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Friday October 24, 2014

Finances

Finances
 

Men’s Wearhouse on the Comeback Trail

Men’s Wearhouse (MW), a leading men’s retailer, announced its third quarter results on Thursday, December 12. Although net income for the quarter fell, the company reported better-than-expected sales numbers.
 
The company reported net sales for the quarter of $648.9 million, a 2.8% increase from the $631 million reported during the same quarter last year. Sales surprised analysts who were expecting sales of only $627.4 million for the quarter.
 
Net income for the quarter fell to $38.2 million, or $0.79 per share. During the same period last year, Men’s Wearhouse reported net income of $48.8 million, or $0.95 per share.
 
Doug Ewert, President and CEO of Men’s Wearhouse, commented on the results, “We are very pleased to report our 2.6% comparable store sales increase during the third quarter in our Men's Wearhouse brand, which represents two-thirds of our consolidated sales.  We are also very pleased with the early progress in integrating our newly acquired American designer brand, Joseph Abboud, and its U.S. manufacturing operations.  We already have several large markets with Joseph Abboud product in place and will continue to execute on our planned rollout to all stores into the summer of 2014.”
 
Men’s Wearhouse has experienced a time of transition over the past few months after company founder George Zimmer was removed as executive chairman in June due to disagreements over the direction of the company. Around that time, Men’s Wearhouse’s smaller rival, Jos. A. Bank, made an offer to acquire the company—an offer the company rejected. Last month, Men’s Wearhouse in turn offered to acquire Jos. A. Bank for $1.54 billion, a proposal Jos. A. Bank is presently considering.
 
Men’s Wearhouse (MW) shares ended the week at $51.75.
 

Costco’s Results Miss Expectations

 
Costco Wholesale Corporation (COST) announced its first quarter results for fiscal 2014 on Wednesday, December 11. The company’s results displeased investors as it missed both revenue and earnings projections.
 
Costco reported revenue of $25.02 billion for the quarter, a 5.5% increase over the same period last year. Expectations were for revenue to be higher at $25.35 billion, however.
 
Earnings for the quarter were $425 million, or $0.96 per share, for a slight increase of 2.2% over the same period last year. The $0.96 per share missed estimates that earnings per share would be higher at $1.02 per share.
 
Costco Wholesale has been on a roll over the past few years, which has excited investors and caused the stock price to rise. The recent first quarter results, however, could not live up to investors’ and analysts’ lofty expectations. Even though revenue and net earnings increased, investors were still disappointed. Overall, Costco’s stock price has risen nearly 20% this year, reaching a high of $126 in November.
 
Costco Wholesale Corporation (COST) shares ended the week at $117.91.
 

Krispy Kreme’s Results Not So Sweet

 
Krispy Kreme Doughnuts, Inc. (KKD), a leading wholesaler and retailer of doughnuts and coffee, announced its third quarter results on Monday, December 2. Krispy Kreme once again saw revenue and net income increase, but not at the pace investors have become accustomed, which caused the stock price to fall.
 
Krispy Kreme reported that revenue rose 6.7% to $114.2 million during the quarter, compared to $107.1 million reported during the same period last year. For the twentieth consecutive quarter, company same-store sales rose 3.7%, although not as high as investors had hoped. In addition, the company said the same-store sales increase was driven primarily by increased retail prices.
 
Net income for the quarter rose to $11.2 million, or $0.16 per share. This was a 33.8% increase over the $8.3 million, or $0.12 per share, reported during the same period last year.
 
James H. Morgan, Chairman, President and CEO of Krispy Kreme, had this to say about the results, “Our relentless focus on executing our long-term strategic plan is enabling us to strengthen our Company, gradually unlock our brand’s full potential and create value for our shareholders.  During the third quarter, we extended our track record of positive same store sales at Company stores to 20 consecutive quarters.  We believe this is a remarkable distinction.  We are pleased to have increased our top-line at a healthy pace despite the tepid consumer spending environment.”
 
Krispy Kreme has made a remarkable turnaround compared to where the company was just four years ago. In 2009, the company’s stock price bottomed out at $1.01 per share, a low point for a stock that had once been a Wall Street darling. Since then, the company has been clawing its way back to Wall Street respectability. This year alone, the stock price has risen 113%. With this recent quarterly report, however, the stock price took a hit, falling below $20 in afternoon trading after reaching $24.50 before the results were released. Despite the setback, the company’s revenue and net income increased, something that investors will continue to keep an eye on going forward.
 
Krispy Kreme Doughnuts, Inc. (KKD) shares ended the week at $18.04.
 
The Dow started the week of 12/9 at 16,019 and closed at 15,755 on 12/13. The S&P 500 started the week at 1,806 and closed at 1,775. The NASDAQ started the week at 4,074 and closed at 4,001.
 

Treasuries Rise on Taper Bets

Treasuries rose this week on expectations that the Federal Reserve will decide next week to begin to reduce or taper bond purchases. In addition, data revealed that wholesale prices fell once again in November.
 
Data released Friday showed that wholesale prices for the month of November fell 0.1%, the third straight month they have done so. The decline was in line with analysts’ expectations. The November decline was slightly better than that recorded in October when wholesale prices fell 0.2%.
 
“We’ve had a string of economic data that’s been better than expected,” said Thomas Roth, senior Treasury trader at Mitsubishi UFJ Securities USA Inc. “The path of least resistance is still to higher yields.”

Next week, during December 17-18, Federal Reserve policy makers will meet to determine once again whether it is time to begin reducing monthly bond purchases. News yesterday that retail sales rose more than expected, along with the House of Representatives passing a budget bill, added fuel to the tapering fire. If the Fed does decide next week to begin reducing its bond purchases, 3% yields on the benchmark 10-year note may be in sight.
 
“If the Fed does scale bond purchases next week, we think 3% will be seen before the end of the year – probably before the end of the day,” said Steven Barrow, a strategist at Standard Bank in London. “But if, as we think is more likely, the Fed resists, yields will slip back and we’ll have to wait a bit longer to get our 3%.”
 
The 10-year Treasury note yield finished the week of 12/9 at 2.87% while the 30-year Treasury note yield finished the week at 3.87%.
 

Interest Rates Tick Slightly Downward

Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, December 12.  The survey showed interest rates remaining relatively unchanged from the previous week, even though they did trend slightly downward.
 
The 15-year fixed rate mortgage averaged 3.43% this week, down from last week’s average of 3.47%. Last year at this time, the 15-year fixed rate mortgage averaged 2.66%. 
 
The 30-year fixed rate mortgage averaged 4.42% this week, lower than last week’s average of 4.46%.  One year ago at this time, the 30-year fixed rate mortgage averaged 3.32%.
 
Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week’s rates, “Mortgage rates were little changed amid a light week of economic data releases. Of the few releases, total nonfarm payroll employment rose by 203,000 in November and the unemployment rate declined to 7.0%. Also, single family mortgage debt outstanding increased for the first time since 2008. This is a positive sign as it reflects that the pick-up in new purchase-money originations has offset loan paydowns and led to a net increase in principal outstanding.”
 
The money market fund finished the week of 12/9 at 0.4%. The 1-year CD finished at 0.7%.

Published December 13, 2013


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