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【becoming the dark heros daughter】Dollar Slumps to Multi-year Lows; EUR/USD tracks 1.20
l 0 b 6 a e b r t 5 d l i 2 n y x i 1 o f 8 2 h 62024-09-29 12:24:11【Exploration】9人已围观
简介By Peter NurseInvesting.com - The dollar slumped in early European trade Tuesday, falling to multi-y becoming the dark heros daughter
By Peter Nurse
Investing.com - Thebecoming the dark heros daughter dollar slumped in early European trade Tuesday, falling to multi-year lows against many currencies, with traders viewing the Federal Reserve’s new stance on inflation as a valid reason to sell the greenback.
At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 91.860, having earlier reached a two-year low of 91.773. GBP/USD was up 0.3% at 1.3412, near its strongest level in almost a year, while EUR/USD was up 0.4% at 1.1981, at its highest since May 2018.
The Fed's historic switch last week to focusing more on average inflation and higher employment means it has leeway to keep benchmark rates lower for longer, encouraging those with a negative view on the dollar to sell the currency.
“The bear trend is under way,” said analyst Petr Krpata at ING, in a research note, “with the narrative of negative U.S. real rates for longer making the dollar fairly unattractive over upcoming months and quarters.”
While EUR/USD has posted strong gains so far Tuesday, the pair is struggling to break through the 1.20 level, seen as a key resistance point. Ahead lies important Eurozone data, including
manufacturing PMI
releases,
German unemployment figures
and
inflation numbers
, with the potential for a rebalancing should they disappoint.
That said, Goldman Sachs (NYSE:GS) expects a break through the 1.20 level to just be a matter of time.
"Our markets team expects the euro to strengthen further from here - to 1.25 against the dollar in twelve months and roughly 2.5% on a trade-weighted basis—as we expect the euro area economy to outperform other countries and see the euro as under-owned in international portfolios and under-valued in our fair value models," said Sven Jari Stehn, chief European economist at Goldman Sachs, in a research note late last week.
"Euro appreciation primarily reflects an improvement of the economic outlook and constructive institutional change in the euro area’s fiscal architecture. The stronger euro is, therefore, unlikely to be a significant concern for the ECB at this stage."
Elsewhere, AUD/USD gained 0.3% to 0.7399, near a two-year high, after Australia’s central bank left both the cash rate and three-year yield target unchanged at 0.25%, as expected.
Additionally, USD/CNY dropped 0.5% to 6.8161, the strongest level since May 2019, after China’s
Caixin manufacturing
Purchasing Managers’ Index for August increased to 53.1, marking the sector's fourth consecutive month of growth and the fastest rate of expansion since January 2011.
Story continues
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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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