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Wednesday January 17, 2018



Sonic Seeks to Drive Up Sales

Sonic Corp. (SONC) announced its first quarter results on Wednesday, January 4. The drive-in restaurant chain posted another drop in sales for the quarter.

The company's revenue fell 11% during the quarter to $129.6 million. This was the second consecutive quarter of declining sales and came in below a $130.5 million estimate.

"Our first quarter results reflect a sluggish consumer landscape and exceptionally strong prior-year performance," said Sonic Corp. CEO Cliff Hudson. "Although the business faces even tougher sales and margin hurdles in the second fiscal quarter, we remain optimistic in our ability to show sequential same-store sales and profitability improvement beginning in the second half of fiscal 2017."

Sonic reported net income rose 5% to $13.1 million during the quarter. This was $0.28 on a per share basis, which beat the $0.21 per share estimate.

Along with its second consecutive quarter of declining sales, Sonic also reported that same-store sales declined 2%. Despite this, it was still better than analysts' expectations of a 2.4% decline. Even with Sonic's recent woes, CEO Cliff Hudson expects sales and margins to improve in the second half of the year. Following the earnings release, Sonic's shares fell 1% in after-hours trading.

Sonic Corp. (SONC) shares ended the week at $27.38, up 2.1% for the week.

Ruby Tuesday's Woes Continue

Ruby Tuesday, Inc. (RT) announced its second quarter results on Thursday, January 5. The casual dining chain delivered another quarter of declining revenue and losses.

The company reported that revenue fell 17.7% to $214.7 million during the quarter. Same-store restaurant sales declined 4.1% in the quarter compared to a 0.8% drop during the same period last year.

"While the results of our fiscal second quarter were disappointing," said Ruby Tuesday interim President and CEO Lane Cardwell, "I am excited about the strategic changes and the new product rollouts that began with the introduction of our Fresh New Menu in November and will continue in January with the national launch of our Fresh New Garden Bar."

Ruby Tuesday recorded a net loss of $38 million or $0.63 per share during the quarter. This was much worse than the $15.8 million or $0.26 per share loss during the same period last year.

Ruby Tuesday has been struggling in recent years. Over the past year alone, the dining chain closed 109 restaurants. CEO Lane Cardwell took over the post in September following the resignation of James J. Buettgen. In an effort to turn the company's fortunes around, Ruby Tuesday has redesigned its menu, reducing the number of items by 30%.

Ruby Tuesday, Inc. (RT) shares ended the week at $2.66, down 17.6% for the week.

PriceSmart's Profit Tops Estimates

PriceSmart Inc. (PSMT) announced its first quarter results on Thursday, January 5. The membership warehouse operator reported revenue that fell below Wall Street estimates.

The company reported that revenue rose 3.9% in the quarter to $739.6 million. Analysts expected revenue of $743.3 million.

"[This quarter's] results reflect an overall improvement in the financial results of Colombia," said PriceSmart President and CEO Jose Luis Laparte in a conference call. "The Colombia result alone contributed 18 basis points to the overall company's gross profit margin increase of 45 basis points."

PriceSmart reported earnings per share of $0.82 during the quarter. This narrowly topped estimates of $0.81 per share.

The company also reported that club sales increased 3.7% during the quarter, though that growth was offset by a 4% increase in operating expenses. Currently, PriceSmart operates 39 membership warehouse clubs, all of which are located in Latin America and the Caribbean. Following the earnings release, shares fell 1.4% in after-hours trading.

PriceSmart Inc. (PSMT) shares ended the week at $87.90, down 4.7% for the week.

The Dow started the week of 1/2 at 19,873 and closed at 19,964 on 1/6. The S&P 500 started the week at 2,252 and closed at 2,277. The NASDAQ started the week at 5,426 and closed at 5,521.

Treasury Yields Continue Decline

Treasury yields rose slightly on Friday, January 6 after the latest U.S. jobs report showed strong wage growth during December. Despite Friday's rise, yields were lower than on Monday, continuing a gradual slide that began in mid-December.

The jobs report showed that 156,000 jobs were added last month, lower than an expected 183,000 increase. Earnings for private sector workers rose 10 cents or 0.39%, topping expectations.

"The focal point of the report should be the story on wages," said Anthony Karydakis, chief economic strategist at Miller Tabak. "[T]he economy left to its own devices right now suggests that the Fed has good reason to take a close look at the situation in terms of the need for another [interest rate hike]."

During early Friday trading, the 10-year note yield had risen to 2.41% compared to a closing Thursday yield of 2.37% and a yield to start the week of 2.45%. Yields move inversely to prices, so as they fall, prices rise.

Until a few weeks ago, Treasury yields were experiencing a post-election boom, having risen from 1.87% prior to the election to a peak of 2.60% on December 16. Since then, investor optimism regarding potential fiscal and regulator policies of President-elect Trump has waned, resulting in a renewed interest in bonds.

While analysts and investors expect the Federal Reserve to continue raising interest rates in 2017, uncertainty remains regarding the frequency and timing of such increases. Fed-fund futures, used by traders to place bets on Federal Reserve policy, show a 55% likelihood of two rate hikes by the end of November, though there is only a 39% expectation of a rate increase by the Fed's May meeting.

The 10-year Treasury note yield finished the week of 1/2 at 2.42%, while the 30-year Treasury note yield was 3.00%.

Mortgage Rates Fall to Begin 2017

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 5. The report showed mortgage rates starting 2017 lower than at the end of 2016.

The 30-year fixed rate mortgage averaged 4.20% this week. This is down from 4.32% last week. During the same time last year, the 30-year fixed rate mortgage averaged 3.97%

This week the 15-year fixed rate mortgage averaged 3.44%, down from 3.55% last week. At this time last year, the 15-year fixed rate mortgage averaged 3.26%.

"The 30-year mortgage rate fell this week for the first time since the presidential election, dropping 12 basis points to 4.20%," said Sean Becketti, Chief Economist at Freddie Mac. "This marks the first time since 2014 that mortgage rates opened the year above 4%. Despite this week's breather, the 66-basis point increase in the mortgage rate since November 3 is taking its toll—the MBA's refinance index plunged 22% this week."

Based on published national averages, the money market account finished the week of 1/2 at 0.57%. The 1-year CD finished at 1.19%.

Published January 6, 2017
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