Finances

During the past week, Costco Wholesale Corp. (COST) reported its first quarter earnings report. Costco is a membership warehouse club that provides its members with lower prices on brand-name products. The company operates 596 warehouse locations worldwide, including 433 in the United States.

For the quarter, the company reported a profit of $320 million, up from $312 million in the same period a year ago. These earnings equate to $0.73 per share for the quarter, up from $0.71 from Q1-2011. Reports attributed the increase in earnings to higher gasoline prices and a 10% increase in membership fees.

Costco's COO, Richard A. Galanti, stated during the company's earnings report conference call that, "sales for the 12 weeks were up 12.5%, $21.2 billion this year in the first quarter versus $18.8 billion a year earlier." Despite the increase in sales, this increase was outpaced by the company's first-quarter merchandise costs, costs that increased by 13% from the same quarter last year. In a suggestion the company may not pass the difference in costs on to consumers, Galanti stated, "We did choose to be a little more aggressive on pricing heading into the Christmas season. We see what's going on in the economy."

Despite a 10% increase in membership fees (the first increase in five years), Costco reported that it had increased its total membership base to 64.9 million (up from 64 million memberships at the onset of the quarter). The increases in membership were attributed to 500,000 individual members together with another 400,000 "spouse card" memberships.

Stock in Costco Wholesale Corp. (COST) closed the week at $84.61.

Discount Auto Parts Retailers: AutoZone and Pep Boys Report Earnings

This week, competitors in the discount auto parts industry reported their quarterly earnings. The Memphis, TN-based AutoZone, Inc. (AZO) reported its first-quarter earnings for 2012 while the Philadelphia, Pa-based Pep Boys (PBY) reported its third-quarter and year-to-date earnings.

AutoZone reported net quarterly sales of $1.9 billion, an increase of 7.4% over the same period last year. The company also reported net income for the quarter of $191.1 million, an increase of $19.0 million or 11.1% during the first quarter of the previous year. In addition, AutoZone reported earnings per share increased 24% to $4.68 per share.

AutoZone's Chairman, President and CEO, Bill Rhodes, responded to the report stating "After three years of impressive financial performance, we are pleased to begin fiscal 2012 with strong quarterly results. This past quarter marked our twelfth consecutive quarter of 20% growth in earnings per share and our twenty-first consecutive quarter of double digit growth." Rhodes noted that the company remained focused on a disciplined approach of growing earnings and the company's use of capital. AutoZone operates 4,832 stores in North America.

Pep Boys reported quarterly sales of $522.2 million, an increase of $25.9 million or 5.2% over the same period the year prior. Pep Boys third quarter earnings increased 22%, from $5.7 million in the comparable quarter last year to $7.0 million. Third-quarter earnings per share for Pep Boys rose to $0.13 from $0.11.

President & CEO of Pep Boys, Mike Odell responded to his company's report, stating, "Our service business started to rebound during the third quarter." Odell noted that gas prices and pent-up demand had driven strong tire sales near the end of the quarter. Odell, also stated that while Pep Boys "retail business remained soft in a challenging environment for consumers" the company's service business results "resulted in our 11th quarter of improved profitability."

At week's end, AutoZone (AZO) stock closed at $330.24 and Pep Boys (PBY) closed at $11.10.

Home Builder Toll Brothers Report Earnings

Toll Brother's Inc. (TOL), one of the nation's largest residential builders, announced its earnings, revenues and contracts for the fourth quarter and end of the fiscal year. The company is currently building homes in 20 different states across the U.S.

For its fourth quarter, Toll reported a dramatic drop in net income from the same period last year. For the quarter just ended, the company reported net income of $15.0 million (or $0.09 per share) compared to $50.5 million (or $0.30 per share) in the same period last year. The difference is attributed to a change in the company's taxes with Toll incurring tax expenses of $0.2 million compared to net tax benefits of $59.9 million in Q4 2010.

Doulgas C. Yearley, Jr., Toll Brothers' CEO stated: "Against a backdrop of U.S. government gridlock and persistently high unemployment rates at home, political and economic crises around the globe, and dramatic volatility in the capital markets, we produced our second consecutive quarter of pre-tax profitability and our sixth consecutive quarter of pre-tax, pre-impairment profitability."

Yearley projected that the company's balance sheet would give the company financial flexibility to invest for the future. The company's CFO, Martin P. Connor, stated, "We believe that earnings growth can come from increasing our community count, but that significant margin improvement will only be achieved once we see the return of some urgency to the market, which should lead to increased sales prices and paces."

For the quarter-just-ended, Toll delivered 757 unites to consumers at a cost of $427.8 million. For the end of its fiscal year, the company reported net income of $39.8 million compared to a loss of $3.4 million last year

Shares of Toll Brothers, Inc. (TOL) closed the week at $20.72

The Dow started the week at 12,019 and closed at 12,184. The S&P 500 started the week at 1,244 and ended at 1,255. The NASDAQ started the week at 2,627 and finished at 2,646.

As consumer confidence grew more than forecasts and leaders in Europe agreed to tighten budget rules, Treasuries fell for the first time in three days. European leaders also agreed to accelerate the pace for the rollout of a bailout fund.

Adrian Miller, a fixed-income strategist in New York, stated, "The consumer confidence data was very strong, helping the sentiment in the market." He added that "there is positive sentiment out of the euro zone, and that is weighing on Treasuries."

In Europe, a German-supported proposal to force bondholders to bear losses in any financial rescue was dropped from the agreement European leaders reached in Brussels this week. This agreement also provided that Europe would add 200 billion euros ($267 billion) to a fund to contain any turmoil associated with sovereign debt and will lead to tighter rules to curb future debt.

The agreement was seen as having mixed results. Sean Murphy, a trader of Treasuries, commented that the agreement was "a step in the right direction, but it wasn't enough."

The 10-year Treasury note yield finished at 2.065% and the 30-year Treasury note yield finished at 3.11%.

Freddie Mac released it Primary Mortgage Market Survey detailing that mortgage rates dipped slightly, remaining near historic lows. The 30-year fixed rate mortgage (FRM) averaged 3.99%, down from last week's average of 4.00%. For the sixth week in a row, the 30-year rate has averaged at or below 4.00%. Last year at this time, the FRM averaged 4.61%.

The 15-year FRM also moved downward this week after remaining unchanged for the previous two weeks. The 15-year FRM averaged 3.27%, down from 3.30% last week and from 3.96% one year ago.

"Thirty-year fixed-rate loans have declined 0.62 percentage points from a year ago, and median sales prices on existing homes are off 4.7% in the year ending with October," said Frank Nothaft, Freddie Mac Vice President and Chief Economist. Nothaft also noted that The National Housing Affordability Index had reached "another all-time record high in October for the sixth time in 2011," and that low monthly principal and mortgage interest payments helped increase conventional mortgage applications to the most in nearly a year.

The National Housing Affordability Index is released by the National Association of Realtors®. According to the index, monthly principal and interest payments accounted for 12.6% of median family incomes in the previous month.

The money market fund finished this week at 0.51%. The 1-year CD finished at 0.70%.