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Friday July 25, 2014

Finances

Finances
 

Dollar General Delivers Strong Results

Dollar General Corporation (DG), a discount retailer, reported its fiscal 2013 third quarter results on Thursday, December 5.  The company beat earnings per share estimates, but missed slightly on revenue estimates.
 
Dollar General reported quarterly revenue of $4.38 billion.  This is slightly below the $4.42 billion analysts’ expected, but represents an increase over the comparable quarter last year when the company reported revenue of $3.96 billion.
 
The company reported net income of $237.39 million for the quarter.  This represents a slight increase over last year when the company reported net income of $207.69 million.  Dollar General reported earnings per share of $0.74, greater than the $0.70 per share that analysts’ had forecast.
 
“Dollar General once again delivered strong results in the third quarter, even in the face of an ongoing challenging consumer environment,” said Rick Dreiling, Dollar General’s Chairman and CEO. “Our merchandising initiatives continue to be successful in driving traffic and sales.  Looking ahead, while we are cautious on the current macroeconomic trends, we remain excited about the long-term growth prospects for our business.  Dollar General is committed to delivering everyday low prices and convenience for our customers, which has proven to be a winning formula given our long track record of success.”
 
Dollar General was founded in Tennessee and operates more than 11,000 stores across 40 states.  The store was originally named J.L. Turner & Sons, but the name was changed to Dollar General Corporation in 1968. 
 
Dollar General Corporation (DG) shares ended the week at $60.20, up 5.8% for the week ending 12/6.
 

JoS. A. Bank Reports Solid Earnings


JoS. A. Bank Clothiers, Inc. (JOSB), a men’s clothing and accessories retailer, reported its quarterly earnings on Thursday, December 5. The company reported better revenue and earnings per share than expected.
 
JoS. A. Bank reported net sales of $247.47 million for the quarter. This figure is greater than analysts’ projection of $245 million in revenue.  In addition, it represents an increase from the same period last year when the company reported net sales of $232.85 million. 
 
The company reported quarterly net income of $13.62 million. This net income figure is similar to the comparable quarter last year when the company reported net income of $13.30 million.  JoS. A. Bank reported earnings per share of $0.51, which is greater than the forecast of $0.49 per share.
 
“Our performance in the third quarter is a strong indication that we are taking the right actions to improve both our top and bottom lines,” said R. Neal Black, President and CEO of JoS. A. Bank Clothiers, Inc. “In particular, the customer is responding well to the changes we are making in the promotional side of our business and our non-promotional business continues to grow strongly.  This was evident in our improving sales trend, both in stores and online, as well as in our marketing efficiency and the 40 basis point increase in our gross profit margin rate in the third quarter, which represents our second consecutive quarterly increase.”
 
JoS. A. Bank offered to buy Men’s Wearhouse for around $2.3 billion in October.  Men’s Wearhouse rejected the offer.  However, in late November Men’s Wearhouse offered to buy JoS. A. Bank for $1.54 billion.  This switch from target to buyer is called the Pac-Man defense.  In general, analysts see the potential for combining the two companies as a positive.  The companies could save costs associated with doing business; combined they would operate about 1,700 stores.
 
JoS. A. Bank Clothiers, Inc. (JOSB) shares ended the week at $56.72, up 0.09% for the week ending 12/6.
 

Kroger Misses Earnings Estimate


The Kroger Co. (KR), a supermarket operator and food manufacturer, reported its quarterly earnings on Thursday, December 5.  The company’s earnings were slightly lower than expected.
 
The company reported $22.5 billion in total revenue for the quarter.  This represents an increase of 3.2% over the comparable quarter last year when Kroger reported total revenue of $21.81 billion. However, analysts had expected sales to be $22.72 billion.
 
Kroger announced quarterly net income of $125 million.  The company reported earnings per share of $0.53, which was in line with analysts’ projections. 
 
