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Wednesday August 21, 2019



Target Hits the Mark

Target Corporation (TGT) reported quarterly earnings on Wednesday, August 22. The company's comparable sales results were the best in over a decade.

Revenue for the retail giant was $17.55 billion for the second quarter, ahead of analysts' estimated revenue of $17.28 billion. This is up from revenue of $16.41 billion during the same quarter last year.

"We are extremely pleased with Target's second quarter results, which demonstrate our guests' excitement for the enhanced and differentiated shopping experience we're building," said Target Chairman and CEO Brian Cornell. "For the second consecutive quarter, traffic growth is better than we've seen in well over 10 years, driving 6.5% comp growth — Target's best in 13 years. We laid out a clear strategy at the beginning of 2017, and throughout this year we've been accelerating the pace of execution."

Target's net earnings for the quarter were $799 million, or $1.50 per share. This is up from earnings of $671 million, or $1.22 per share, during the previous year's quarter.

Target attributes its success this quarter to strong growth in traffic, which drove its comparable sales. The company posted growth of 6.5% in overall comparable sales for the quarter, exceeding the 4% expected growth. Comparable store sales grew 4.9% this quarter, while digital comparable sales were up 41%. Following the report's release, Target's shares were up over 5%.

Target Corporation (TGT) shares ended the week at $87.30, up 4.9% for the week.

Red Robin Fails to Deliver

Red Robin Gourmet Burgers, Inc. (RRGB) announced its second quarter earnings on Tuesday, August 21. The casual-dining chain's results were below analysts' predictions.

The company reported revenue of $315.4 million during the quarter, a decline of 0.6% year-over-year from $317.3 million. On August 1, Red Robin's early release of its second quarter revenue came in well below prior estimates of $324 million, causing shares to slip almost 20%.

"As stated in our pre-release, we were disappointed with our second quarter topline sales and declines in dine-in traffic," said Red Robin CEO Denny Marie Post. "We did not execute as well as we know we are capable of, particularly at critical peak demand hours when we must be prepared to serve dine-in guests and our rapidly growing off premise demand."

Red Robin reported a net loss for the quarter of $1.87 million, or $0.14 per share. This was down from net income of $6.93 million, or $0.54 per share during the prior year's quarter.

The company attributes is earnings shortfall to a declining in-store traffic, which fell 0.7% in the quarter. Comparable sales for the quarter were also down 2.6%. In an effort to boost earnings, Red Robin plans to increase staff during peak hours to cut down on wait times for dine in customers and to meet customer demand. In addition, the company also plans to ramp up its delivery and catering options.

Red Robin Gourmet Burgers, Inc. (RRGB) shares ended the week at $40.75, up 3.4% for the week.

Lowe's Reports Earnings

Lowe's Companies, Inc. (LOW) released its latest quarterly earnings report on Wednesday, August 23. The home improvement retailer's quarterly results exceeded Wall Street's expectations, causing shares to jump almost 9% following the report's release.

Revenue for the second quarter reached $20.9 billion. This is up from revenue of $19.5 billion reported during the same quarter last year and is above the $20.8 billion in revenue that analysts predicted.

"We are committed to driving even stronger performance in the future by sharpening our focus on retail fundamentals and by limiting any projects and initiatives that take us away from our core mission of being a great omni-channel home improvement retailer," said Lowe's President and CEO Marvin R. Ellison. "I would like to thank our associates for their hard work and commitment to the company."

The company reported net income for the quarter of $1.52 billion, or $1.86 per share. This was up from earnings of $1.42 billion, or $1.68 per share during the prior year's quarter.

On Wednesday, Lowe's lowered its sales outlook for the year. The company now expects to earn between $4.50 and $4.60 a share for the year, compared to its prior outlook of $5.40 to $5.50. Analysts were predicting full-year earnings of $5.44 per share. This guidance downgrade reflects the company's closure of 99 Orchard Supply Hardware stores by the end of the year.

Lowe's (LOW) shares ended the week at $106.82, up 9.0% for the week.

The Dow started the week of 8/20 at 25,728 and closed at 25,790 on 8/24. The S&P 500 started the week at 2,854 and closed at 2,875. The NASDAQ started the week at 7,834 and closed at 7,946.

Yields Rise Following Fed Chair Remarks

U.S. Treasury yields rose late in the week in response to Federal Reserve Chair Jerome Powell's comments during the Federal Reserve's annual conference. The conference follows closely on the heels of Wednesday's release of the minutes from the most recent Federal Open Market Committee (FOMC) meeting.

The Federal Reserve's annual Economic Policy Symposium began on Thursday in Jackson Hole, Wyoming. Chairman Powell signaled during his speech on Friday that additional gradual rate hikes are on the table for 2018.

"The economy is strong. Inflation is near our 2% objective and most people who want a job are finding one," said Powell. "My colleagues and I are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labor market and inflation near 2%."

Treasury yields inched up in response. The 10-year Treasury note was at 2.835% during trading on Friday, while the 30-year Treasury note was at 2.988%.

Friday's rise reversed a mid-week dip in yields. On Wednesday, the FOMC released the minutes from its July 31 — August 1 meeting. The minutes indicated trade tension fear could be hindering economic growth.

"The policy challenges are getting more difficult in the next 12 months," said James McCann, senior global economist at Aberdeen Standard Investments. "The trade situation has escalated in recent months, we're carefully watching how the Fed incorporates that into their thinking. If tariff measures push up inflation, and slow growth that's not a straightforward policy conundrum."

The 10-year Treasury note yield closed at 2.83% on 8/24 while the 30-year Treasury bond yield was 2.98%.

Mortgage Rates Drop Again

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 23. The report revealed that mortgage rates continued a downward trend this week.

This week, the 30-year fixed rate mortgage averaged 4.51%, down from last week's average of 4.53%. During this time last year, the 30-year fixed rate mortgage averaged 3.86%.

The 15-year fixed rate mortgage averaged 3.98% this week, down from last week when it averaged 4.01%. Last year at this time, the 15-year fixed rate mortgage averaged 3.16%.

"Backed by very strong consumer spending, the economy is red-hot this month, which is in turn rippling through the financial markets and driving equities higher," said Sam Khater, Chief Economist at Freddie Mac. "Unfortunately, the same cannot be said about the housing market, where it appears sales activity crested in late 2017. Existing-home sales have now stepped back annually for the fifth straight month, and purchase mortgage applications this week were barely above year ago levels."

Based on published national averages, the money market account closed at 1.16% on 8/24. The 1-year CD finished at 2.48%.

Published August 24, 2018

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