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Wednesday August 20, 2014



Superstition Plagues Men's Wearhouse

The Men's Wearhouse (MW), a purveyor of men's clothes and accessories, announced its quarterly earnings on Wednesday, September 11. The company reported lower revenue and net income figures than one year ago.

The company reported revenue of $647.26 million. This represents a decrease from the comparable period last year when the company reported revenue of $662.3 million.

The company reported net income of $42.94 million. This represents a decrease from last year when the company reported net income of $59.39 million. For the quarter the company reported earnings per share of $1.01, which was below analysts' estimate of $1.14 per share.

"We are being cautious as we face macro-economic headwinds," said Doug Ewert, President and CEO of Men's Wearhouse. "However, we believe our operating and capital allocation plans, our margin enhancement strategies, including new store openings and the expansion of exclusive brands, and our new omni-channel marketing initiatives introduced in 2013 position us to grow market share as we manage through this."

According to Doug Ewert superstitious couples may be affecting the stock price of Men's Wearhouse this year. When discussing this year's less than impressive tuxedo rental revenue he commented, "we believe that the number 13 in 2013 is causing a small, but meaningful number of brides to avoid getting married this year." Today happens to be Friday the 13th in a year which ends in '13. Luckily for Men's Wearhouse this anomaly won't recur for another 100 years.

Men's Wearhouse (MW) shares ended the week at $34.60, down 9.2% for the week.

Coldwater is Still Waiting to Heat Up

Coldwater Creek Inc. (CWTR), a women's clothing retailer, reported its quarterly earnings on Tuesday, September 10. The struggling company missed analysts' expectations for revenue and net income.

The company reported revenue of $149.7 million. This represents a decrease from last year at this time when the company reported revenue of $163.69 million. Analysts had expected the company to report revenue of about $162 million this quarter.

Coldwater Creek reported a net loss of $16.44 million. This is slightly less than the loss reported for the comparable period last year of $17.56 million. However, the company reported a loss of $0.72 per share, which was higher than analysts' projections of $0.63 per share.

Jill Dean, President and CEO of Coldwater Creek, commented on the company's results. "Sales were lower than planned in the second quarter, largely due to a deceleration in traffic during the month of July. Despite a challenging environment, we delivered bottom-line results that were in line with our guidance." She went on to explain several steps the company is taking to increase customer engagement and drive store traffic. "We believe that these steps, combined with the extensive work we are continuing to do to align our merchandise assortment with our brand strategy, as well as our disciplined management of expenses and inventory, remain the right focus for our business."

The story of Coldwater Creek is certainly one of hot and cold. From 1997 to 2004, Coldwater's stock price ranged from $5-$20. Then, in 2004, it began to rise significantly until it peaked in October of 2006 at $121.96 per share. Coldwater announced yearly revenue of over $1 billion during 2006. In the next two and a half years, Coldwater's stock lost over 94% of its value hitting $6.76 in February of 2009. The company's stock has remained below $6 per share since mid-2011 and it has not recorded a quarterly profit since 2010.

Coldwater Creek Inc. (CWTR) shares ended the week at $1.82, down 24.8% for the week.

No Pep in Pep Boys' Step

The Pep Boys – Manny, Moe and Jack (PBY), a leading auto service and retail company, announced its quarterly earnings on September 9. The company missed revenue and earnings per share projections.

The company reported revenue of $527.62 million. This represents a slight increase from the comparable period last year when the company reported revenue of $525.67 million. Though revenue stayed relatively steady year-over-year, this revenue figure was below analysts' expectations of $540 million.

The Pep Boys reported quarterly net income of $5.37 million, representing a significant decrease from the same period last year when the company reported net income of $33.05 million. In addition, the company reported earnings per share of $0.17, below estimates of $0.19 per share.

"Improved product gross margins drove our 25% improvement in adjusted operating income during the quarter," said President and CEO of Pep Boys, Mike Odell. "Our strategically important maintenance and repair services remain steady and grew in customer count, sales and margin rate. Tire sales were down in dollars and units, but grew in gross margin dollars. While not yet realized, we continue to be cautiously optimistic that we will see improving demand for tires this year."

On September 6, Pep Boys announced that it had acquired 17 Discount Tire Centers in Southern California. The stores are located in the greater Los Angeles area from Bakersfield to Orange County. They opened September 12 as Pep Boys stores. Senior Vice President for Business Development, Joe Cirelli, stated, "With this acquisition, 75% of Los Angeles-area residents live within three miles of a Pep Boys location. Now we have nearly 150 locations in California, where we have served customers since 1933."

The Pep Boys – Manny, Moe and Jack (PBY) shares ended the week at $12.17, up 7.4% for the week.

The Dow started the week at 14,927 and closed at 15,376. The S&P 500 started the week at 1,657 and closed at 1,688. The NASDAQ started the week at 3,675 and closed at 3,722.

Verizon's Bond Offering Makes History

Verizon Communications Inc. made history on September 11 when it sold $49 billion in corporate bonds. This sale is almost three times the previous record held by Apple when it sold $17 billion in bonds.

Verizon's sudden need for cash stems from its recent agreement with Vodafone Group. Verizon Communications and Vodafone Group, a telecommunications company based in the UK, founded Verizon Wireless as a joint venture in 2000. The companies agreed that Vodafone would own 45% of Verizon Wireless while Verizon Communications would own the remaining 55%.

After partnering for 13 years, the companies agreed that Verizon would purchase Vodafone's 45% stake in Verizon Wireless for $130 billion on September 2. This deal is the second largest acquisition in history.

In order to fund the deal, Verizon will proffer $60 billion in cash and the remainder will be funded with debt and debt instruments. According to Dealogic, this is the largest amount of cash ever spent as part of an acquisition. The previous record was $50 billion paid by InBev to acquire Anheuser-Busch.

The remaining $70 billion will be funded with debt and debt instruments. The September 11 bond offering was part of the plan to fund the deal. In order to attract investors Verizon offered yields at higher than market rates. The 10-year bonds were priced to yield 2.25% more than 10-year Treasuries. As a result, investors purchased $49 billion in Verizon bonds dwarfing the previous record held by Apple.

The deal is generally seen as positive for Verizon Communications despite the massive debt the company is incurring because of the strong outlook for Verizon Wireless. Verizon Wireless generated $75.9 billion in operating revenue in 2012 and operating income of $21.8 billion. Instead of having to share this income with Vodafone, Verizon Communications will now have access to the entire amount. Also, Verizon Wireless has invested more than $80 billion in its network since 2000 and now operates the country's largest 4G LTE network.

The 10-year Treasury note yield finished the week at 2.90% while the 30-year Treasury note yield finished the week at 3.85%.

Interest Rates Unchanged

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, September 12. The results show average fixed mortgage rates remaining steady near annual highs.

The 30-year fixed rate mortgage averaged 4.57% this week, which is the same as last week's average. Last year at this time the 30-year fixed rate mortgage averaged 3.55%.

The 15-year fixed rate mortgage averaged 3.59% this week, unchanged from last week. One year ago, the 15-year fixed rate mortgage averaged 2.85%.

"Mortgage rates were little changed this week following a mixed employment report," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "For example, the economy added 169,000 jobs in August, which was below the market consensus forecast, and revisions subtracted another 74,000 from the prior two months. Meanwhile, the unemployment rate fell to 7.3% which was the lowest since December 2008."

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

Published September 13, 2013

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