“Our quarterly results show once again that Kroger is uniquely positioned to grow and win in the U.S. food retail industry,” said David B. Dillon, Kroger’s Chairman and CEO. “Our Customer 1st Strategy resulted in strong sales and earnings growth, lowered costs and helped improve Kroger’s connection with our customers in the third quarter. Every one of our more than 343,000 associates deserves recognition for their individual work to achieve an unprecedented 40 consecutive quarters of positive identical supermarket sales.  I know our entire team is hard at work to achieve the 41st.”
 
The Kroger Company was founded in 1883 and is based in Cincinnati, Ohio. The company operates over 2,400 supermarkets and multi-department stores and employs more than 343,000 full-time employees.
 
The Kroger Co. (KR) shares ended the week at $40.44, down 3.1% for the week ending 12/6.
 
The Dow started the week of 12/2 at 16,087 and closed at 16,020 on 12/6. The S&P 500 started the week at 1,807 and closed at 1,806. The NASDAQ started the week at 4,066 and closed at 4,063.
 

Jobs Data Causes Treasuries to Fluctuate

Treasury yields rose and then fell after the Labor Department released the employment data for November. The data initially increased speculation that the Federal Reserve will announce some plan to taper its bond purchases as early as its meeting on December 17-18.  However, the market soon readjusted its expectations.
 
The U.S. Bureau of Labor Statistics announced employment data for the month of November on Friday, December 6.  The report showed that the unemployment rate declined from 7.3% to 7% and non-farm payrolls increased by 203,000 last month. Economists had expected that 185,000 jobs would be added. In addition, initial claims for unemployment benefits fell 23,000 to 298,000 for the week ending November 29.
 
This better-than-expected jobs report initially caused Treasury yields to rise.  The 10-year Treasury note yield rose to 2.93%, its highest level in almost three months, in early trading on December 6.  In addition, the 30-year Treasury note yield rose to 3.96%, its highest level in over two years.  However, this initial reaction soon subsided and the 10-year Treasury note yield and 30-year Treasury note yield fell to 2.86% and 3.89%, respectively, later the same morning.
 
Sean Simko of SEI Investments Co. discussed the fluctuation in Treasury yields. “The market was pricing in a number like we saw today.  So when the number hit, there’s a knee-jerk reaction higher in yield, but then it quickly reversed course to where the market was trading before.  When you take a step back, I don’t think it changes the picture of the Fed tapering.”
 
Given the fluctuation this week, Treasury volatility reached its highest level in two months.  The Bank of America- Merill Lynch MOVE index, which measures the demand for risk protection, reached 76.1 on December 5.  Much of this volatility is due to speculation over whether the Fed will change its monetary policy in the near future.  This will-the-Fed, won’t-the-Fed speculation is likely to continue into the New Year.
 
The 10-year Treasury note yield finished the week of 12/2 at 2.88% while the 30-year Treasury note yield finished the week at 3.92%.
 

Interest Rates Increase

Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, December 5.  The results show average fixed mortgage rates rising significantly following strong economic data.

The 15-year fixed rate mortgage averaged 3.47% this week.  This represents a significant increase from last week when it averaged 3.30%.  One year ago at this time, the 15-year fixed rate mortgage averaged 2.67%. 
 
The 30-year fixed rate mortgage averaged 4.46%, representing a stark increase from last week when it averaged 4.29%.  Last year at this time, the 30-year fixed rate mortgage averaged 3.34%. 

“Fixed mortgage rates increased this week following stronger than expected economic data releases,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac.  “Private companies added 215,000 new jobs in November according to the ADP employment report, well above the consensus.  In addition, revisions added 54,000 jobs in the prior month.  Lastly, new home sales rose 25% in the month of October to a seasonally adjusted 444,000 annual pace, though this followed a weaker than expected September report and downward revisions over the summer months.”
 
The money market fund finished the week of 12/2 at 0.4%. The 1-year CD finished at 0.7%.

Published December 6, 2013


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