Market Snapshot
| Dow | 44139.64 | -487.95 | (-1.09%) | | Nasdaq | 19936.20 | -120.05 | (-0.60%) | | SP 500 | 6113.12 | -31.03 | (-0.51%) | | 10-yr Note | -3/32 | 4.504 |
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| | NYSE | Adv 1096 | Dec 1637 | Vol 482 mln | | Nasdaq | Adv 1545 | Dec 2804 | Vol 6.2 bln |
Industry Watch
| Strong: Health Care, Energy |
| | Weak: Consumer Discretionary, Financials, Consumer Staples, Communication Services, Industrials |
Moving the Market
-- Consolidation/profit-taking after another record finish for S&P 500
-- Wait-and-see if the buy-the-dip mentality will prevail again
-- Mixed action in mega caps
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Treasuries settle mixed; Stocks try to rise in front of close
20-Feb-25 15:30 ET
Dow -487.95 at 44139.64, Nasdaq -120.05 at 19936.20, S&P -31.03 at 6113.12
[BRIEFING.COM] The major indices are still trying to inch higher ahead of the close.
Separately, the 10-yr yield settled four basis points lower at 4.50% and the 2-yr yield was unchanged at 4.27%.
Looking ahead, Friday's economic lineup includes the flash February S&P Global U.S. Manufacturing PMI and flash February S&P Global U.S. Services PMI readings at 9:45 ET, and the January Existing Home Sales and final February University of Michigan Consumer Sentiment survey at 10:00 ET.
NVDA, other mega caps boost indices
20-Feb-25 15:05 ET
Dow -513.26 at 44114.33, Nasdaq -112.50 at 19943.75, S&P -31.48 at 6112.67
[BRIEFING.COM] The S&P 500 (-0.5%) and Nasdaq Composite (-0.6%) are slowly moving higher through the afternoon trade.
Yesterday's session started slow and ended with a record finish for the S&P 500. A positive finish is not out of the question today, either. Market participants have shown a strong inclination to buy on any weakness of late.
Some mega caps that traded lower in the early going have moved into positive territory. NVIDIA (NVDA 140.30, +1.06, +0.8%) is a standout in that respect after trading down as much as 1.8%.
Limited losses in downside market
20-Feb-25 14:30 ET
Dow -565.23 at 44062.36, Nasdaq -125.27 at 19930.98, S&P -37.71 at 6106.44
[BRIEFING.COM] The market continues to trade lower, but the S&P 500 is less than 40 points below its prior close.
Losses are fairly limited in many stocks. The Invesco S&P 500 Equal Weight ETF (RSP) trades 0.5% lower.
Some companies that report earnings this afternoon trade lower including Booking Holdings (BKNG 4991.16, -119.44, -2.3%), Live Nation (LYV 151.79, -1.88, -1.2%), and Rivian Automotive (RIVN 13.54, -0.38, -2.8%).
DJIA is worst in show
20-Feb-25 14:00 ET
Dow -624.08 at 44003.51, Nasdaq -158.23 at 19898.02, S&P -44.69 at 6099.46
[BRIEFING.COM] The indices are continuing to trade in a lateral channel close to their lows for the session. The Dow Jones Industrial Average (-1.4%) is the worst in show today in terms of the percentage decline.
Notwithstanding today's loss, the Dow Jones Industrial Average remains positive for the year (+3.5%), but it has now slipped below the market-cap weighted S&P 500 (+3.7%) and the equal-weighted S&P 500 (+3.7%) in year-to-date performance.
Walmart (WMT 97.09, -6.91, -6.6%) is the biggest percentage loser in the Dow today, but Goldman Sachs (GS 632.22, -35.93, -5.4%) and JPMorgan Chase (JPM 266.89, -12.36, -4.5%) are the biggest point losers.
The latter two stocks are pacing a poor showing from the financials sector (-2.0%), as today's selling interest has a footprint of some momentum trade unwinding. Entering today, the S&P 500 financial sector was up 7.6% for the year, making it the best-performing sector in 2025. That distinction now belongs to the energy sector (+7.2%).
Battle line drawn at 6,100 for S&P 500
20-Feb-25 13:30 ET
Dow -658.79 at 43968.80, Nasdaq -160.20 at 19896.05, S&P -49.25 at 6094.90
[BRIEFING.COM] Stock prices in general are weak today and there seems to be a battle line for the decline being drawn at the 6,100 level for the S&P 500.
Opening selling pressure dropped the S&P 500 below 6,100 and it has been tracking sideways since about 10:00 a.m. ET, carving a path between 6,084 and 6,110. Thus far, the compulsion to buy the dip has been suppressed by concerns that recent froth in the market could be a warning sign of a near-term top.
