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Saturday May 23, 2015



Target Still Can’t Find the Mark

Target Corp. (TGT), the second-largest discount retailer in the U.S., announced its first quarter earnings on May 21. The retailer’s recent woes were compounded by first quarter results that disappointed investors.

Target reported first quarter sales of $17.05 billion, a 2.1% increase over the $16.7 billion reported during the same period last year. The sales numbers were in line with pre-release estimates.

Target’s Interim President and CEO, CFO John Mulligan, had this to say about the results: “First quarter financial performance in both our U.S. and Canadian Segments was in line with expectations, reflecting the benefit of continued recovery from the data breach and early signs of improvement in our Canada operations. While we are pleased with this momentum, we need to move more quickly. As a result, we have made changes to our management team and are investing additional resources to drive U.S. traffic and sales, improve our Canadian operations and advance our ongoing digital transformation.”

Net income for the quarter was $418 million or $0.66 per share. This was a 16% fall from the same period last year when net income was $498 million or $0.77 per share. Analysts expected earnings per share of $0.71.

Target has faced a backlash from consumers lately after it experienced a security breach in December that resulted in the theft of 40 million payment card numbers. In addition, the company’s attempt to expand into Canada has been less successful than hoped. Target’s first quarter results just added fuel to the fire. Not only did net income fall 16% compared to the same period last year, but same-store sales fell 3%. In addition, Target lowered its financial guidance for the rest of the year by close to $0.25. So far this year, Target’s stock price has fallen 9.6%.

Target Corp. (TGT) shares ended the week at $55.69.

Williams-Sonoma Is Cookin’ For Investors

Williams-Sonoma, Inc. (WSM), a specialty goods retailer, announced its first quarter results on Wednesday, May 21. The company reported strong revenue and income gains.

Williams-Sonoma reported quarterly revenue of $974 million. This was an increase of 9.7% over the $888 million reported during the comparable period last year.

“Innovating, high-quality product, personalized service, relevant marketing, and strong execution across all brands drove these better than expected results,” said Laura Alber, President and CEO of Williams-Sonoma. “With 50% of our revenue in the direct channel this quarter, we believe our multi-brand, multi-channel platform is driving consistent market share gains and providing us with a sustainable competitive advantage.”

The company reported that net income for the quarter was $46.2 million or $0.48 per share. This was better than the $39.5 million, or $0.40 per share, reported during the same period last year. Pre-release estimates called for earnings per share of $0.41 to $0.44.

Williams-Sonoma has been a consistently strong performer for investors recently. The company’s first quarter results were another sign that it is on the right track. Not only did revenue and net income beat expectations, but the company raised its financial guidance for the year. Williams-Sonoma said it now expects annual earnings per share to be $0.02 higher at $3.07 to $3.17. The company released its results after the closing bell and its stock price climbed 4.6% in after-hours trading.

Williams-Sonoma, Inc. (WSM) shares ended the week at $67.98.

Hewlett Packard Plans More Cutbacks

Hewlett Packard Company (HPQ) announced its second quarter results on Thursday, May 22. The company’s underwhelming results came with an announcement that it plans to reduce its workforce.

Hewlett-Packard reported that revenue was $27.3 billion. This was a drop of 1% from the $27.6 billion reported during the same period last year. Expectations were for revenue of $27.4 billion.

Meg Whitman, President and CEO of Hewlett-Packard, had this to say about the results: “With the first half of our fiscal year completed, I’m pleased to report that HP’s turnaround remains on track. With each passing quarter, HP is improving its systems, structures and core go-to-market capabilities. We’re gradually shaping HP into a more nimble, lower-cost, more customer- and partner-centric company that can successfully compete across a rapidly changing IT landscape.”

Hewlett-Packard recorded net income of $1.7 billion, or $0.88 per share, excluding certain items. This was a 1% increase from the $0.87 per share reported during the comparable period last year.

Hewlett-Packard began a multi-year turnaround plan starting in May 2012. As part of this plan Hewlett-Packard estimated that 34,000 positions would be eliminated. However, with the earnings release the company announced that an additional 11,000 to 16,000 positions would be eliminated. In addition, the company’s midpoint financial guidance for the current year was below analysts’ expectations. Hewlett-Packard’s shares fell 2% during after-hours trading. They reached a 52-week high of $33.90 earlier this year in April.

Hewlett-Packard Company (HPQ) shares ended the week at $33.72.

The Dow started the week of 5/19 at 16,490 and closed at 16,606 on 5/23. The S&P 500 started the week at 1,877 and closed at 1,901. The NASDAQ started the week at 4,080 and closed at 4,186.

Treasuries Rise on Flight to Safety

Treasury prices rose on Friday, May 23 as the conflict in Ukraine intensified leading up to elections on May 25. The crisis in Ukraine was enough to overshadow positive data regarding new home sales that beat expectations.

Treasury yields have been on a downward trend for most of the year. This has come as a surprise to most investors who expected to see Treasury yields rise as the Federal Reserve pared back its bond purchasing program known as quantitative easing.

The 10-year note was headed for a weekly loss when the crisis in Ukraine erupted into renewed violence. On Thursday, May 22, pro-Russian rebels killed 16 Ukrainian serviceman in an attack on a military checkpoint in the eastern portion of the country. The attack came three days before the country holds a presidential election.

The tensions in Ukraine once again drove investors to the safety of U.S. government bonds. During early trading on Friday, May 23, the 10-year yield fell two basis points to 2.53%. As yields fall, prices rise. The 30-year bond declined three basis points to 3.39%.

“International unrest is making people jittery,” said Michael Franzese, Senior Vice President of Fixed-Income Trading at ED&F Man Capital Markets. “There’s a flight to quality on global political unrest.”

The news this week was not all bleak, however. The Commerce Department announced that new-home sales rose 6.4% to a 433,000 annualized pace in April. This was better than the revised 407,000 in March that itself was stronger than expected. In addition, April’s pace beat consensus estimates that called for an annualized pace of 425,000.

The 10-year Treasury note yield finished the week of 5/19 at 2.54% while the 30-year Treasury note yield finished the week at 3.40%.

Interest Rates Continue Their Descent

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, May 22. The results show mortgage rates falling for the fourth consecutive week, reaching new lows for the year.

The 30-year fixed rate mortgage averaged 4.14% this week. This represents a decrease from last week when the 30-year fixed rate mortgage averaged 4.20%.

This week, the 15-year fixed rate mortgage averaged 3.25%. This was a decrease from last week when the 15-year fixed rate mortgage averaged 3.29%.

“Mortgage rates continued to decline this week as industrial production slipped by 0.6% in April, below the market consensus forecast,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “Meanwhile, housing starts jumped 13% in April to a seasonally adjusted annual rate of 1,072,000 units, well above expectations. Permits rose to a seasonally adjusted annual rate of 1,080,000 in April, also above expectations."

The money market fund finished the week of 5/19 at 0.4%. The 1-year CD finished at 0.7%.

Published May 23, 2014

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