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Tuesday March 3, 2015



Adidas Finishes Strong

Adidas Group (ADS.DE), a company that designs, manufactures and sells athletic and sports products worldwide, reported its annual earnings for Fiscal Year 2013 on Wednesday, March 5. The world's second largest sports apparel and accessories company reported a slight dip in sales, but strong earnings.

Adidas reported net sales of $20.07 billion during Fiscal Year 2013. This represents a decrease of 2.6% from Fiscal Year 2012 sales of $20.61 billion.

The company reported net income of $1.09 billion for the year. This represents an increase of 49.3% from the previous year's net income of $728.40 million. Earnings per share for the year came in at $5.21 per share.

CEO of Adidas Group, Herbert Hainer, reflected on Fiscal Year 2013 in a letter to shareholders. "In a marathon, every inch of every mile counts. In this spirit, I am pleased to report that our Group finished 2013 strongly. We delivered an exceptional fourth quarter result, with robust currency-neutral sales growth of 12% and operating profit, excluding goodwill impairment losses, increasing almost fourfold compared to the prior year. That's a new fourth quarter record for our Group. And this strong finish puts the Group in a great position as we begin an exciting 2014 for our brands and for our Group."

Last October, Adidas reported that it will begin changing its management team in North America and Western Europe. Growth has been slow in these regions for the past several years and it is beginning to lose market share in key markets to rival Nike. A "generation change" is now viewed as beneficial for company performance. In January, Eric Liedtke replaced Erich Stamminger as Head of Brands on the company's Executive Committee. Erich Stamminger had been with Adidas for 30 years. On March 4, the company announced that CEO Herbert Hainer will continue with the company for another two years during which time Hainer and the other executives will work on a succession plan. Igor Landau, Chairman of the Adidas Supervisory Board, stated, "We will continue to pursue the generation change which has already been initiated within the Group's management team, thus preparing the company for the next era of success."

Adidas Group (ADS.DE) shares ended the week at $80.36, down 2.2% for the week of 3/3.

PetSmart's Earnings Impress

PetSmart (PETM), a retailer of products, services and solutions for pets, reported its fourth quarter and Fiscal Year 2013 results on Wednesday, March 5. PetSmart reported year-over-year increases in revenue as well as net income and beat analysts' estimates for earnings per share.

The company reported quarterly and annual revenue of $1.8 billion and $6.9 billion, respectively. Annual revenue in Fiscal Year 2013 increased 2.34% over last year when revenue was $6.76 billion.

PetSmart reported quarterly net income of $131.52 million and annual net income of $419.52 million. Annual net income increased 7.7% in Fiscal Year 2013 from Fiscal Year 2012 when annual net income was $389.53 million. Also, PetSmart reported annual earnings per share of $4.02. This beat analysts' expectations that earnings per share for the year would be between $3.88 and $3.98.

"We are pleased to report our results for Fiscal Year 2013, marking the fourth consecutive year of double-digit earnings per share growth," said David Lenhardt, CEO of PetSmart. "I would like to thank our associates for their hard work and caring for our customers and communities."

PetSmart provides many pet products and accessories. The company also provides grooming, training and pet care services. In order to boost sales, PetSmart just announced that it will offer more natural and raw pet food as well as more grooming services. For example, those who wish their dog's fur was more colorful can now color it with washable chalk at PetSmart's grooming salons.

PetSmart (PETM) shares ended the week at $68.70, up 2.9% for the week of 3/3.

Costco Growth Slows

Costco Wholesale Corporation (COST), operator of membership warehouses, reported its latest quarterly results on Thursday, March 6. While sales increased by almost 6%, the company reported a drop in net income compared to last year as margins tightened.

Costco reported revenue of $26.31 billion for the quarter. This represents an increase of 5.77% over the same period last year when the company reported revenue of $24.87 billion.

The company reported net income of $463 million for the quarter or $1.05 per share. This represents a decrease from the comparable quarter last year when the company reported net income of $554 million or $1.24 per share.