In any case, the stock market has struggled today from a lack of concerted leadership and disappointing fiscal Q1 and full-year guidance from Walmart (WMT 97.32, -6.68, -6.4%) that has raised concerns about the market achieving the strong earnings growth this year that is embedded in its premium valuation.
Today's selling, by and large, has been orderly, yet the broad-based nature of the pullback has fostered a bid to hedge against the possibility of further downside, evidenced by the uptick in the CBOE Volatility (16.02, +0.75, +4.9%).
Freshpet delivers a stale Q4 report; projects FY25 sales growth below its previous target (FRPT)
After spoiling investors with consistently impressive earnings reports last year, Freshpet (FRPT -20%) came up stale in Q4, missing earnings and sales estimates while projecting mild growth in FY25. The fresh pet food maker, often seen in retail locations with its branded refrigerator network, expects FY25 revenue growth of approximately +21-24% yr/yr, below the +25% rate it previously outlined it would average through FY27.
Management commented that due to its growth rate through FY24, it is not necessary for it to grow 25% over the next few years to deliver on its $1.8 bln sales target in FY27. Additionally, raising its FY27 revenue goal, thereby maintaining a +25% growth rate, would compromise the company's positive free cash flow prediction in FY26 since it would require deploying more existing technology before a potential breakthrough new technology that could enhance margins, quality, and capital efficiency.
While an understandable decision, it is not dousing today's heavy selling pressure. FRPT shares have now plunged by over 30% since the start of the month, erasing the past nine months of gains.
- FRPT was coming off a fantastic past three quarters, delivering outsized growth driven by healthy volume gains and margin expansion. FRPT does not engage in trade promotions or discounting, making its gains over the past few quarters entirely the result of increasing household penetration and buy-rate. In Q4, this hot streak came to an end. FRPT posted sales of $262.7 mln, a 22% improvement yr/yr, falling short of consensus.
- Volume growth still underpinned FRPT's top-line gains in Q4, supported by the company's advertising investment to generate new households. However, the investment did not spur as much new household penetration and conversion into meaningful sales. Management mentioned that these investments can take time but are seeing early signs of conversion beginning to materialize. FRPT believes it is ahead of the pace needed to meet its 20 mln household goal by 2027.
- Meanwhile, adjusted gross margins were still sound, spiking by 700 bps yr/yr to 48.1%, helped largely by the company's efforts to build inventory in October and November to take production lines down for upgrades at year's end. As a result, EPS expanded by 16% yr/yr to $0.36. However, this was still short of analyst estimates. Still, FRPT raised its FY27 margin targets, expecting 48% margins versus its previous prediction of 45%.
- From a retail perspective, FRPT boosted its store count by 1,300 during FY24, bringing its total to over 28,000 stores, 22% of which contain more than one fridge. FRPT expects the bulk of its growth over the long term to stem from the addition of second and third fridges in the highest volume stores rather than branching out to new stores.
FRPT stressed that long-term trends remain robust. The company's current U.S. pet food market share stands at under 4%, providing ample runway for further growth, especially given its leadership position in the fresh/frozen category. However, following such a remarkable run in 2024, as shares appreciated by around +70%, reaffirmed FY27 sales guidance was a letdown, taking the wind out of FRPT's sails.
Shake Shack sizzling today as restaurant development plans reignite growth prospects (SHAK)
Shake Shack (SHAK) is cooking today after the better burger restaurant chain reported Q4 results that were in-line with its guidance from January 13 and issued guidance for 1Q25 and FY25. As telegraphed last month, it was a solid quarter for SHAK, highlighted by healthy Same-Shack sales growth of +4.3% and further margin improvements with restaurant-level profit margin expanding by 290 bps yr/yr to 22.7%. However, since the Q4 results were already a known commodity, its SHAK's outlook -- particularly revolving around restaurant development and margins -- that's the real catalyst for the stock.
- The company's Q1 guidance looks rather underwhelming as both its revenue and Same-Shack growth forecasts of $326.5 mln and +2.5% to +3.5%, respectively, fell short of expectations. However, it appears that the company is taking a conservative approach here given that Same-Shack sales for January were +3.7%, despite facing a headwind of about 200 bps from weather and the Los Angeles wildfires. Price increases and strong demand for its limited-time Black Truffle Menu are driving sales higher.
- We believe that SHAK's ambitious restaurant development plans are taking center stage, reigniting excitement about its growth potential. When the company went public back in 2015, it operated 31 company-owned restaurants and targeted 450 company-owned stores over time. Today, SHAK has approximately 330 company-owned restaurants in the U.S. and in the Q4 Shareholder Letter it stated that it's now targeting its company-owned footprint to be at least 1,500 stores.
