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Friday March 27, 2015



Williams-Sonoma's Great Quarter

Williams-Sonoma, Inc. (WSM), a home goods company, announced its fourth quarter results on Wednesday, March 13. The company's fourth quarter beat estimates and propelled the stock price to an all-time high.

Williams-Sonoma reported fourth quarter revenue of $1.47 billion, 4.3% higher than the $1.41 billion reported during the same period last year. Quarterly revenue beat the estimate by nearly $50 million.

Earnings per share for the quarter were $1.38, a 3% increase over the $1.34 per share reported during the fourth quarter of 2012. Like fourth quarter revenue, earnings per share beat the expected estimate of $1.36 per share.

Williams-Sonoma President and CEO, Laura Alber, had this to say about the company's impressive quarter: "Williams-Sonoma, Inc. outperformed the retail industry this holiday season, gaining market share and demonstrating the structural advantage of our multi-brand, multi-channel platform. The strength of our brands across retail and e-commerce, in conjunction with disciplined execution, enabled our team to drive record operating results."

Williams-Sonoma's impressive fourth quarter caused the share price to rise nearly 9% following the earnings announcement. Analysts were especially impressed with the company's results as they came during a quarter consisting of rough winter weather and strong holiday season competition. Further adding to the buzz around Williams-Sonoma was the company's announcement that it will increase its quarterly dividend from $0.31 to $0.33, an increase of 6%.

Williams-Sonoma, Inc. (WSM) shares ended the week at $64.51.

Krispy Kreme's Quarter Has No Glaze

Krispy Kreme Doughnuts, Inc. (KKD) announced its fiscal 2014 fourth quarter results on Wednesday, March 12. The results missed expectations for the second quarter in a row even as the company raised its financial guidance for fiscal 2015. Because the company's fourth quarter in fiscal 2013 included an extra week, results for comparison purposes included one less week from the prior year's fourth quarter.

Krispy Kreme reported that revenue for the fourth quarter increased 3.3% to $112.7 million. This missed estimates that revenue would be $118.8 million. The revenue increase included a small 1.6% same-store sales increase, the 21st consecutive quarterly same-store sales increase the company has recorded.

Adjusted net income for the quarter was $8.3 million or $0.12 per share, a 37% increase from the $6.1 million reported during the same period last year. Net income was another miss for Krispy Kreme as analysts expected earnings per share of $0.13.

Krispy Kreme Chairman and CEO, James H. Morgan, stated that fiscal 2014 provided the company with its best financial results since 2004. In looking to the year ahead he said, "Company development this year will focus exclusively on our small free-standing factory shops, which have shown very encouraging results since we opened the first of these new format shops in January 2013. Domestic franchise development is expected to consist of a mix of small factory and satellite locations, while internationally, we expect to enter several new markets, including Colombia and Guangdong, China. Our goal remains to have 1,300 domestic and international shops in operation by January 2017.

Once a Wall Street darling, Krispy Kreme has been a comeback story over the past year ever since investors began to take notice of the company's five year streak of same-store sales increases. However, after rising to a ten-year high late last year, the company's stock price has fallen the past few months as its momentum has slowed. The third quarter saw a same-store sales increase fall from 10% in the second quarter to 3.7%. This recent report saw the same-store sales increase fall even further to 1.6%. The revenue and net income miss also worries investors who had just begun to renew their faith in the Krispy Kreme brand. Still, the company raised its adjusted earnings per share guidance for fiscal 2015. For now, investors are cautiously optimistic about Krispy Kreme's future, which caused the share price to rise nearly 10% in after-hours trading following the earning's announcement.

Krispy Kreme Doughnuts, Inc. (KKD) shares ended the week at $20.24.

Men's Wearhouse Reports Net Loss

The Men's Wearhouse , Inc. (MW) reported its fourth quarter results on Tuesday, March 11. Although the company saw sales and net income decrease during the quarter, it announced its $1.8 billion acquisition of rival Jos. A. Bank.