"Despite satisfactory sales results during the second fiscal quarter several other factors led to lower earnings," said Richard Galanti, CFO of Costco. "These factors included: weaker sales and gross margin results in certain non-foods merchandise categories, particularly during the four-week holiday selling season; weaker gross margins in our fresh foods business; and lower reported international profits, resulting from significant weakening of foreign exchange rates. The first four-week period of the quarter represented the majority of earnings underperformance in the quarter."

Costco currently operates warehouses in the United States, Canada, Mexico, the United Kingdom, Japan, Taiwan, Korea and Australia. Now, the company is considering opening locations in China. It has been reluctant to do so since big-box stores like Best Buy and Wal-Mart have found China a difficult market. However, China is projected to be the third largest consumer market in the world by next year (behind the U.S. and Japan) and the potential for growth is now hard to resist. Additionally, Costco now has the advantage of learning from the mistakes of companies that previously entered the market.

Costco Wholesale Corporation (COST) shares ended the week at $113.50, down 2.34% for the week of 3/3.

The Dow started the week of 3/3 at 16,322 and closed at 16,453 on 3/7. The S&P 500 started the week at 1,858 and closed at 1,878. The NASDAQ started the week at 4,261 and closed at 4,336.

Treasuries Fall on Positive Jobs Data

Treasury prices fell and yields rose on Friday, March 7 as the Department of Labor released the results of its latest employment report. The positive report surprised economists who were expecting disappointing results due to the difficult weather being experienced across much of the United States.

The Department of Labor announced the unemployment rate ticked up slightly in February from 6.6% to 6.7%. At the same time, the economy added 175,000 jobs during the month. This compares favorably to the 129,000 jobs added in January and the 84,000 added in December. In addition,79,000 of the jobs added were in professional and business services such as accounting, architecture and technology. The report also showed that average wages increased $0.09 per hour to $24.31 per hour in February. This is the largest monthly wage gain in more than two years.

Secretary of Labor, Tom Perez, commented on the results, "These are well-paying jobs. It's a bellwether of the bullishness of business to expand." The positive report caused Treasury yields to rise. The 10-year Treasury yield rose from 2.73% to 2.78% on Friday during early morning trading. This yield is below the 2014 high of 3.05%, but higher than the 5-year average of 2.7%.

Despite the impressive jobs report, the economy has not entirely recovered from the financial crisis of 2008 and 2009. The U.S. economy lost 8.7 million jobs during the crisis and so far only 8 million have been recovered. Additionally, the underemployment rate is still 12.6%. This rate includes not only people who are unemployed and looking for work, but those that are employed part-time that would like to work full-time and those that want to work but have not looked for a job in the past four weeks.

"The economy has a long way to go, and too many people continue to struggle to get back on their feet," said Secretary Perez. "The challenges confronting the long-term unemployed remain one of the most significant enduring legacies of the Great Recession." The unemployment rate, which is currently at 6.7%, must drop below 5% before the jobs market recovers to pre-recession levels.

The 10-year Treasury note yield finished the week of 3/3 at 2.79% while the 30-year Treasury note yield finished the week at 3.72%.

Interest Rates Decline

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 6. The results show mortgage rates falling on the heels of weak economic reports.

The 30-year fixed rate mortgage averaged 4.28% this week. This represents a decrease from last week when the 30-year fixed rate mortgage averaged 4.37%.

This week, the 15-year fixed rate mortgage averaged 3.32%. This represents a decrease from last week when the 15-year fixed rate mortgage averaged 3.39%.

"Mortgage rates were down this week as real GDP was revised downwards to 2.4% growth in the fourth quarter of 2013," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "Fixed residential investment negatively contributed to GDP decreasing 8.7% in the fourth quarter. The private sector added an estimated 139,000 jobs in February, which was below the market consensus and followed a downward revision of 48,000 jobs in January, according to the ADP Research Institute."

The money market fund finished the week of 3/3 at 0.4%. The 1-year CD finished at 0.7%.

Published March 7, 2014
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