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Sunday August 28, 2016



Best Buy's Earnings Beat Expectations

Best Buy Co. Inc. (BBY) announced its quarterly earnings on Tuesday, August 23. The retailer posted strong revenue and profits for the quarter.

The company reported revenue of $8.5 billion. While revenue was relatively unchanged from the same quarter last year, it beat analysts' expectations of $8.4 billion.

"Our teams delivered a strong second quarter, with better-than-expected revenue and profitability in both our Domestic and International businesses," said Hubert Joly, Chairman and CEO of Best Buy. "In our Domestic business, we are reporting comparable sales growth of 0.8% versus guidance of approximately flat. This is on top of comparable sales growth of 3.8% last year. We saw continued positive momentum in our online sales - delivering a second straight quarter of nearly 24% growth."

Net income for the quarter was $198 million, or $0.61 per share. During the same quarter last year, net income was $164 million, or $0.46 per share.

Best Buy attributes much of its success in the quarter to online sales. The company reported $835 million in domestic online revenue, up 23.7%. Online revenue made up 10.6% of the company's domestic revenue for the quarter. Comparable store sales were also up 0.8% from the prior year.

Best Buy Co. Inc. (BBY) shares ended the week at $39.48, up 21% for the week.

La-Z-Boy Reports Sales Decline

La-Z-Boy Inc. (LZB) released its quarterly earnings report on Tuesday, August 23. The report indicated a drop in sales and profits for the well-known recliner brand.

The furniture company announced revenue of $340.8 million, well below the expected $358.8 million. This was down slightly from $341.4 million during the same quarter the previous year.

"Our manufacturing operations are running efficiently and when combined with other supply chain initiatives, we drove improved profitability for the fiscal 2017 first quarter, increasing consolidated operating margin to 6.4%," said La-Z-Boy CEO Kurt L. Darrow. "While we experienced flat sales for the quarter due to weaker demand at wholesale and inconsistent traffic throughout the La-Z-Boy Furniture Galleries store system, we are in an excellent service position for both our dealers and the consumer as we approach the traditionally stronger fall selling season."

La-Z-Boy posted net income of $13.8 million for the quarter, or $0.28 per share. This is down from $14.1 million, or $0.27 per share during the prior year's quarter.

The company, well known for its recliners and other living room furniture, will now look to rebound from a disappointing quarterly performance. One factor in the disappointing numbers was comparable store sales, which took a dive from the same period last year. At this time last year, comparable store sales were up 5.3%, while this quarter they plunged by 1.9%.

La-Z-Boy Inc. (LZB) shares ended the week at $27.10, down 9% for the week.

Dollar General's Earnings Disappoint

Dollar General (DG) reported its quarterly earnings on Thursday, August 25. The discount retailer increased sales but missed Wall Street expectations.

The company reported revenue of $5.4 billion. While revenue was up 5.8% from $5.0 billion during the same quarter last year, it fell short of analysts' estimated $5.5 billion.

"We are pleased with our 2016 second quarter diluted earnings per share growth of 14% over the 2015 second quarter, although our same-store sales performance fell short of our expectations," said Dollar General CEO Todd Vasos. "Retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger than expected headwinds to our business."

Net income was $306.5 million, or $1.08 per share. During the same quarter in the prior year, net income was $282.3 million, or $0.95 per share.

While improving its numbers in both sales and profits, Dollar General failed to live up to analysts' expectations for the quarter. The company attributes the weaker than expected quarter to lower food prices and a reduction in food stamp revenue. Same store sales grew 0.7% for the quarter.

Dollar General (DG) shares ended the week at $75.50, down 17% for the week.

The Dow started the week of 8/22 at 18,536 and closed at 18,395 on 8/26. The S&P 500 started the week at 2,182 and closed at 2,169. The NASDAQ started the week at 5,231 and closed at 5,219.

Fed Chair's Speech Bumps Treasury Yields

Treasury bond yields rose this week in response to the Federal Reserve's latest indication that a rise in short-term interest rates could be right around the corner. This would be the first rate hike since December 2015.

Last year's rate increase was the first since the Fed dropped rates to a range of 0% to 0.25%. Since that time, there have been months of speculation as to when the next hike is coming. This week's symposium hosted by the Kansas City Federal Reserve Bank was the latest chance for the Fed to signal an upcoming move.

"While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market," said Federal Reserve Chair Janet Yellen. "In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."

Following Ms. Yellen's Friday remarks, the 10-year Treasury note yield jumped from 1.56% to 1.59%. The bump may have been temporary, however, as yields dropped later in the day.

"We had a couple of good jobs reports here. But year over year, the GDP growth rate is very low, below trend really," said James Bullard, President of the St. Louis Federal Reserve Bank. Bullard's remarks are indicative of the fact that many investors will undoubtedly take a measured approach to the Fed chair's latest statement, as there is plenty of time for intervening factors to push the Fed's plan further down the road.

The 10-year Treasury note yield finished the week of 8/15 at 1.64%, while the 30-year Treasury note yield was 2.30%.

Fixed Mortgage Rates Unmoved

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 25. Fixed mortgage rates showed no movement from last week's report.

The 30-year fixed rate mortgage averaged 3.43% this week, unchanged from last week. Last year at this time, the 30-year fixed rate mortgage averaged 3.84%.

This week, the 15-year fixed rate mortgage averaged 2.74%, also unchanged from last week. One year ago, the 15-year fixed rate mortgage averaged 3.06%.

"Treasury yields were little changed from the prior week and the 30-year fixed rate mortgage held steady at 3.43% this week," said Sean Becketti, Chief Economist at Freddie Mac. "This marks the ninth consecutive week that mortgage rates have been below 3.5%. Markets are erring on the side of caution ahead of the second estimate for second-quarter GDP and Fed Chair Janet Yellen's speech on Friday."

Based on published national averages, the money market account finished the week of 8/22 at 0.50%. The 1-year CD finished at 1.15%.

Published August 26, 2016

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