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Thursday September 18, 2014



Dollar General is Worth Every Penny

Dollar General Corporation (DG) reported its second quarter sales on September 4, 2013. The company's reported earnings surpassed analysts' expectations and reinforced investor confidence in the company's stock.

Dollar General reported that net sales increased 11.3% to $4.39 billion compared to $3.95 billion during the same period last year. The increase was bolstered by a strong 5.1% same-store sales increase, which was better than the company's competitors, Dollar Tree and Family Dollar.

Second quarter net income was $245 million, or $0.75 per share, a 17% increase over the same period last year. The net income increase outperformed analysts' expectations.

"Dollar General delivered another solid quarter," said Rick Dreiling, Dollar General's Chairman and CEO. "Our same-store sales growth for the second quarter of 2013 accelerated to 5.1%. We are very pleased with the increase in customer traffic in our stores. We continue to grow our market share and believe that our second quarter results position us well to deliver our financial outlook for the year."

Dollar General's impressive second quarter results were simply another page in the continued success of the company. Expectations for the company's second quarter earnings were already high, yet the results still found a way to surpass them. It is no wonder the stock is up nearly 140% over a five-year period. Following the quarterly earnings announcement, the stock was up 5% on the day.

Dollar General (DG) shares ended the week at $56.96.

H&R Block Reports Expected Earnings Drop

H&R Block (HRB), a tax preparation service, reported its fiscal 2014 first quarter results on September 3. The company earns the majority of its revenue during the tax season. Therefore, as expected, its first quarter earnings were poor.

The company reported first quarter revenue of $127 million, a 32% increase over the $96 million reported during the same period last year. Although this year's first quarter revenue was higher, the company was careful to note it was due to a timing circumstance with its Australian operations. In addition, the company's H&R Block Bank was not able to finalize an agreement to sell its assets and liabilities to Republic Bank & Trust Company.

H&R Block reported a first quarter net loss of $113 million, which was higher than the net loss of $106 million reported during the comparable period last year. A first quarter loss for the company is not unexpected, however, because of the seasonal nature of the company's business.

Bill Cobb, H&R Block's President and CEO, had this to say about the quarter's results, "While we're disappointed that it is not likely that we'll be able to complete the bank transaction in time for this tax season, we remain focused on exiting our bank and continue to believe it is in the best interests of our shareholders," said Bill Cobb, H&R Block's President and CEO. "Our overall strategy has not changed, and we're well positioned to continue growing our business profitably and to continue providing significant shareholder returns."

H&R Block's business is seasonal and depends on generating strong revenues during the tax preparation season in the first part of the year. The good news for investors is that the stock is still at a 52-week high. Still, some analysts remained concerned about the company going forward because of increased competition from e-filing software solutions TurboTax and TaxAct.

H&R Block (HRB) shares ended the week at $26.91.

Quicksilver Reports Quarterly Earnings

Quicksilver, Inc. (ZQK), a clothing retailer, announced its third quarter results on September 6. The results surpassed expectations and showed management is making all the right moves in getting the company back on track.

Quicksilver's revenue for the third quarter was $496 million, a decrease of 3% from the $512 million reported during the same period last year. Although revenue decreased, the company's strong revenue from the European and Asian markets gave analysts confidence Quicksilver is getting stronger financially.

Earnings per share for the quarter were $0.10, identical to what the company reported during the same period last year. Quicksilver's quarterly earnings per share exceeded Wall Street expectations that earnings per share would be $0.06.

"Our third quarter results reflect progress on our path toward improving operating efficiencies," said Andy Mooney, President and CEO of Quicksilver. "We completed assembling our senior management team, refinanced debt to extend maturities and increase liquidity, reduced headcount, narrowed our athletes and events roster, began re-engineering supply chain processes and continued to close underperforming retail stores. Our plan is on track and we remain confident that our initiatives will lead to improved efficiency and profitability."

Quicksilver's struggles over the past few months have led to net losses and a falling stock price. However, this week's earnings report calmed investors' fears and provided encouragement that management's new direction is yielding results. Consequently, the stock price rose 32% during Friday trading.

Quicksilver, Inc. (ZQK) shares ended the week at $6.85.

The Dow started the week at 14,810 and closed at 14,923. The S&P 500 started the week at 1,633 and closed at 1,655. The NASDAQ started the week at 3,590 and closed at 3,660.

Treasurys Rise on Weak August Jobs Data

Treasury prices rose on Friday after the release of the newest jobs report showed fewer jobs were created in August than expected. The disappointing jobs numbers have cast doubt over whether the Federal Reserve will begin to taper its bond purchases when it convenes for its September policy meeting in a couple weeks.

The August jobs report showed the U.S. economy added 169,000 jobs during the month, well below the forecast of 180,000 jobs. The unemployment rate dropped from 7.4% to 7.3%, a number that hardly inspired confidence considering the labor force participation rate reached a 35-year low during the month. A low participation rate means that many people who were unemployed and looking for employment quit looking for work.

The disappointing jobs numbers helped stop a week-long investor retreat from Treasurys. Yields on the benchmark 10-year note rose to 3% for the first time since July 2011. Following the jobs data, Treasury prices rallied and yields, which move inversely to prices, fell 11 basis points to 2.89% during early Friday trading. The 30-year bond fell 6 basis points to 3.83% during the same period.

Treasury prices were also boosted Friday after Russian President Vladimir Putin indicated his country would support Syria if attacked by the U.S. "Will we help Syria? We will," Putin told reporters in St. Petersburg. Russia is already helping Syria by sending arms shipments to the country.

Although many investors have been bracing themselves for a tapering announcement from the Federal Reserve when it has its September policy meeting in a couple weeks, the weak August jobs numbers have cast doubt on that prediction. The markets have been speculating since May regarding whether the Fed will taper its bond purchases, but recent announcements from the central bank seemed to indicate a tapering announcement in September was all but a foregone conclusion.

"We have opined that if we got a [jobs] report that was even close to expectations, it would have cemented a Fed taper announcement," said Adrian Miller, director of fixed-income strategy at GMP Securities, LLC. "However, the August report was anything but close, so now investors are left scratching their heads after becoming somewhat convinced the Fed would taper."

The 10-year Treasury note yield finished the week at 2.94% while the 30-year Treasury note yield finished the week at 3.87%.

Interest Rates Tilt Back Up

Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, September 5. Average fixed mortgage rates rose this week amid news of a stronger U.S. economy, especially in the housing and manufacturing sectors.

The 15-year fixed rate mortgage averaged 3.59% this week, which was up from last week's average of 3.54%. Last year at this time, the 15-year fixed rate mortgage averaged 2.86%.

The 30-year fixed rate mortgage averaged 4.57% this week. This represents an increase from last week when it averaged 4.51%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.55%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week's rates, "Mortgage rates edged up this week on signs of a stronger economic recovery. Real GDP was revised upwards to 2.5% growth in the second quarter of this year. In addition, residential construction spending rose for a ninth consecutive month in July. Lastly, the manufacturing industry expanded by the fastest pace in August since June 2011."

The money market fund finished this week at 0.4%. The 1-year CD finished at 0.6%.

Published September 6, 2013

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