the next meeting." The FOMC's next meeting will be held on June 18.

The 10-year Treasury note yield finished the week at 2.16% while the 30-year Treasury note yield finished the week at 3.31%.

Fixed Mortgage Rates Reach 12-Month High

Freddie Mac released the results of its weekly Primary Mortgage Market Survey on March 30. The results show mortgage rates rising to their highest level in 12-months.

The 15-year fixed rate mortgage averaged 2.98% this week. This represents an increase from last week when it averaged 2.77%. Last year at this time the 15-year fixed rate mortgage averaged 2.97%.

The 30-year fixed rate mortgage averaged 3.81% this week, representing an increase from last week when it averaged 3.59%. One year ago, the 30-year fixed rate mortgage averaged 3.75%.

"Fixed mortgage rates followed long-term government bond yields higher following a growing market sentiment that the Federal Reserve may lessen its accommodative policy stance," stated Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "Improving economic data may have encouraged those views. For instance, the Conference Board reported that confidence among consumers rose in May to its highest level since February 2008. Meanwhile, the S&P/Case-Shiller® 20-city composite index for March rose to its highest reading since November 2008 (seasonally adjusted). All 20 cities had positive monthly gains, led by a 3.2% increase in Las Vegas."

The money market fund finished this week at 0.5%. The 1-year CD finished at 0.6%.

Published May 31, 2013

Previous Articles

Home Depot Reports Quarterly Results

Macy's Reports Quarterly Earnings

Walt Disney Reports Second Quarter Results

DreamWorks Animation Reports Quarterly Earnings

Apple Reports Second Quarter Results

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