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Wednesday December 13, 2017



La-Z-Boy's Earnings Exceed Expectations

La-Z-Boy, Inc. (LZB) announced its second quarter results on Wednesday, November 30. Despite reporting results that were lower than the year-ago period, the furniture manufacturer still managed to exceed Wall Street estimates.

The company reported that sales decreased 1.6% to $376.6 million in the quarter. Still, sales were $0.6 million higher than expected.

"While the consumer environment experienced weaker demand during the summer and early fall, macroeconomic indicators that generally bode well for discretionary spending and home furnishings remain positive," said La-Z-Boy Chairman, President and CEO Kurt L. Darrow. "As we enter the back half of fiscal 2017, the company is well positioned in the marketplace with our brand strength, product offering, speed-to-market advantage and vast distribution network."

La-Z-Boy earned $0.42 per diluted share in the quarter. This was better than the expected $0.38 per share estimate.

The Michigan-based company said that while sales volume decreased during the quarter, customers' average purchases were larger in the quarter, which helped the company beat Wall Street estimates. The company also announced that it will be raising its quarterly dividend from $0.10 to $0.11. Following the earnings announcement, La-Z-Boy's shares were up 4%.

La-Z-Boy, Inc. (LZB) shares ended the week at $29.80, up 7% for the week.

Deflation Continues to Hurt Kroger

The Kroger Co. (KR) announced its third quarter results on Thursday, December 1. The nation's largest grocery chain reported results largely in line with expectations, though food cost deflation continues to hamper growth.

The company reported that sales increased 5.9% in the quarter to $26.6 billion. This was only slightly ahead of an estimated $26.3 billion.

"Deflation persisted as we expected during the quarter," said Kroger Chairman and CEO Rodney McMullen. "We are firmly focused on our long-term strategy of improving our connection with customers and associates, and continue working on process changes to lower costs."

Kroger reported earnings of $391 million or $0.41 per diluted share. The per-share earnings figure was two cents lower than the same period last year, though it matched estimates.

As Kroger's CEO McMullen mentioned, the biggest challenge the grocery chain has faced in 2016 is food cost deflation. According to the USDA, 2016 could be the first time since 1967 that retail food prices show deflation. In a conference call, McMullen said he believes changes the company is making during this challenging time will lead to greater growth and profitability once deflation has ended. For now, the company decided to lower its earnings guidance for the rest of the year, expecting earnings per share between $2.03 and $2.08 for the year.

The Kroger Co. (KR) shares ended the week at $33.30, down 2% for the week.

Back-to-School Shopping Helps Zumiez

Zumiez, Inc. (ZUMZ) reported quarterly earnings on Thursday, December 1. The specialty clothing store easily surpassed estimates for its top and bottom line numbers.

The company reported that net sales for the quarter increased 8.4% to $221.4 million. This beat estimates of $220.4 million.

"Our monthly comparable sales trend turned positive in September driven by a solid back-to-school selling season and continued to accelerate as the third quarter progressed," said Zumiez CEO Rick Brooks. "Looking ahead, we believe that our current merchandise offering has us positioned to continue with strong results during the important holiday season."

Zumiez earned $0.43 per share during the quarter. This topped the $0.36 per share estimate.

Zumiez was able to beat quarterly estimates because of a 4% increase in comparable store sales during the quarter. The company believes a strong back-to-school selling season in September helped contribute to the growth. Zumiez, which offers clothing and gear catered to skaters, snowboarders and surfers, expects sales in the fourth quarter to be in a range of $258 million to $263 million and earnings per share of $0.60 to $0.66.

Zumiez, Inc. (ZUMZ) shares ended the week at $24.70, down 2% for the week.

The Dow started the week of 11/28 at 19,122 and closed at 19,170 on 12/2. The S&P 500 started the week at 2,210 and closed at 2,192. The NASDAQ started the week at 5,388 and closed at 5,256.

Treasury Yields Fall Ahead of Italian Vote

Treasury yields on Friday, December 2 fell from their 17-month high ahead of Italy's Sunday referendum aiming to reform the country's constitution and government structure. A mixed jobs report for November also led some investors to shift capital into government bonds, driving prices upwards.

Italy's referendum is spearheaded by Prime Minister Matteo Renzi as he seeks to reduce the power and size of the country's senate and the level of control regional politicians have. Mr. Renzi believes the reforms would allow legislation to be passed quicker and thus enable Italy to pursue reforms necessary to boost the country's economy and make it more competitive. He has threatened to resign if the referendum fails.

As with the United Kingdom's Brexit vote earlier this year, investors and traders believe the Italian referendum could lead to a run on Italian banks, disrupt European markets and therefore further destabilize the European Union. Because of these fears, investors have flocked to the safety of Treasury bonds, driving prices up and yields down.

During early Friday trading, the benchmark 10-year note yield fell to 2.42% from a closing yield of 2.44% on Thursday, which was the highest yield since June 2015. Treasury prices rise as yields fall.

Friday also saw the release of the November jobs report, which showed the U.S. adding 178,000 jobs during the month, a number in line with expectations. The U.S. unemployment rate also fell to a nine-year low of 4.6%, though wages declined 0.1%, the first decrease in months.

With a positive jobs report, expectations are high that the Federal Reserve will raise interest rates at its upcoming December 13-14 meeting. "The fact that employment growth continues to be robust is going to give the Fed confidence this month and then looking to further tighten policy next year," said Mark Cabana, head of U.S. short rates strategy at Bank of America Merrill Lynch.

The 10-year Treasury note yield finished the week of 11/28 at 2.39%, while the 30-year Treasury note yield was 3.06%.

Mortgage Rates Rise Hits Fifth Consecutive Week

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, December 1. Mortgage rates increased for the fifth consecutive week.

The 30-year fixed rate mortgage averaged 4.08% this week. This is up from 4.03% last week. During the same time last year, the 30-year fixed rate mortgage averaged 3.93%

This week the 15-year fixed rate mortgage averaged 3.34%, up from 3.25% last week. At this time last year, the 15-year fixed rate mortgage averaged 3.16%.

"The 10-year Treasury yield remained flat despite an upward revision to third quarter GDP," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year mortgage rate rose 5 basis points to 4.08%, rising a total of 51 basis points in three short weeks. With mortgage rates at the highest we've seen this year, borrowers are now backpedaling on refinancing opportunities. The latest Weekly Applications Survey results from the Mortgage Bankers Association show refinance activity down 16% week over week."

Based on published national averages, the money market account finished the week of 11/28 at 0.55%. The 1-year CD finished at 1.18%.

Published December 2, 2016
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