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Thursday August 13, 2020



Target's Earnings Hit Bullseye

Target Corporation (TGT) released its latest earnings report on Wednesday, August 21. The Minneapolis-based retailer beat Wall Street's expectations in the second quarter and stock in the company surged to an all-time high after the report's release.

Target reported revenue of $18.42 billion for the quarter, up 3.6% from $17.78 billion during the same quarter last year. This exceeded Wall Street's predicted $18.34 billion in revenue.

"By appealing to shoppers through a compelling assortment, a suite of convenience-driven fulfillment options, competitive prices and an enjoyable shopping experience, we're increasing Target's relevancy and deepening the relationship between our guests and our brand," said Target CEO and Chairman Brian Cornell. "Traffic and sales continue to grow while our EPS reached an all-time high, driven by the strength of our team's execution and their focus on delivering for our guests. Because of our outstanding performance in the first half of the year and our confidence moving forward, we are increasing our guidance for full-year earnings per share."

Target posted net earnings of $938 million, or $1.82 per share for the quarter, beating analysts' EPS expectations of $1.62. This was up 17.4% from $799 million, or $1.49 per share at this time last year.

Target's comparable store sales were up 3.4% and it expects to see similar growth during the second half of the year. The company raised its earnings per share guidance for the rest of 2019, noting that it has taken into account new tariffs expected to begin December 1. The new EPS guidance projects a range of $5.90 - $6.20 per share, up from the previously forecast $5.75 - $6.05 per share.

Target Corporation (TGT) shares ended the week at $103.49, up 19.6% for the week.

Home Depot Hedges for Tariffs

The Home Depot, Inc. (HD) reported earnings for the second quarter on Tuesday, August 20. The world's largest home improvement store reported an increase in sales, but lowered its fiscal guidance for the rest of the year.

Revenue came in at $30.84 billion for the quarter. This was a 1.2% increase from revenue of $30.46 billion at this time last year, but slightly below the $30.99 billion that analysts predicted.

"We are encouraged by the momentum we are seeing from our strategic investments and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business," stated Home Depot CEO and Chairman Craig Menear. "That being said, lumber prices have declined significantly compared to last year, which impacts our sales growth. As a result, today we are updating our sales guidance to account primarily for continued lumber price deflation, as well as potential impacts to the U.S. consumer arising from recently announced tariffs."

Home Depot posted net income of $3.48 billion, or $3.17 per share. This compares to net income of $3.51 billion, or $3.06 per share during the same quarter last year.

The Atlanta-based company reported the average customer spent $67.31 per ticket, up from $66.20 this time last year. However, the company lowered its sales guidance due to tariff concerns and a decrease in lumber prices. Approximately 8% of Home Depot's total sales comes from the sale of lumber. Prices of the resource have taken a hit due to bad weather and a decline in the rate of new home building.

The Home Depot, Inc. (HD) shares ended the week at $206.98, up 5.1% for the week.

TJX Companies Reports Solid Earnings

TJX Companies, Inc. (TJX) reported its second quarter earnings on Tuesday, August 20. The off-price retailer which houses stores like TJ Maxx, Marshalls and Home Goods reported increased net revenue and earnings.

The company reported revenue of $9.78 billion for the quarter. This was up 5% from $9.33 billion in revenue posted during last year's second quarter.

"This quarter marks the 20th straight quarter of customer traffic increases at TJX and Marmaxx," said TJX CEO and President Ernie Herrman. "This speaks to the consistency and fundamental strength of our treasure-hunt shopping experience through many types of retail and economic environments."

TJX posted quarterly net income of $759 million, or $0.62 earnings per share. This was up from $740 million in net income, or $0.58 earnings per share at the same time last year.

TJX added 31 stores this quarter bringing their total number of retail outlets up to 4,412. Last year the company saw a 6% increase in comparable store sales, while comparable sales increased 2% for the year, in-line with company projections. TJX affirmed its fiscal guidance for the rest of the year, expecting sales to rise between 2% and 3% as the holiday season approaches.

TJX Companies, Inc. (TJX) shares ended the week at $53.09, up 2.0% for the week.

The Dow started the week at 26,020 and closed at 25,629 on 8/23. The S&P 500 started the week at 2,913 and closed at 2,847. The NASDAQ started the week at 8,006 and closed at 7,752.

Yields Drop as Tariffs Loom and Fed Holds on Lowering Rates

U.S. Treasury yields dropped early Friday morning after China announced the imposition of retaliatory tariffs on U.S. imports. Yields continued to move lower as the Federal Reserve indicated a watch-and-wait stance rather than implementing an immediate rate cut.

The Chinese Finance Ministry announced early Friday morning that it will impose new tariffs on $75 billion of U.S. goods. The tariffs, ranging from 5% to 10%, will begin on September 1 and another batch of tariffs is scheduled to be imposed on December 15.

In its release, the Chinese Finance Ministry stated the tariffs were in response to the imposition of U.S. tariffs, and unilateralism and protectionism. Yields slipped after the Chinese tariff announcement as investors sought the safe-haven of bonds.

"The trade uncertainty and the uncertainty over policy has been with us for a while. This is just a continuation of that, and as you know, that's one of the downside risks to the U.S. economy," said Cleveland Federal Reserve President Loretta Mester when asked about the "tit-for tat" response of China in the trade wars. "We're less exposed than Europe to some of the trade. We're more insulated a bit, but it's certainly been weighing on business sentiment and on some of the investment numbers we've been seeing."

Friday morning, Federal Reserve Chair Jerome Powell delivered a speech in Jackson Hole, Wyoming at the annual Economic Policy Symposium. Powell indicated that there will not be an immediate rate cut, but stated that the Fed "will act as appropriate to sustain the expansion." Yields continued to drop as investors hedged against the possibility of no upcoming rate decreases.

"Because the most important effects of monetary policy are felt with uncertain lags of a year or more, the Committee must attempt to look through what may be passing developments and focus on things that seem likely to affect the outlook over time or that pose a material risk of doing so," said Powell. "But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed."

The 10-year Treasury note yield closed at 1.53% on 8/23, while the 30-year Treasury bond yield was 2.02%.

Mortgage Rates Continue to Fall

Freddie Mac released it latest Primary Mortgage Market Survey on Thursday, August 22. The report showed a decrease in mortgage rates.

This week the 30-year fixed rate mortgage averaged 3.55%, down from last week's average of 3.60%. At this time last year, the 30-year fixed rate mortgage averaged 4.51%.

The 15-year fixed rate mortgage averaged 3.03% this week, down from last week's average of 3.07%. Last year at this time, the 15-year fixed rate mortgage averaged 3.98%.

"The drop in mortgage rates continues to stimulate the real estate market and the economy," said Freddie Mac's Chief Economist Sam Khater. "Home purchase demand is up five percent from a year ago and has noticeably strengthened since the early summer months, while refinances surged to their highest share in three and a half years. Households that refinanced in the second quarter of 2019 will save an average of $1,700 a year, which is equivalent to about $140 each month."

Based on national averages, the money market account closed at 1.22% on 8/23. The one-year CD finished at 2.57%.

Published August 23, 2019
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