【wines from a broad fort worth】1.9 Million Unemployment Claims; Travel Bets Surge
Weekly employment numbers showed that the U.S. labor market continues to deteriorate on Thursday,wines from a broad fort worth but the numbers weren't bad enough to shock Wall Street. These days, numbers that bad are hard to come by.
Although stocks spent the day treading water, they've been on a tear since hitting March lows, and even a recent growth domestic product estimate that forecasts a 53% decline this quarter didn't stop the rally in its tracks.
While the overall market was sideways Thursday, the top two performing sectors, financials and industrials, each rose more than 1% -- implying investors may think the U.S. is already in the early stages of a recovery.
The Dow Jones Industrial Average rose 12 points, or 0.1%, to finish at 26,281.
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About 1.88 million people filed for unemployment benefits last week, more than the 1.8 million claims economists were predicting.
The number of continuing claims, which reflects how many Americans in total are actively collecting on unemployment, edged up to around 21.4 million -- a shocking level considering it was hovering around 1.7 million before the virus hit.
On the brighter side, that number, which as of May 23, is lower than the 24.9 million peak that hit on the week ending on May 9.
ECB steps up stimulus to $1.5 trillion.
The European Central Bank boosted its bond-buying program of roughly $1.5 trillion, as Europe's counterpart to the U.S. Federal Reserve takes a page from the Fed's book, vowing to prop up the bloc's economy with a flood of liquidity.
Investors cheered the move, and the euro rallied, reaching a multimonth high against the dollar.
American Airlines up 41%.
Far and away the highest-flying stock in the S&P 500 was American Airlines (ticker:
AAL
), which soared 41%, a one-day record for the company, on Thursday. The massive gain was driven by comments from the company over the recovery in demand it's seeing.
It expects to see 55% of the capacity in July that it saw in the year-ago period and is planning to reopen 11 of its American Airlines Admirals Clubs on June 22. As recently as April, American's average load factor, or the percentage of capacity utilized by passengers, was a lowly 15%.
United Airlines (
UAL
) and Delta Air Lines (
DAL
) were the second- and third-best performers in the S&P, rising 16.2% and 13.7%, respectively.
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- ·5%, led by a 17% increase in average ticket and a slight decline in traffic. Growth in the quarter reflected the impact of households stocking up on essentials like paper goods and cleaning supplies as the pandemic became a nationwide concern, along with strength in discretionary categories as the quarter came to a close and stimulus dollars and tax refunds were disbursed.
As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.
The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.
The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.
In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.
Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.
As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.
Conclusion
In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.
Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?
Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.
Disclosure: None
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