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Saturday March 17, 2018



Target Tumbles on Weak Sales

Target Corporation (TGT) announced its quarterly earnings on Tuesday, February 28. With more and more consumers turning to online retailers, Target struggled to lure in customers in the fourth quarter, causing sales and profit to decline.

Target reported record quarterly revenue of $20.7 billion in the fourth quarter. Last year, revenue in the fourth quarter came in at $21.6 billion.

"Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," said Target CEO Brian Cornell. "We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years."

Target reported $817 million in net income for the fourth quarter, down from $1.43 billion a year ago. On an earnings per share basis, profit fell to $1.45 per share compared to $2.32 per share in the same quarter last year.

With the rising popularity of online shopping, Target has struggled in recent months to keep pace with its competitors. After announcing the disappointing results and lower-than-expected guidance for the next quarter, Target laid out its roadmap for the upcoming year, which will include remodeling stores, opening more small-format stores and launching 12 exclusive brands. The release of its earnings report on Tuesday caused shares to fall 14%, marking the largest one-day drop for the retailer since 2008.

Target Corporation (TGT) shares ended the week at $57.34, down 16% for the week.

Domino's Heats up Earnings

Domino's Pizza, Inc. (DPZ) announced its fourth quarter earnings on Tuesday, February 28. The world's largest pizza delivery chain dished out earnings that surpassed Wall Street's expectations, causing shares to jump more than 7% after the report was released.

Domino's announced quarterly revenue of $819.4 million, up 10.6% from last year's fourth quarter revenue of $741.2 million. This was above the $782.2 million in revenue expected by analysts.

"I'm extremely proud of our franchisees and operators worldwide, including those who contributed toward back-to-back years of double digit sales growth in the U.S.," said Domino's CEO J. Patrick Doyle. "While these unprecedented results speak for themselves, I am most pleased with the passion and energy we demonstrated throughout 2016 in meeting the challenge of sustained success."

Domino's announced net earnings of $72.7 million, or $1.48 per share. Last year at this time, Domino's reported net earnings of $62.8 million, or $1.18 per share.

The pizza delivery company saw same store sales jump more than 12% during the fourth quarter. The company credits a large slice of its success to technological advances in its ordering platforms. Along with the Domino's smartphone apps, customers can order from Domino's using Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and text messages through the use of a pizza emoji.

Domino's Pizza, Inc. (DPZ) shares ended the week at $188.91, up 2% for the week.

Costco Increases Membership Fees, Disappoints on Earnings

Costco Wholesale Corporation (COST) reported quarterly earnings on Thursday, March 2. The retail giant disappointed investors with lackluster earnings that fell below expectations and announced that it will be raising its membership fees this summer.

Costco announced revenue for the second quarter was $29.6 billion, up from last year's second quarter revenue of $28.2 billion. This was slightly below the $29.9 billion in revenue predicted by analysts.

"Traffic growth was solid across the company in December and January (up an average of 4% in the US and 3% worldwide)," said UBS analyst Michael Lasser in a recent research note. "This suggests members continue to be intrigued by the company's value proposition, and leads us to believe that renewals likely at least remained steady at 90.3% in the US and Canada and 87.5% worldwide."

The company reported net income of $515 million—a fall from last year's second quarter earnings of $546 million. Adjusted earnings per share for the second quarter were $1.17, down from $1.24 per share a year ago and below analysts' estimates of $1.35 per share.

Costco, the second largest retailer in the U.S. behind Wal-Mart, announced on Thursday that it will be increasing membership fees on June 1. Gold Star memberships will increase by $5 to $60 per year, while Executive memberships will increase by $10 to $120 per year. The company said that the fee hike will affect 35 million of its members, approximately half whom hold Executive memberships.

Costco Wholesale Corporation (COST) shares ended the week at $170.24, down 4% for the week.

The Dow started the week of 02/27 at 20,809 and closed at 21,005 on 03/03. The S&P 500 started the week at 2,365 and closed at 2,383. The NASDAQ started the week at 5,835 and closed at 5,871.

Yields Jump Ahead of Fed's Remarks

U.S. Treasury yields surged upward on Thursday and Friday ahead of remarks from Federal Reserve Chairman Janet Yellen. Optimism from investors regarding the possibility of an interest rate hike later this month sent the 10-year benchmark Treasury yield to its highest level in more than two weeks.

Also on the upswing was the two-year treasury yield, which jumped to 1.32% on Thursday—its highest level since 2008. With investors gaining more confidence in the market, a move toward riskier investments has sent bond prices falling. Bond prices move inversely to yields.

"Between the risk-on move in equities and this fear that we could get a rate hike, we saw a lot of traders scramble and start to price in that eventuality, which meant they had to start selling a lot of their bonds," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

Investors are anxiously awaiting confirmation from the Federal Reserve on Friday that a rate hike increase will be announced at the Fed's March 14-15 meeting. With the number of Americans filing for unemployment hitting an almost 44-year low last week and the labor market strengthening, economists predict that the improving labor market will increase the pressure on the Fed to raise interest rates this month.

"The jobs market is strengthening and we are near full employment," said Ryan Sweet, senior economist at Moody's Analytics. "The Fed is worried that the jobs market will overheat and that is fanning the discussion of a March rate hike."

Fed-fund futures, used to gauge the Fed's policy positions, indicated that the odds of a rate increase this month are 75%. This improved confidence was helped in large part this week by comments from numerous Fed officials, who hinted that a rate hike could be right around the corner.

Federal Reserve Governor Lael Brainard said on Wednesday that she believes that the Fed could raise interest rates "soon." She cited the state of the global economy, stating, "We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time."

The 10-year Treasury note yield finished the week of 02/27 at 2.49%, while the 30-year Treasury note yield was 3.08%.

Mortgage Rates Move Lower

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 2. The report indicated that rates have moved lower—breaking their month-long holding pattern.

The 30-year fixed rate mortgage averaged 4.10% this week. This represents a decrease from last week when it averaged 4.16%. Last year at this time, the 30-year fixed rate mortgage averaged 3.64%.

This week, the 15-year fixed rate mortgage averaged 3.32%. This was lower than last week's average of 3.37%. The 15-year fixed rate mortgage averaged 2.94% one year ago.

"The 10-year Treasury yield remained relatively flat this week, while the 30-year mortgage rate fell 6 basis points to 4.1%," said Sean Becketti, Chief Economist at Freddie Mac. "Since the beginning of the year, the 10-year Treasury yield has covered a 22 basis point range. The range of movement for the 30-year has been half that, just 11 basis points."

Based on published national averages, the money market account finished the week of 02/27 at 0.56%. The 1-year CD finished at 1.28%.

Published March 3, 2017
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