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Thursday August 27, 2015



Macy’s Earnings Miss Expectations

Macy’s, Inc. (M) announced its second quarter earnings on Wednesday, August 13. Though the company recorded a comparable store sales increase of 3.4% during the quarter, overall sales and net income fell below expectations.

Macy’s recorded second quarter sales of $6.27 billion, a 3.3% increase over the $6.07 billion reported during the comparable quarter last year. This was below estimates calling for sales of $6.29 billion.

“Our sales trend improved at both Macy’s and Bloomingdale’s in the second quarter, reflecting a rebound in shopping activity once weather patterns normalized,” said Macy’s Chairman and CEO, Terry J. Lundgren. “We also are very pleased by customer response to improvements at our Macy’s Herald Square flagship in New York, where we are mid-way through the third year of an unprecedented remodel project. We are approaching the second half of 2014 with confident optimism in our business strategies, merchandise assortments and marketing plans, tempered with the reality that many customers still are not feeling comfortable about spending more in an uncertain economic environment.”

The company reported net income of $292 million or $0.80 per share, compared to $0.72 per share during the same period last year. Despite the earnings per share increase, it fell below pre-release estimates calling for $0.86 per share.

Macy’s was the first major department store retailer to announce second quarter results, ahead of Wal-Mart, Nordstrom and J.C. Penny’s. Unlike some of its competitors, Macy’s has fared better in the weak economic recovery of the past few years. However, second quarter sales and profit all fell below expectations. In addition, the company reduced its outlook for the rest of the year, claiming it could not make up the sales drop-off from the first quarter when winter storms kept shoppers indoors. As a result, Macy’s saw its share price fall nearly 5% following the earnings announcement.

Macy’s, Inc. (M) shares ended the week at $57.45.

Red Robin Has Too Much Red Ink

Red Robin Gourmet Burgers, Inc. (RRGB) announced its second quarter results on Thursday, August 14. The results missed expectations and caused the share price to reach a 52-week low.

Red Robin’s revenue increased 7.5% to $256.1 million during the quarter. However, this fell below pre-release estimates calling for revenue of $263.37 million.

Steve Carley, Red Robin’s CEO, had this to say about the disappointing quarter: “Although we are satisfied with our top line performance through the first half of the year, we were disappointed that our marketing efforts in the second quarter did not produce the desired results in an intensely competitive environment. Going forward, we remain cautious in the near term but are confident that initiatives we have in place will generate meaningful long-term value. Our plan is to continue elevating the Red Robin brand through guest engagement, operating efficiency and effective expansion while working diligently to improve our sales trends.”

Red Robin earned $0.68 per share during the quarter, a drop from $0.77 per share in the same quarter last year. The $0.68 per share was a far cry from estimates calling for $0.90 per share.

Investors were understandably disappointed in Red Robin’s second quarter earnings. After missing badly on both sales and net income, the company also saw its operating profit fall from 23.3% to 22.2%. The company opened three restaurants during the quarter to bring its total to 502. Following the earnings announcement Red Robin’s shares fell 21% to a new 52-week low of $50.80 per share.

Red Robin Gourmet Burgers, Inc. (RRGB) shares ended the week at $54.90.

Orca Controversy Hurts SeaWorld’s Earnings

SeaWorld Entertainment, Inc. (SEAS), a theme park and entertainment company, announced its second quarter results on Wednesday, August 13. The company’s share price took a huge hit as results were well below expectations.

Revenue during the second quarter declined $6.1 million to $405.2 million compared to $411.3 million from the same period last year. Analysts had expected revenue to be higher at $447.7 million.

“We were pleased to report attendance growth in the quarter despite a challenging industry and competitive environment and a tough comparison to the prior year quarter, which included the attendance benefit from opening our largest expansion ever at SeaWorld Orlando,” said Jim Atchison, CEO and President of SeaWorld Entertainment. “In order to drive growth, we are undertaking a number of initiatives, including a detailed review of our Company-wide cost structure with the goal of driving significant cash cost savings in 2014 and 2015.”

SeaWorld generated net income of $37.3 million during the quarter. While this was an improvement over the $15.9 million net loss during the comparable period last year, it was well below estimates of $52 million.

SeaWorld’s second quarter results were heavily impacted by falling attendance. Originally the company blamed the falling attendance on rising ticket prices, but on Thursday it admitted recent negative publicity was to blame. A documentary last year entitled “Blackfish” criticized SeaWorld’s alleged mistreatment of orca whales, which in turn has led to protests. SeaWorld’s revenue was also impacted by promotions and discounts aimed at boosting attendance. Following the earnings announcement, SeaWorld’s share price fell 30% to around $19.45 per share.

SeaWorld Entertainment, Inc. (SEAS) shares ended the week at $18.66.

The Dow started the week of 8/11 at 16,557 and closed at 16,663 on 8/15. The S&P 500 started the week at 1,933 and closed at 1,955. The NASDAQ started the week at 4,387 and closed at 4,465.

Treasuries Rise for Third Consecutive Day

Treasury prices rose on Friday, August 15 as the crisis in Ukraine worsened and new economic data shed further doubt on the strength of the U.S. economy. The continuing uncertainty around the world has led economists to forecast that benchmark 10-year note yields will end the year below 3%.

Treasury prices rose for the third consecutive day on Friday after news surfaced that Ukrainian and Russian forces clashed within Ukraine’s borders, with Ukraine destroying part of a Russian unit. This latest incident immediately stoked fears around the world and gave investors further incentive to flee to the security of U.S. government bonds.

During early Friday trading the 10-year note yield fell eight basis points to 2.32%. Yields move inversely to prices, so as yields fall prices rise. Economists now predict the 10-year yield will be 2.92% by the end of the year, the first time the projection has been below 3% since May 2013. The 30-year bond yield declined eight basis points to 3.11%.

“It’s all geopolitical,” said Vishal Khanduja, Portfolio Manager at Calvert Investments. “It’s a slow Friday in the market, and I think that’s where the focus is right now.”

Mixed economic data released on Friday also contributed to the flight to U.S. Treasuries. Consumer sentiment reached a 9-month low in August while the New York state manufacturing index fell sharply this month to 14.7 from 25.6 in July. On the positive front, U.S. industrial production rose 0.4% in July, beating expectations for a 0.3% rise.

However, the increasingly mixed economic data is doing little to curb the fall in Treasury yields. “You’re seeing economic data that are not by any means becoming poor, but they are not showing the strength the market was looking for in order to assume the Fed may have to raise rates,” said Jason Rogan, Managing Director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors.

The 10-year Treasury note yield finished the week of 8/11 at 2.34% while the 30-year Treasury note yield finished the week at 3.14%.

Interest Rates Trend Lower

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 14. The results show mortgage rates trending lower as bond yields do the same.

The 30-year fixed rate mortgage averaged 4.12% this week. This was a slight decrease from last week when the 30-year fixed rate mortgage averaged 4.14%.

This week, the 15-year fixed rate mortgage averaged 3.24%. This was a decrease from last week when the 15-year fixed rate mortgage averaged 3.27%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, had this to say about this week’s rates: “Mortgage rates were down slightly amid a week of light economic reports. Of the few releases, retail sales were virtually unchanged in July after a 0.2% increase in June, ending five months of increases. Excluding motor vehicles and parts, retail sales were up 0.1% last month.”

The money market fund finished the week of 8/11 at 0.4%. The 1-year CD finished at 0.7%.

Published August 15, 2014

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