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Thursday December 13, 2018



Kroger's Shares Soar on Upbeat Sales

The Kroger Co. (KR) announced quarterly earnings on Thursday, November 30. The supermarket chain posted better-than-expected profits and predicted an upbeat holiday shopping season, causing shares to jump 12.5% after the report's release.

Kroger reported quarterly revenue of $27.75 billion. This was a 4.5% increase from last year's third quarter revenue of $26.56 billion.

"This quarter shows that by investing for the future, our business continues to improve and gain momentum," said Kroger CEO Rodney McMullen. "We remain confident in our ability to continue to grow identical supermarket store sales and market share for the balance of the year and in 2018."

The company announced quarterly earnings of $397 million, up from $391 million one year ago. On an adjusted earnings per share basis, Kroger reported profit of $0.44 per share, which exceeded the $0.40 per share expected by analysts.

Kroger, which owns 2,800 stores in the U.S., including grocery store chains Ralphs, Harris Teeter and Food 4 Less, said on Thursday that it expects the holiday quarter to bring profitable results. The company has been cutting costs, slashing prices and looking for innovative ways to thwart competition from Walmart and other retail rivals. On Thursday, the company revealed that it will be launching an apparel brand in 2018 and a floral line, BLOOM HAUS, which will be available in time for the holiday season.

The Kroger Co. (KR) shares ended the week at $25.67, up 11.6% for the week.

Barnes & Noble's Stock Falls after Earnings Disappoint

Barnes & Noble, Inc. (BKS) released its latest quarterly earnings report on Thursday, November 30. Declining revenue and profit sent shares tumbling more than 10% following the earnings release.

Revenue for the second quarter reached $791.12 million. This is down 7.9% from $858.55 million reported during the same quarter last year and is below the $812 million that analysts predicted.

"Comparable sales improved throughout the second quarter and into November," said Barnes & Noble CEO Demos Parneros. "Book sales continued to strengthen, and we saw improved traffic and conversion trends . . . We expect these improvements to continue as we head into the holiday season which, coupled with cost reductions, will enable us to achieve EBITDA of $180 million."

Barnes & Noble reported a net loss for the quarter of $30.10 million, or $0.41 per share. This was worse than last year's second quarter loss of $20.41 million, or $0.29 per share. Analysts were expecting the bookseller to report a loss of $0.26 per share.

On Thursday, the company announced that it will begin scaling back on its non-book product offerings and focus primarily on boosting book sales. Barnes & Noble had hoped that offering games, toys and other non-book merchandise would raise profits and increase foot traffic, but the effort has fallen short of the company's hopes. During a call with investors on Thursday, Parneros explained the shift to offering primarily book merchandise by stating, "It's simply who we are. I mean, that's our heritage, that's what customers expect from us. It's the right decision."

Barnes & Noble, Inc. (BKS) shares ended the week at $6.70, down 8.2% for the week.

Tiffany's Earnings Sparkle

Tiffany & Co. (TIF) reported quarterly earnings on Wednesday, December 1. The jewelry company reported increased earnings and revenue and surpassed Wall Street's expectations due to strong demand in Asia.

Tiffany announced revenue for the quarter was $976.2 million, which beat analysts' projected revenue of $957.0 million. Last year at this time, the company reported revenue of $949.3 million.

"These latest financial results marginally exceeded our expectations, but I believe that Tiffany has the medium to long-term potential to achieve meaningful comparable store sales growth and drive higher operating margins and earnings growth," said Tiffany CEO Alessandro Bogliolo, who joined the company in October. "Looking forward, we will increasingly capitalize on the strength of the TIFFANY & CO. brand with stronger organizational focus on innovation in product, digital, communication and the customer experience."

Tiffany reported net income of $100.2 million, or $0.80 per share. Last year in the third quarter, the company's net income was $95.1 million, or $0.76 per share.

The jewelry company's growth in the quarter was due in large part to its overseas sales. Sales in the Asia Pacific region jumped 15% to $283 million in the quarter. Domestically, the company attracted customers to its flagship Fifth Avenue location in New York by opening its Blue Box Café on November 10. The restaurant allows customers to follow in the footsteps of Audrey Hepburn and quite literally have breakfast at Tiffany's.

Tiffany & Co. (TIF) shares ended the week at $97.25, up 4% for the week.

The Dow started the week of 11/27 at 23,553 and closed at 24,232 on 12/1. The S&P 500 started the week at 2,603 and closed at 2,642. The NASDAQ started the week at 6,878 and closed at 6,848.

Treasury Yields Ride Political Rollercoaster

After reaching two-week highs following the release of upbeat inflation data on Thursday, U.S. Treasury yields retreated on Friday morning as the Senate continued to debate adequate cost-reduction solutions for the new tax bill. Yields were pressured further on Friday following reports that Michael Flynn, President Trump's former National Security Adviser, may testify that President Trump "directed him to make contact with the Russians."

After news spread that Flynn pleaded guilty to lying to federal agents and that his upcoming testimony could indicate President Trump's involvement with Russia's meddling in U.S. elections, the S&P 500 Index fell as haven assets surged. The yield on the 30-year Treasury note fell to 2.721%—its lowest level since September.

"I think that the downward tick [in Treasury yields] really comes from a pretty significant amount of uncertainty on Washington in general, what it could mean for tax reform and ultimately, what it could mean for the president himself," said Craig Bishop, Vice President of U.S. fixed income at RBC Wealth Management. "There's going to be a lot of volatility."

On Thursday, U.S. data revealed that the core personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation measure, rose 0.2% in October. In the last 12 months through October, the PCE has risen 1.4%, which has boosted investor's confidence that the Federal Reserve will boost interest rates in December and also in 2018.

"A lot of people have moved their forecasts to four rate hikes next year, from three," said Jim Vogel, interest rates strategist at FTN Financial in Memphis. "But the people who are skeptical about the four hikes in 2018 and who saw the data this morning, may be thinking that is not totally out of bounds."

On Thursday, after the data was released, investors' strategies shifted away from safe-haven bonds in favor of more risky investments. As a result, the 10 and 30-year treasury yields reached their highest points in two weeks with the 10-year yield reaching 2.401% and the 30-year yield hitting 2.844%.

The 10-year Treasury note yield finished the week of 11/27 at 2.37%, while the 30-year Treasury note yield was 2.76%.

Mortgage Rates Edge Lower

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, November 30. The report revealed the 15 and 30-year fixed mortgage rates were lower than last week's averages.

The 30-year fixed rate mortgage averaged 3.90% this week. This represents a decrease from last week when it averaged 3.92%. Last year at this time, the 30-year fixed rate mortgage averaged 4.08%.

This week, the 15-year fixed rate mortgage averaged 3.30%. This was lower than last week's average of 3.32%. The 15-year fixed rate mortgage averaged 3.34% one year ago.

"The 30-year fixed mortgage rate fell two basis points to 3.9% in this week's survey, but we closed our survey prior to a surge in long-term interest rates following an upward revision to third quarter U.S. Real GDP growth and comments by Federal Reserve Chair Yellen touting a broad-based economic expansion," said Len Kiefer Deputy Chief Economist at Freddie Mac. "The market implied probability of a Fed rate hike in December neared 100%, helping to drive short term interest rates higher."

Based on published national averages, the money market account finished the week of 11/27 at 0.84%. The 1-year CD finished at 1.66%.

Published December 1, 2017
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