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Wednesday June 3, 2020



Target's Shares Jump on Upbeat Earnings

Target Corporation (TGT) released its quarterly earnings report on Wednesday, May 8. The retail company reported better-than-expected earnings and revenue for the quarter, causing shares to spike nearly 10% following the report's release.

Target reported quarterly revenue of $17.63 billion. This is up 5% from last year's first quarter revenue of $16.78 billion and above the $17.52 billion in revenue that Wall Street predicted.

"Target had an outstanding first quarter, as our team delivered a great experience for our guests and drove strong growth in traffic, comparable sales, operating income and earnings per share," said Target CEO Brian Cornell. "Throughout this year, we will continue to extend the reach of our same-day fulfillment options, strengthen our portfolio of owned and exclusive brands, remodel and open more stores and invest in our team."

The company announced earnings of $795 million for the quarter, which was up from earnings of $718 million one year ago. On an adjusted earnings per share basis, the company reported earnings of $1.53 per share, which was more than the $1.43 per share that analysts predicted.

Target's efforts to grow its e-commerce business appear to be paying off. The company's e-commerce sales in the first quarter were up 42% year-over-year. In the past year, Target has rolled out curbside delivery options, continued to provide two-day shipping for orders over $35 and offered one-day shipping through Target's Shipt subsidiary.

Target Corporation (TGT) shares closed at $81.57, up 14.2% for the week.

Home Depot's Earnings Higher Despite Unfavorable Weather

The Home Depot, Inc. (HD) announced quarterly earnings on Tuesday, May 21. The nation's largest home improvement retailer posted earnings that beat Wall Street's expectations despite poor weather in February and falling lumber prices.

Revenue for the first quarter reached $26.38 billion. This is up 5.7% from revenue of $24.95 billion reported during the same quarter last year and in-line with analysts' estimates.

"We were pleased with the underlying performance of the core business despite unfavorable weather in February and significant deflation in lumber prices compared to a year ago," said Home Depot CEO Craig Menear. "Looking ahead, we remain excited about the momentum we are seeing with our strategic investments. As a result of these initiatives, and the current macroeconomic and housing backdrop, today we are reaffirming our sales and earnings guidance for fiscal 2019."

Home Depot reported quarterly net earnings of $2.51 billion, compared to last year's earnings of $2.40 billion. On an adjusted earnings per share basis, the company posted earnings of $2.27 per share, surpassing the $2.18 per share that analysts predicted.

The company saw same-store sales in the U.S. rise by 3% in the first quarter, falling short of the 4.2% growth analysts predicted. In a call with investors on Tuesday, Home Depot CFO Carol Tome said that, excluding the impact of weather and decreasing lumber prices, same-store sales would have been closer to 4.5%. Despite the slower-than-expected growth, the company reaffirmed its earnings guidance for fiscal 2019. The company expects same-store sales to increase 5%, revenue to rise 3.3% and earnings to climb 3.1% to $10.03 per share.

The Home Depot, Inc. (HD) shares closed at $193.61, up 1.3% for the week.

Nordstrom's Earnings Disappoint, Shares Fall

Nordstrom, Inc. (JWN) reported quarterly earnings on Tuesday, May 21. The company reported revenue and earnings that were below analysts' estimates, causing shares to tumble more than 10% following the report's release.

Nordstrom announced revenue of $3.44 billion for the first quarter. This is down from revenue of $3.56 billion reported in the same quarter last year and below the $3.48 billion in revenue that analysts expected.

"While we expected softer trends from the fourth quarter to continue into the first quarter, we experienced a further deceleration," said co-president of Nordstrom Erik Nordstrom. "We had executional misses with our customers, and we're committed to better serving them. This is well within our control to turn around."

The company reported earnings of $37 million for the quarter, down from earnings of $87 million one year ago. On an adjusted earnings per share basis, Nordstrom posted earnings of $0.23 per share, falling below analysts' earnings estimates of $0.43 per share.

On Tuesday, Nordstrom lowered its 2019 earnings and revenue projections. The company now expects earnings to total between $3.25 per share and $3.65 per share, down from its prior earnings forecast of $3.65 per share to $3.90 per share. Nordstrom predicts revenue will be 0% to 2% lower year-over-year, compared to its previous projections of 1% to 2% growth.

Nordstrom, Inc. (JWN) shares closed at $33.50, down 10.6% for the week.

The Dow started the week at 25,655 and closed at 25,586 on 5/24. The S&P 500 started the week at 2,842 and closed at 2,826. The NASDAQ started the week at 7,714 and closed at 7,637.

Yields Inch Higher After Falling to 2017 Lows

This week, continued trade tensions between the U.S. and China dampened investors' risk appetites and increased demand for safe-haven bonds, causing yields on U.S. Treasury bonds to fall to their lowest levels since 2017 on Thursday. On Friday, yields rebounded slightly, edging higher leading into the holiday weekend.

On Thursday, yields fell as investors faced the possibility that the trade conflict between the U.S. and China may drag on longer than expected, which could push the Federal Reserve to cut interest rates this year. Later in the day, yields were pressured lower after Markit Economics revealed that its Purchasing Managers Index (PMI) manufacturing reading fell to a nine-and-a-half year low of 50.6, down from 52.6 in April.

"The market is obviously telling you that it's quite worried about some of the incoming data, including the PMIs this morning, the ongoing trade rhetoric and the move in risk assets," said Mark Cabana, head of short U.S. rate strategy at Bank of America Merrill Lynch. "The concern the market has right now is that we're moving toward a worst case scenario, and that could persist for quite some time. If that's the case, then the market is believing the [weak] economic data, and the Fed will likely need to respond to that by trying to offset and prevent a recession."

By mid-day on Thursday, the yield on the 10-year Treasury note tumbled 9 basis points to 2.308%, marking its lowest level since November 2017. The yield on the 30-year Treasury bond fell 8 basis points to 2.742%, its lowest point since December 2017.

On Friday, yields rebounded slightly as investors booked profits following the spike in bond prices on Thursday. Bond yields move inversely to prices. During morning trading on Friday, the yield on the 10-year note rose to 2.332%, while the yield on the 30-year Treasury bond was trading at 2.760%.

"We had hit the lows in yields in about two years, so there's probably some profit-taking going on," said Tom Simons, economist, at Jefferies & Company in New York. "If anything, toward the end of trading [Thursday], we didn't get more bad news that could have fostered the bids a little bit more."

The 10-year Treasury note yield closed at 2.32% on 5/24, while the 30-year Treasury bond yield was 2.75%.

Mortgage Rates Dip Slightly

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, May 23. The report revealed that mortgage rates were slightly lower this week.

The 30-year fixed rate mortgage averaged 4.06% this week, down from 4.07% last week. During this time last year, the 30-year fixed rate mortgage averaged 4.66%.

This week, the 15-year fixed rate mortgage averaged 3.51%, a decrease from last week when it averaged 3.53%. Last year at this time, the 15-year fixed rate mortgage averaged 4.15%.

"Mortgage rates fell for the fourth consecutive week and continued the medium-term trend of lower rates since late 2018," said Sam Khater, Chief Economist at Freddie Mac. "The drop in mortgage rates is causing purchase demand to rise and the mix of demand is skewing to the higher end as more affluent consumers are typically more responsive to declines in rates."

Based on published national averages, the money market account closed at 1.36% on 5/24. The one-year CD finished at 2.70%.

Published May 24, 2019

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