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Wednesday November 26, 2014



Macy's Well Prepared for the Holidays

Macy's, Inc. (M) announced its third quarter results on Wednesday, November 13. The company's earnings per share greatly exceeded expectations, causing the stock price to surge.

Macy's reported sales of $6.28 billion for the quarter, a 3.3% increase over the $6.08 billion reported during the same period last year. Analysts were expecting sales to be only $6.19 billion, a figure the company beat by close to $100 million.

Net income for the quarter was $177 million, or $0.47 per share. This was 31% higher than the $0.36 reported during the same period last year and significantly better than the $0.39 analysts were expecting.

"We were able to achieve a very successful third quarter of 2013, despite the tepid economic climate," said Terry J. Lundgren, Chairman, President and CEO of Macy's. "Our business improved during the quarter, with particular strength in October, so we are entering the fourth quarter with confidence. We have curated an outstanding offering of the best gifts, fashion, value and service for our customers throughout the holiday season," Mr. Lundgren added.

Macy's stock price closed above $50 on Wednesday, November 13. The company has seen steady improvement in its stock price since it fell below $10 in 2009. Prior to 2009, Macy's stock price reached a high of $45 in 2007. The company's third quarter earnings report was yet another sign of the company's continued financial improvement. Building on a strong third quarter, Macy's can look forward to the fourth quarter, which includes the holiday shopping season. Last year, the fourth quarter made up about 34% of the company's annual revenues.

Macy's, Inc. (M) shares ended the week of 11/11 at $51.09.

Potbelly Reports First Quarterly Results

Potbelly Corporation (PBPB), a sandwich shop in the "fast casual" mold of Chipotle, announced its first quarterly report as a public company on Tuesday, November 12. The company displayed solid revenue and earnings figures that appeared to please investors.

Potbelly announced that revenue for the third quarter was $78 million. This was an 11.7% increase from the $69.9 million reported during the same period last year.

Adjusted net income for the quarter was $3.2 million, or $0.15 per share. This was higher than the $2.5 million, or $0.12 per share, reported during the comparable period last year. The company's net income exceeded analysts' expectations.

Potbelly Chairman and CEO, Aylwin Lewis, had this to say about the company's debut quarterly report as a public company, "We are pleased with our third quarter results. This was our first quarter of reporting as a public company and it was important that we achieved the growth results in line with our long-term targets. . . We view the IPO as a significant milestone, but not a destination. Our focus remains on operating the business and delivering long-term shareholder value."

Potbelly completed its initial public offering of 8,625,000 shares of common stock on October 9, 2013. The IPO price of the stock was $14. It quickly rose to over $30, but later fell to $23 after the buzz surrounding the IPO subsided. The company's first quarterly report as a public company created renewed excitement among investors, which caused the stock to climb to around $30. Investors hope Potbelly becomes another Chipotle, which has consistently showcased outstanding same-store sales growth. However, some analysts remain cautious, highlighting the difference between Potbelly's quarterly same-store sales growth of 2.5% and Chipotle's recent report of 6.2% quarterly same-store sales growth.

Potbelly Corporation (PBPB) shares ended the week of 11/11 at $30.07.

RealD's Second Quarter Pleasantly Surprises

RealD (RLD), a licensor of 3D and similar visual technologies, announced its second quarter results on Tuesday, November 12. Although the company had poor results compared to the same period last year, the results managed to be better than analysts expected.

RealD reported revenue of $43.9 million for the second quarter, a sharp drop from the $55 million reported during the same period last year. Analysts had expected second quarter revenue to be lower at $41.6 million, however.

The company reported a net loss for the quarter of $4.7 million, or $0.09 per share, compared to a loss of $4.2 million, or $0.08 per share, during the comparable period last year. RealD's net loss was better than expected, however, as analysts forecasted a net loss of $0.19 per share.

"As fiscal 2014 progresses, we continue to optimize RealD's financial performance and position our company for the future," said Michael V. Lewis, RealD's Chairman and CEO. "The success of Gravity demonstrates that RealD's platform can deliver strong results when the combination of a high-quality 3D film, effective 3D marketing and optimum screen availability come together. At the same time, we are focusing on the expansion of our platform in faster growing emerging markets. With this in mind, we were pleased to announce new contract wins that collectively provide for 250 screens in two of the fastest growing cinema markets – China and Russia."

It has been about three years since RealD had its initial public offering. At that time the stock surged, a result of the popular 3D craze in theatrical films that was promulgated by the smashing success of Avatar. Since RealD's IPO, however, the stock has struggled, falling close to 38% this year. Following RealD's quarterly report on Tuesday, the stock price rose nearly 25% to $8.76. As part of an effort to reduce costs, the company announced earlier this month that it will be reducing its workforce by 20%.

RealD Inc. (RLD) shares ended the week of 11/11 at $8.68.

The Dow started the week of 11/11 at 15,759 and closed at 15,962 on 11/15. The S&P 500 started the week at 1,770 and closed at 1,798. The NASDAQ started the week at 3,914 and closed at 3,986.

Treasuries Fall on Weak Economic Reports

The release of several negative economic reports on Friday, November 15 led to a fall in Treasury prices. Prices rose earlier in the week as Federal Reserve Chairman nominee Janet Yellen testified before Congress as part of her confirmation hearings.

On Friday, the Federal Reserve Bank of New York released its Empire State index, a general indicator of economic conditions. For the month of October, the index was minus 2.2, the first negative reading the index has recorded in six months. Many economists expected the index to report a positive reading of 5.5.

It was also reported on November 15 that U.S. import prices fell by 0.7% in October, the result of a fall in fuel prices. Economists were expecting import prices to fall by only 0.4%. In addition, industrial production fell by 0.1% in October as mining and utilities activity decreased. This was the first drop in industrial production since July.

The 10-year note yield dropped 8.5 basis points during the two days leading up to Friday, November 15. As a result of the negative economic news, the 10-year note yield rose 2.5 basis points to 2.72% during early Friday trading. The 30-year bond yield rose 2 basis points to 3.81%.

The increase in the 10-year bond yield came as Janet Yellen testified before Congress during her confirmation hearings to replace Ben Bernanke as Fed chief. Yellen has been a strong supporter of the Fed's bond buying program known as quantitative easing. While her testimony has indicated a willingness to begin reducing the Fed's bond purchases, it seems that she would not suggest doing so until at least a few months into 2014.

Yellen's testimony has reassured the markets that a taper in December is unlikely. "The probability of December tapering has shifted this week, from just under 2:1 earlier this week to more like 4:1 odds against tapering today," said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.

The 10-year Treasury note yield finished the week of 11/11 at 2.71% while the 30-year Treasury note yield finished the week at 3.80%.

Interest Rates Climb Higher on Good News

Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, November 14. The survey showed interest rates rose for the second consecutive week, the result of positive reports from last week, including the employment report for October.

The 15-year fixed rate mortgage averaged 3.35% for the week ending November 15, up from the previous week's average of 3.27%. Last year at this time, the 15-year fixed rate mortgage averaged 2.65%.

The 30-year fixed rate mortgage averaged 4.35% for the week ending November 15. This represents an increase from the previous week when it averaged 4.16%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.34%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on the week's rates, "Fixed mortgage rates increased this week following stronger than expected economic data releases. Nonfarm payrolls increased by 204,000 in October, above the consensus forecast. In addition, revisions added 60,000 additional jobs to the prior two month releases. Preliminary estimates indicate Real GDP growth in the third quarter was 2.8%, also above consensus."

The money market fund finished the week of 11/11 at 0.4%. The 1-year CD finished at 0.7%.

Published November 15, 2013

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