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Sunday July 5, 2015



Bed, Bath & Beyond Disappoints

Bed, Bath & Beyond, Inc. (BBBY), a retailer of domestic merchandise, reported its quarterly earnings on Wednesday, June 25. The company disappointed investors by reporting a decrease in net income compared to last year due to increasing costs.

Bed, Bath & Beyond reported quarterly net sales of $2.66 billion. This represents an increase from the comparable quarter last year when the company reported net sales of $2.61 billion.

Co-Chairman Warren Eisenberg commented on the future of Bed, Bath and Beyond at the earnings conference call. “We believe that throughout the United States and Canada, there is an opportunity to operate in excess of 1,300 Bed, Bath & Beyond Stores as well as grow our Cost Plus World Market, Christmas Tree Shops andThat!, and buybuy BABY concepts from coast to coast. At the same time, we continue to make substantial capital investments in our online, mobile, and social media channels to enhance our customer’s overall experience.”

The company reported net income of $187.05 million for the quarter. This represents a decrease of 7.6% from the same quarter last year when the company reported net income of $202.49 million.

Declining net income and gross profit margins are both signs that Bed, Bath & Beyond is moving in the wrong direction. Gross profit for 2013 was about 39.7% of net sales compared with 40.2% of net sales during 2012. As costs increase and competition tightens Bed, Bath & Beyond is facing an increasingly difficult environment.

Bed, Bath & Beyond, Inc. (BBBY) shares ended the week of 6/30 at $59.35, up 3.36% for the week.

Nike Scores at the World Cup

Nike, Inc. (NKE), an international retailer of sports apparel and accessories, reported its latest quarterly and annual earnings on Thursday, June 26. The company’s bottom line has benefited from the fervor surrounding this year’s World Cup in Brazil.

The company reported quarterly revenue of $7.43 billion and annual revenue of $27.8 billion. These figures represent an increase of 11% and 10%, respectively, from the same period last year when Nike reported quarterly revenue of $6.7 billion and annual revenue of $25.31 billion.

“These results demonstrate the energy and excitement NIKE brings to the market,” said President and CEO Mark Parker. “Our ability to relentlessly innovate for consumers drove our growth in FY14, and will continue to fuel it for years to come. And as we grow, we remain focused on managing all areas of our business to drive sustainable, profitable growth for our shareholders.”

Nike reported quarterly net income of $698 million and annual net income of $2.69 billion. The company’s annual net income increased 10% year-over-year from $2.45 billion in fiscal 2013.

The World Cup provided Nike with an excellent opportunity for worldwide exposure and it has taken advantage. According to the company, there are more players wearing Nike shoes than all other brands combined.

Nike Inc. (NKE) shares ended the week of 6/30 at $78.45, up 1.2% for the week.

Walgreen Co. Reports Solid Earnings

Walgreen Co. (WAG), operator of a chain of drugstores throughout the United States, reported its latest quarterly earnings on Tuesday, June 24. The company reported increased revenue and net income, but investors are still being cautious.

The company reported net sales of $19.4 billion for the quarter. This represents an increase from the comparable period last year when the company reported net sales of $18.3 billion.

“We continued to see improving top-line growth in the third quarter driven by increased daily living sales and strong increases in both prescriptions filled and our pharmacy market share,” said Walgreens President and CEO Greg Wasson. “At the same time, we are experiencing increased pressure on pharmacy gross profit margins. We maintained solid expense control in the third quarter to offset some of this pressure while understanding that there is more to be done. We will be accelerating our optimization efforts, including taking additional steps to lower expenses companywide. In addition, our joint venture with Alliance Boots continues to generate significant benefits.”

Walgreens reported quarterly net income of $764 million. This represents an increase from the same quarter last year when the company reported net income of $624 million.

While the latest earnings report showed increased revenue and net income year-over-year, there is uncertainty surrounding Walgreen’s future performance. Walgreen purchased a 45% stake in the European drugstore chain, Alliance Boots, in 2012. As part of the agreement Walgreens has the option to purchase the remaining 55% stake in 2015. The company has yet to disclose how it plans to move forward. With this potential purchase looming large, many investors have decided to take a wait-and-see attitude with respect to purchasing Walgreen shares.

Walgreen Co. (WAG) shares ended the week of 6/30 at $73.98, down 0.7% for the week.

The Dow started the week of 6/30 at 16,852 and closed at 17,068 on 7/3. The S&P 500 started the week at 1,961 and closed at 1,985. The NASDAQ started the week at 4,398 and closed at 4,486.

Treasury Yields Rise On Jobs Report

Treasury prices fell causing yields to rise to a two-month high after the U.S. Department of Labor released its latest employment report on Thursday, July 3. The jobs report showed an improving jobs market which in turn led to speculation that the Fed might increase borrowing rates more quickly than previously expected.

The report showed an addition of 288,000 jobs in June. This number was greater than the median projection of 215,000 jobs economists expected. In addition, the unemployment rate dropped to 6.1% which is the lowest level since September 2008. The data also indicated that the long-term unemployed are having an easier time finding work. The number of long-term unemployed fell to 3.1 million.

This improving employment market is leading to speculation that the Federal Reserve will raise its benchmark borrowing rate before June of next year. “The Fed should take notice,” said Richard Schlanger, Vice President at Pioneer Investments. “It’s just more evidence that there’s underlying improvement in employment and it’s not quite as dire as Yellen thinks it is. We seem to have definitely turned the corner here.” That speculation is causing movement in the market and Treasury yields to rise.

The 10-year Treasury note yield rose two basis points to 2.64% during afternoon trading on Thursday, July 3. The 10-year yield reached as high as 2.69% during early Thursday trading, the highest level since May 2. “We do expect that Treasury yields in the 10-year sector will migrate toward 3% over the second half of the year,” said Jay Barry, Interest-Rate Strategist with primary dealer JPMorgan Chase & Co. “That’s predicated on above-trend growth in the second half.”

The 10-year Treasury note yield finished the week of 6/30 at 2.65% while the 30-year Treasury note yield finished the week at 3.48%.

Interest Rates Hold Steady

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 3. Results showed mortgage rates remained largely unchanged for the week of June 30.

The 30-year fixed rate mortgage averaged 4.12% this week. This represents a slight decrease from last week when the fixed mortgage rate averaged 4.14%. Last year at this time, the 30-year fixed rate mortgage averaged 4.29%.

This week, the 15-year fixed rate mortgage averaged 3.22%. This is the same as last week when it averaged 3.22%. One year ago at this time the 15-year fixed rate mortgage averaged 3.39%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week’s results. “Mortgage rates were little changed from the previous week and remain below levels seen the same time last year, which should provide some help with homebuyer affordability in many markets. Recent housing data was better with pending home sales up 6.1% in May and overall constructions spending showing a slight improvement with private residential spending now up 7.5% on a yearly basis.”

The money market fund finished the week of 6/30 at 0.4%. The 1-year CD finished at 0.7%.

Published July 4, 2014

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