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Susan Dunlop

Susan Dunlop, MBA, CFRE
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Monday May 25, 2015



Wal-Mart's Earnings Miss Estimates

Wal-Mart Stores, Inc. (WMT) announced its first quarter results on Tuesday, May 19. Revenue and earnings per share were both down for the quarter, due in part to currency fluctuations and employee pay raises.

Wal-Mart reported that revenue during the quarter declined 0.1% to $114.8 billion. On average, revenue was expected to be $116.2 billion.

"We had a solid first quarter," said Doug McMillon, Wal-Mart's President and CEO. "We took some important strategic steps to strengthen the foundation of our business for the future. We need to continue to get better at consistently running great stores, clubs and e-commerce everywhere we operate . . . and we are."

Earnings during the quarter were $1.03 per share. This was slightly below expectations for earnings per share of $1.06.

Wal-Mart instituted a turnaround plan designed to cut expenses and increase efficiency. Part of that plan involved removing a layer of management and boosting the wages of rank-and-file employees. The company faced challenges during the quarter as sales growth slowed. Domestic same-store sales increased 1.1% during the quarter, which was lower than the 1.5% in sales growth analysts had projected. Wal-Mart also announced plans to roll out a $50-per-year shipping program designed to compete with Amazon's popular Prime shipping service.

Wal-Mart Stores, Inc. (WMT) shares ended the week at $75.86, down 4.4% for the week.

Home Depot Raises Fiscal Guidance

The Home Depot, Inc. (HD), a home improvement retailer, announced its first quarter results on Tuesday, May 19. Quarterly sales and earnings exceeded expectations and so the company raised its fiscal guidance for the rest of the year.

Home Depot reported that sales for the quarter increased 6.1% to $20.9 billion. Helping drive the increase in sales was a 7.1% U.S. same-store sales increase.

"We had a stronger than expected start to the year as we experienced a more normal spring across much of the country and continued recovery of the U.S. housing market," said Home Depot Chairman, CEO and President Craig Menear. "I would like to thank our associates for their hard work and dedication."

Net earnings for the quarter were $1.6 billion or $1.21 per share. This was better than the comparable quarter last year when net earnings were $1.4 billion or $1.00 per share.

Home Depot's bottom line numbers have been helped by an improving housing market. The Commerce Department announced that April housing starts jumped 20% to an annualized pace of 1.14 million units, the highest pace in over seven years. Because of the strong quarter Home Depot raised its full-year sales growth and earnings per share guidance.

The Home Depot, Inc. (HD) shares ended the week at $112.16, down 1.5% for the week.

Red Robin Has Giant Quarter

Red Robin Gourmet Burgers, Inc. (RRGB) announced its first quarter results on Tuesday, May 19. The company's across-the-board improvements impressed investors.

Red Robin reported that quarterly revenue increased 16% to $394.9 million. Analyst estimates were slightly higher, expecting revenue to be $395.5 million.

"Our solid first quarter results are a testament to the excellent performance of our restaurant team members combined with Red Robin's food and beverage innovation," said Red Robin CEO Steve Carley. "Our initiatives are enabling us to continue taking market share including our Brand Transformation remodels which are generating even stronger guest satisfaction scores."

The company reported that earnings per share rose 34% to $1.10 per share. The average analyst estimate expected earnings per share of $0.88.

On every measure Red Robin had a fantastic quarter. In addition to revenue and earnings increases, the company reported that comparable store sales increased 3.1% while the average guest check increased 2%. Following the earnings announcement the company saw its share price jump 15.3% to $84.14.

Red Robin Gourmet Burgers, Inc. (RRGB) shares ended the week at $85.88, up 15.7% for the week.

The Dow started the week of 5/18 at 18,267 and closed at 18,232 on 5/22. The S&P 500 started the week at 2,121 and closed at 2,126. The NASDAQ started the week at 5,041 and closed at 5,089.

Treasuries Fall on Inflation Report

Treasury prices fell on Friday, May 22 following the release of a report showing inflation posted its biggest monthly gain since January 2013. With the fall in prices Treasury yields continue to remain above where they were earlier in the year.

Even though inflation rose last month, the effect on Treasury yields was small. During early Friday trading the 10-year Treasury yield rose to 2.22% after it had closed at 2.19% on Thursday. This resulted in a corresponding fall in prices, which move inversely to yields.

Last month the consumer-price index excluding food and energy rose 0.3%, which was higher than forecasts calling for a 0.2% gain. Even with the gain, inflation continues to run below the Federal Reserve's target 2% rate. Many investors fear the Federal Reserve will move to raise benchmark interest rates if inflation gets close to the 2% target.

With inflation hovering well below 2%, many experts believe an imminent raise in interest rates is doubtful. "The most recent three inflation data releases of recent weeks will not give Fed policy makers confidence of a return of inflation any time soon," said Ward McCarthy, Chief Financial Economist at Jefferies.

Even though an imminent interest rate increase is unlikely, Federal Reserve Chair Janet Yellen announced on Friday that an increase can be expected sometime this year. "If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy," Yellen told the Chamber of Commerce in Providence, RI.

The 10-year Treasury note yield finished the week of 5/18 at 2.22% while the 30-year Treasury note yield finished the week at 2.99%.

Interest Rates Slightly Decrease

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, May 21. After several weeks of interest rate increases, the survey showed that average fixed mortgage rates trended slightly lower this week.

The 30-year fixed rate mortgage averaged 3.84% this week. This was down from last week when it averaged 3.85%.

This week, the 15-year fixed rate mortgage averaged 3.05%. This number was down from last week when it averaged 3.07%.

"Mortgage rates were little changed this week amid positive housing news," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "Housing starts surged 20.2% to a seasonally adjusted pace of 1.14 million units in April, the highest level since 2007. As homebuying season moves into full swing, home builders remain positive about home sales in the near future. Although the NAHB housing market index slipped 2 points to 54 in May it is still above 50, indicating that on balance builders remain optimistic about housing markets."

The money market fund finished the week of 5/18 at 0.3%. The 1-year CD finished at 0.6%.

Published May 22, 2015

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