Tuesday September 2, 2014



Williams-Sonoma’s Forecast Disappoints

Williams-Sonoma, Inc. (WSM), a specialty retailer of cookware and home furnishings, announced its second quarter results on Thursday, August 28. The company provided a disappointing forecast for the rest of the year, which drove the stock price down.

Williams-Sonoma reported revenue of $1.039 billion during the quarter. This amounted to a 5.8% increase over the $982 million reported during the same period last year.

“We enter the second half of 2014 well-positioned across our brands from a marketing, merchandise offering, store and online experience standpoint,” said Laura Alber, Williams-Sonoma President and CEO. “We remain focused on disciplined execution against our growth initiatives and a balanced approach to capital allocation to continue to drive shareholder value.”

The company reported that earnings per share grew 8.2% to $0.53. Earnings per share was $0.49 during the same period last year.

Williams-Sonoma has been on a tremendous run this year as its share price has gained nearly 29% so far. However, the company’s share price fell 12% following the earnings announcement on the company’s reduced forecast for the rest of the year. Williams-Sonoma now projects earnings to be between $0.58 and $0.63 for the third quarter, below the pre-release estimate of $0.66. In addition, same-store sales growth of 5.7% during the quarter missed estimates of 6.2%.

Williams-Sonoma, Inc. (WSM) shares ended the week at $65.77.

Tiffany’s Earnings Sparkle

Tiffany & Co. (TIF) announced its second quarter earnings on Wednesday, August 27. Both net sales and earnings per share surpassed pre-release estimates.

Tiffany reported an increase in net sales of 7% to $993 million during the quarter, better than pre-release estimates calling for $988 million. Net sales were driven by same-store sales growth in the America and Asia-Pacific regions of 8% and 7%, respectively.

Michael J. Kowalski, Tiffany’s Chairman and CEO, had this to say about the quarter: “These healthy second quarter results reflected solid sales growth in our stores, particularly in the Americas and Asia-Pacific regions. In addition, an improved gross margin was an important contributor to the earnings growth.”

Net earnings during the quarter increased 16% to $124 million or $0.96 per share. This beat pre-release estimates calling for $0.85 per share.

Tiffany & Co.’s quarter was a pleasant surprise for investors and the luxury jeweler was able to post impressive results amidst a weak economic climate around the world. Sales were especially strong in the Asia-Pacific region despite a significant decline in Japan. The company even raised their annual earnings guidance by one penny. Following the results, Tiffany’s share price briefly rose to a record $105.67 per share.

Tiffany & Co. (TIF) shares ended the week at $100.94.

Bob Evans Reports Results

Bob Evans Farms, Inc. (BOBE) announced its first quarter 2015 results on Tuesday, August 26. The company’s results indicated it still faces significant challenges going forward.

Bob Evans reported sales during the quarter of $326.3 million, a 1% decline from the $329.5 million reported in the year-ago quarter. Analysts expected sales of $328.6 million.

Bob Evans has recently been trying to transform its business to meet changing circumstances. To this end, the company has invested $800 million in the process and believes it is beginning to see good results. “We are seeing early positive results as we begin leveraging our strategic investments,” said Steve Davis, Chairman and CEO.

The company reported a net loss during the quarter of $1 million or $0.04 per share. This is a significant decline from the income of $8.4 million or $0.30 per share during the comparable period last year.

Bob Evans has faced significant difficulties the past few years as the economic climate continues to remain muted. It is making a huge bet that its $800 million investment can help the company get back on track. Along with these challenges, the company has also faced criticism from activist shareholder Sandell Asset Management, which has advocated Bob Evans sell its packaged food business. During the earnings announcement, Bob Evans revealed that Sandell had successfully elected four directors to the company’s board.

Bob Evans Farms, Inc. (BOBE) shares ended the week at $43.42.

The Dow started the week of 8/25 at 17,012 and closed at 17,099 on 8/29. The S&P 500 started the week at 1,992 and closed at 2,003. The NASDAQ started the week at 4,564 and closed at 4,580.

Treasuries Rise As Russia Invades Ukraine

Treasury prices rose on Friday, August 29 as NATO reported Russian forces finally invaded neighboring Ukraine this week. In addition, mixed economic data continues to paint a less-than-rosy picture of the U.S. economy.

Treasury yields remained relatively steady this week as uncertainty around the world continued. U.S. Treasuries continue to attract buyers seeking the security they offer as bond yields in Europe continue to fall.

“The geopolitical issues and Europe helped the market out,” said Justin Lederer, Interest-Rate Strategist at Cantor Fitzgerald LP in New York. “It’s worth buying the long end. I’m hesitant of shorter maturities as we progress toward the Fed rate hike and expectations for rates to go higher.”

The Federal Reserve has reduced its monthly bond purchases to $25 billion, down from $85 billion a year ago. The Fed continues to pare down monthly purchases by $10 billion on its way to ending the bond-buying program later this year. In addition, traders believe there is a 70% chance the Fed will raise the interest-rate target to at least 0.5% by September, 2015. The target rate has been between 0 and 0.25% since 2008 in an effort to prop up the U.S. economy.

Economic data this week also revealed the U.S. economy still has work to do. Household purchases decreased 0.1% in July while consumer sentiment rose to 82.5. These figures disappointed and exceeded expectations, respectively.

The 10-year Treasury note yield finished the week of 8/25 at 2.34% while the 30-year Treasury note yield finished the week at 3.08%.

Interest Rates Still Low

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 28. The results show mortgage rates remain relatively unchanged from the prior week on new housing data.

The 30-year fixed rate mortgage averaged 4.10% this week. This was unchanged from last week.

This week, the 15-year fixed rate mortgage averaged 3.25%. This was up from last week when the 15-year fixed rate mortgage averaged 3.23%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, had this to say about this week’s rates: “Mortgage rates were little changed following mixed housing news. Existing home sales rose for the fourth consecutive month to an annualized pace of 5.15 million, the highest of the year. On the other hand, new home sales fell for the third consecutive month to an annualized rate of 412,000 units. Also, the S&P/Case-Shiller national home price index confirmed the slowing in national house-price appreciation that has occurred in other metrics, with the seasonally-adjusted national index down 0.1% in June but on a year-over-year basis up a solid 6.2%.”

The money market fund finished the week of 8/25 at 0.4%. The 1-year CD finished at 0.7%.

Published August 29, 2014

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