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Friday November 21, 2014



Macy’s Enjoys a Profitable Quarter

Macy’s, Inc. (M) announced its third quarter results on Wednesday, November 12. Though sales were disappointing, the company posted significant earnings growth.

Sales during the quarter declined 1.3% to $6.195 billion from $6.276 billion in the same quarter last year. Comparable store sales also declined 0.7%.

“We are very pleased with our third quarter earnings, even though the sales performance fell short of our expectations,” said Macy’s Chairman and CEO, Terry J. Lundgren. “On a two-year basis, our third quarter sales trend was essentially unchanged from the first half of 2014. We knew we were up against very strong third quarter sales growth for our company last year, and thus we had anticipated that our year-over-year comparison would be lower in the third quarter than in the fourth quarter.”

The company reported that earnings per share during the quarter was $0.61. This was a 30% increase from $0.47 during the same period last year.

The top line number most analysts initially focused on in Macy’s third quarter involved the disappointing sales numbers. The company blamed the decrease in sales on warmer weather in the early part of autumn, which contributed to a lack of interest in warmer clothing and accessories. Still, investors were encouraged that Macy’s sales troubles were not unique to the company as competitor J.C. Penney also experienced flat sales last quarter. Thankfully, Macy’s earnings growth gives investors reason to be optimistic about the company’s next quarterly report.

Macy’s (M) shares ended the week at $62.06.

J.C. Penney’s Turnaround Is Succeeding

J.C. Penney Company, Inc. (JCP) announced its third quarter results on Wednesday, November 12. The company’s results indicated its attempts at a turnaround are succeeding.

J.C. Penney reported third quarter net sales of $2.764 billion. This was a slight decrease from net sales of $2.779 billion reported during the same period last year.

“This quarter shows the progress we are making in the final phase of J.C. Penney’s turnaround,” said J.C. Penney’s CEO Myron E. Ullman. “We are well positioned to compete this holiday season and I would like to thank our associates for their hard work, warrior spirit and commitment to delivering an exceptional customer experience every day.”

The company reported a net loss during the quarter of $54 million. This was a $347 million or 87% improvement over the net loss reported during the comparable period last year.

J.C. Penney has dealt with some hard times during the past few years. The company instituted some costly changes to its business model that drove its core customer base away. That led to the ouster of CEO Ron Johnson. The company’s new leadership has since taken steps to regain its customer base. J.C. Penney’s third quarter report is an indication that those steps seem to be working.

J.C. Penney Company (JCP) shares ended the week at $7.36.

SeaWorld Drowning in Negative Publicity

SeaWorld Entertainment, Inc. (SEAS) announced its third quarter results on Wednesday, November 12. The company once again experienced a disappointing quarter as numbers across the board were down.

The company reported that revenue for the third quarter was $495.8 million. This was an 8% decrease from the $538.4 million reported during the same period last year.

“Consistent with the update we provided in August, the attendance trends the Company experienced in the latter part of the second quarter continued into the third quarter,” said SeaWorld President and CEO Jim Atchison. “Clearly 2014 has been a challenging year, but I am confident we are taking the necessary steps to address our near term challenges and position the Company to deliver value over the long term.”

Net income during the quarter was $87.2 million. This was a decline from the $120.7 million in net income reported during the third quarter last year.

SeaWorld’s struggles this year all relate to attendance declines caused by bad publicity. The company has come under fire for the treatment of its orca whales, details popularized by the documentary “Blackfish,” which is popular on Netflix. As a result, attendance fell during the quarter to 8.4 million from 8.9 million during the same period last year. The challenge for the company going forward is to come up with a successful strategy to counter 2014’s negative publicity.

SeaWorld Entertainment, Inc. (SEAS) shares ended the week at $16.91.

The Dow started the week of 11/10 at 17,569 and closed at 17,635 on 11/14. The S&P 500 started the week at 2,032 and closed at 2,040. The NASDAQ started the week at 4,635 and closed at 4,689.

Treasuries Fall as Equities Surge

Treasury prices fell during the week of November 10 as investors poured money into the surging stock market. The recent fall in Treasury prices is another sign that investors are increasingly optimistic about the direction of the U.S. economy.

This week the U.S. Treasury Department put $66 billion in notes and bonds up for sale. Investors showed little demand for the auction, which was the lowest in over a year. Instead, investors have shown a bigger appetite for equities, which are pushing all-time highs. This week the S&P 500 flirted with a new all-time high as it rose to 2,039 points as of early Friday, November 14.

Some analysts, such as Christopher Sullivan, the Chief Investment Officer at United Nations Federal Credit Union, believe investors are waiting for cheaper bonds. “Investors are waiting for an expected cheapening so that they can add to positions at better yields. But that cheapening refuses to come,” he said.

Primary dealers in Treasury bonds rate each bond auction on a scale of one to five, with one being a failed auction and five an outstanding one. The 30-year bond auction was rated a “2” while the 10-year auction was rated a “3.”

Overall, Treasury notes and bonds have returned 4.8% this year. That is a significant improvement over the 3.4% loss during 2013. As the stock market begins to see signs of strength, hopefully the bond market will follow.

The 10-year Treasury note yield finished the week of 11/10 at 2.32% while the 30-year Treasury note yield finished the week at 3.04%.

Interest Rates Show Little Movement

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, November 13. The results show mortgage rates remaining mostly unchanged from last week.

The 30-year fixed rate mortgage averaged 4.01% this week. This was a slight decrease from last week when it averaged 4.02%.

This week, the 15-year fixed rate mortgage averaged 3.20%. This was down from last week when the 15-year fixed rate mortgage averaged 3.21%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, had this to say about this week’s rates: “Fixed mortgage rates were slightly down on mixed results from October’s employment report. While the unemployment rate declined to 5.8%, nonfarm employment rose by 214,000 jobs, which was below consensus expectations. Net revisions for payroll employment in August and September added 31,000 more jobs to the initial readings.”

The money market fund finished the week of 11/10 at 0.4%. The 1-year CD finished at 0.7%.

Published November 14, 2014
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