The company reported fourth quarter sales of $560.5 million. This was a 2.6% decrease from the prior quarter last year when sales were $575.3 million.

Men's Wearhouse reported a net loss for the quarter of $17.9 million or $0.38 per share. This loss was much worse than the $4.9 million loss reported during the comparable period last year.

Doug Ewert, Men's Wearhouse President and CEO, had this to say about the results. "We were not immune to the effects of weak consumer spending sentiments and severe weather disruption that impacted most retailers in December and January. Tuxedo and corporate apparel sales were in-line with internal expectations, while clothing sales in all three retail chains were lower than expected. Weather-related store closures and an aggressive promotional retail environment resulted in a traffic decline. We estimate that approximately one-quarter of the 2.5% comparable sales decrease in the fourth quarter at Men's Wearhouse was due to these closures."

Despite the disappointing quarter, Men's Wearhouse had good news for investors this week. The same day as the quarterly results were released the company announced the finalization of its acquisition of rival Jos. A. Bank for $1.8 billion. Combined, both companies will now have more than 1,700 stores in the U.S. Commenting on the acquisition, Mr. Ewert said, "We are pleased to have reached this agreement with Jos. A. Bank, which we believe will deliver substantial benefits to our respective shareholders, employees and customers."

The Men's Wearhouse, Inc. (MW) shares ended the week at $53.06.

The Dow started the week of 3/10 at 16,453 and closed at 16,066 on 3/14. The S&P 500 started the week at 1,878 and closed at 1,841. The NASDAQ started the week at 4,333 and closed at 4,245.

Treasuries Rise as Crimea Vote Nears

Treasury prices rose on Friday, March 14, their fifth straight day of gains, as investors grew concerned about the growing crisis in the Ukraine. In addition, U.S. wholesale price data showed an unexpected decline, further adding to Treasury price gains.

Treasuries have been advancing all week in anticipation of the March 16 vote when Crimea will decide whether to become part of Russia. As that vote draws near, EU foreign ministers are beginning to consider asset freezes and travel bans on Russian politicians and businessman. Thus far, the situation in Crimea has wreaked havoc on the Russian economy as other countries have reacted strongly to the Russian incursion into the region.

"Economic activity in Russia is likely to be strongly affected by the current political tensions," said Clemens Grafe and Andrew Matheny, economists at Goldman Sachs in Moscow. "A shock to domestic confidence, resulting in lower investment [will lead to] a continuation of the destocking cycle and higher capital outflows," they said.

Economic growth in Russia continues to slow. Last year the Russian economy expanded only 1.3%, a four-year low. Goldman Sachs Group Inc. has already reduced its forecast for Russian economic growth from 3% to 1% for the year. Goldman Sachs also estimates that close to $45 billion in capital has left the country.

Further aiding the investor flight to U.S. Treasuries, the Labor Department reported this week that a U.S. producer-price index unexpectedly fell 0.1% in February. Estimates were for the price index to increase 0.2%. The drop in February was the first in three months.

The 10-year Treasury note yield finished the week of 3/10 at 2.64% while the 30-year Treasury note yield finished the week at 3.59%.

Interest Rates Increase

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 13. The results show mortgage rates rising this week even though there was little new economic and housing data.

The 30-year fixed rate mortgage averaged 4.37% this week. This represents an increase from last week when the 30-year fixed rate mortgage averaged 4.28%.

This week, the 15-year fixed rate mortgage averaged 3.38%. This was an increase from last week when the 15-year fixed rate mortgage averaged 3.32%.

"Mortgage rates edged up amid a week of light economic reports," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "Of the few releases, the economy added 175,000 jobs in February, which was above the market consensus forecast and followed an upward revision of 25,000 jobs for the prior two months. Meanwhile, the unemployment rate nudged up to 6.7%, the first rate increase in over a year."

The money market fund finished the week of 3/10 at 0.4%. The 1-year CD finished at 0.6%.

Published March 14, 2014

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