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Wednesday July 30, 2014

Finances

Finances
 

Costco Chases Millennials

Costco Wholesale Corporation (COST), operator of membership warehouses, reported its latest quarterly earnings on Thursday, May 29. The company reported better revenue than a year ago, but disappointed Wall Street analysts that expected higher revenue and earnings per share.

The company reported total revenue of $25.79 billion for the quarter. This represents an increase from the same period last year when the company reported total revenue of $24.08 billion. However, analysts expected revenue of $25.85 billion.

Costco’s President and CEO, Craig Jelinek, detailed the company’s plans to expand in 2014 in an annual letter to shareholders. “Our plans for expansion in fiscal 2014 are for nearly thirty new warehouse openings, including sixteen units in the U.S., four in Australia, two in each of Canada, Korea and Japan and one in Mexico. Plans for fiscal 2014 also include the opening of our first warehouse in Spain.”

Costco reported quarterly net income of $473 million. This is an increase from the comparable period last year when the company reported net income of $459 million. Earnings per share came in at $1.07 per share, which was below projections of $1.10 per share.

In Costco’s latest investor conference call, CFO Richard Galanti said that Costco will be increasing use of its online store to capture younger customers. It is adding categories of products to its web store and has a trial partnership with Google to offer same-day deliveries in New York, Los Angeles and San Francisco. It is also offering discounted memberships on sites such as Living Social and Zulilly. “We’re not going crazy here,” said Galanti. “We’re taking baby steps, but some of this stuff works.”

Costco Wholesale Corporation (COST) shares ended the week of 5/26 at $116.02, up 0.9% for the week.

Dystopian Drama is Good for Lions Gate


Lions Gate Entertainment Corporation (LGF), a film and television production and distribution company, reported its fourth quarter and fiscal year 2014 earnings on Thursday, May 29. The company didn’t repeat its monster year in fiscal 2013, but has an impressive pipeline of films to pad its earnings for several years to come.

The company announced annual revenue of $2.63 billion. This represents a decrease of 2.9% from fiscal year 2013 when Lions Gate reported revenue of $2.71 billion.

“Our strong operating momentum, the diversity of our portfolio of businesses and the continued enhancement of our capital structure all contributed to another year of outstanding financial results,” said Lions Gate CEO Jon Feltheimer. “The trajectory of our business, the depth of our content pipelines and the ongoing generation of predictable income from our film franchises, television properties and filmed entertainment library continue to give us excellent long-term visibility.”

Lions Gate announced net income of $152.04 million for the year. This represents a decrease from last year when the company announced net income of $232.13 million. Earnings per share came in at $1.04 per share.

Lions Gate has been taking advantage of the popular clamor for teen-driven dystopian future films. The Hunger Games: Catching Fire, the second installment of the Hunger Games trilogy, was released last November and grossed $865 million at the worldwide box office. Divergent, a story about a young woman making her way in post-apocalyptic Chicago, also launched during fiscal 2014. Divergent is the first installment of a trilogy that will include movies entitled Insurgent and Allegiant.

Lions Gate Entertainment Corporation (LGF) shares ended the week of 5/26 at $26.13, down 9.9% for the week.

Michael Kors’ Earnings Impress


Michael Kors Holdings Limited (KORS), designer and retailer of men’s and women’s apparel and accessories, reported its most recent quarterly earnings on Wednesday, May 28. The retailer nearly doubled its revenue and net income from a year ago.

The company reported revenue of $917.45 million for the quarter. This represents an increase of 53.6% from the same period last year when the company reported revenue of $597.15 million.

“We delivered outstanding financial performance in fiscal 2014 with comparable store sales growth of 26.2% and EPS growth of 63.5%,” said John D. Idol, Michael Kors Chairman and CEO. “We believe that our expanding global brand awareness is driving continued strong demand for our luxury product and fueling our growth as a global luxury lifestyle brand. In addition, Michael Kors and our talented design team continue to deliver exceptional products while the distinctive jet-set in-store experience that we offer in both our retail stores and our shop-in-shops continues to resonate well with our consumers.”

Michael Kors reported quarterly net income of $161.04 million. This is an increase of 59.3% from the comparable quarter last year when the company reported net income of $101.1 million. Earnings per share came in at $0.78 per share.

Michael Kors has been expanding its reach and competing more effectively on a global scale with Coach. Michael Kors has opened 101 new stores across the globe during 2014. North American sales have grown 20% and European sales have grown 63% during that period. Coach, on the other hand, announced last month that same-store sales dropped 20% in the first quarter. Shares of Coach have dropped 27% during 2014.

Michael Kors Holdings Limited (KORS) shares ended the week of 5/26 at $94.38, down 3.7% for the week.

The Dow started the week of 5/26 at 16,607 and closed at 16,717 on 5/30. The S&P 500 started the week at 1,902 and closed at 1,924. The NASDAQ started the week at 4,206 and closed at 4,243.
 

Treasuries Rise on Disappointing Data

Treasury prices rose this week causing yields to fall to their lowest levels since January 2014. Disappointing economic growth data caused investors to backtrack on bets that borrowing costs are on the rise.

The 10-year note yield fell to 2.4% on Thursday, May 29. This is the lowest level since June 21, 2013. The yield began to rise during early morning trading and peaked at 2.48% around 10:00 am EST.

The U.S. economy contracted at a 1% annual rate during the first quarter of 2014. This contraction was twice what economists had expected. In addition, household purchases dropped 0.1% in April when economists had expected a 0.2% rise.

However, the economic news was not all bad. The Institute for Supply Management-Chicago Inc.’s business barometer rose from 63 in April to 65.5 in May. An ISMCI reading greater than 50 signals economic growth. Economists had expected this figure to fall to 61. Also, inflation remains below the Federal Reserve’s 2% target.

“Treasuries are gaining because of reduced concern on inflation,” said Robin Marshall, Director of Fixed-Income at Smith & Williamson Investment Management. “Investors are paring back their bets on rate increases.”

The main question now is, given the economy’s sluggish growth when will the Federal Reserve raise the federal funds rate? Federal Reserve Bank of Kansas City President Esther George said on Thursday that the Fed may raise the federal funds rate faster than policy makers expect. Predictions put the federal funds rate at 2.25% by the end of 2016.

The 10-year Treasury note yield finished the week of 5/26 at 2.46% while the 30-year Treasury note yield finished the week at 3.31%.
 

Interest Rates Fall for Fifth Straight Week

Freddie Mac announced the results of its latest Primary Mortgage Market Survey on Thursday, May 29. The results showed interest rates falling for a fifth consecutive week to their lowest level since October 31, 2013.

The 30-year fixed rate mortgage averaged 4.12% this week. This is down from last week when it averaged 4.14%. Last year at this time, the 30-year fixed rate mortgage averaged 3.81%.

This week, the 15-year fixed rate mortgage averaged 3.21%. This represents a decrease from last week when it averaged 3.25%. One year ago, the 15-year fixed rate mortgage averaged 2.98%.

“Fixed mortgage rates eased a bit for the fifth consecutive week as reports [indicate] that existing home sales are up 1.3% but not as much as expected. However, new home sales rose 6.4% in April to a seasonally adjusted annual rate of 433,000, which followed an upward revision of 11,000 units for the prior two months. Also, as the spring home buying season continues, we see stronger consumer confidence as house prices remain on the rise. The Conference Board reported that confidence among consumers rose in May after dipping in April. Meanwhile, the S&P/Case-Shiller® 20-city composite index rose 0.9% in March, above the consensus forecast.”

The money market fund finished the week of 5/26 at 0.4%. The 1-year CD finished at 0.7%.

Published May 30, 2014


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