- Not only is SHAK ramping up its development plans, but it also believes that it can continue to drive build costs lower as it uses new store prototypes that allow for quicker openings at lower costs. In FY25, the company expects to open 80-85 new restaurants -- including company-owned and licensed -- at an average net build cost of approximately $2.2 mln per unit. For context, net build costs in 2023 and 2024 were about $2.6 mln and $2.4 mln, respectively.
- Another key component of SHAK's strategy is to improve profitability through stronger restaurant-level profit margins. The company is achieving this through operational improvements in labor, throughput gains, and the rollout of kiosks. For the first time since the pandemic, SHAK surpassed its comparable quarter 2019 restaurant-level profit margins, which came in at 22.7% for Q4. For FY25, SHAK reaffirmed its restaurant-level profit margin of approximately 22.0%, as well as its forecast for revenue of $1.45-$1.48 bln and Same-Shack sales of approximately +3.0%.
Overall, the Q4 headlines don't look overly impressive given that analysts' estimates already reflected SHAK's updated guidance from last month. Furthermore, the Q1 guidance came up short of expectations, making the stock's charge higher seem surprising. However, SHAK's ambitious restaurant development plans are transforming it into a compelling growth story and putting the name back on growth investors' radars.
Walmart heads lower on weak guidance, but comps remain healthy; investors book profits (WMT)
Walmart (WMT -7%) is heading lower after reporting Q4 (Jan) results this morning, but it regained some ground during the call. The retail giant beat on EPS and revenue, but just barely on both measures. This was its smallest EPS upside since Q3 of last year. More troubling was the Q1 (Apr) and FY26 EPS guidance, both of which were well below analyst expectations. It also guided to Q1 and FY25 CC revenue growth of +3-4% for both periods whereas FY25 CC revenue growth was +5.6%. WMT also increased its quarterly dividend by 13% to $0.235/share.
- Its Walmart US segment performed well with comps (ex fuel) up +4.6%, down a bit from +5.3% in Q3, but up from +4.2% in Q2 and +3.8% in Q1. Comp growth was led by transaction counts and unit volumes as well as share gains primarily from upper-income households. It saw broad-based sales momentum across merchandise categories and strong seasonal sales despite a compressed holiday shopping season.
- Grocery remains a standout category for this segment, with mid-single digit growth. It also saw mid-teens growth in health and wellness due largely to GLP-1 sales, which contributed about a point to the segment comp. Like-for-like pricing in general merchandise and consumables was deflationary, while food remained inflationary in the low single digits. WMT is seeing higher engagement across income cohorts with upper income households continuing to account for the majority of share gains.
- Sam's Club US comps (ex fuel) were even more impressive, coming in at +6.8%, down slightly from +7.0% in Q3, but up from +5.2% in Q2 and +4.4% in Q1. WMT cited strong growth across club and digital channels, led by food and health & wellness categories. It saw share gains in grocery and general merchandise categories, including apparel and consumer electronics. Membership and renewal rates at Sam's Club are at all-time highs.
- The company does not provide comps for its Walmart International segment, but sales declined 0.7% to $32.2 bln. The silver lining was that it grew +5.7% CC. Growth in CC sales was led by China, Walmex, and Canada with transaction counts and unit volumes up across markets. Growth was impacted by the timing of Flipkart's The Big Billion Days event, which pulled sales into Q3 from Q4.
- WMT touched on why guidance was weak on the call. Its outlook assumes a relatively stable macro environment but acknowledges that there are still uncertainties related to consumer behavior and global economic and geopolitical conditions. Volatility and currency rates had a meaningful impact on last year's results. The Q1 EPS guidance of $0.57-0.58 includes a FX headwind of $0.02 per share and a higher effective tax rate vs last year.
Overall, Walmart has been on a glide path upward over the past year with several impressive results and comps, partly fueled by its relatively high exposure to less discretionary items like groceries. However, this guidance spooked investors and has prompted some investors to book some of the significant profits they have gained in recent months. In fairness, a good chunk of the guidance shortfall seems to us like WMT is just being conservative. They cited uncertainties, which is a bit vague and did not cite definitive changes in consumer behavior. The +4.6% Walmart US comp and +6.8% Sam's Club comp gave us some reassurance. Also, FX headwinds are part of the weak guidance, which is out of WMT's control.
Wayfair heads lower today as unfavorable housing market trends remain a drag in Q4 (W)
Wayfair (W -2%) fades an initial move higher today following a sizeable Q4 earnings miss, a modest decline in total active customers, and stagnant orders per customer. The e-commerce home furnishings retailer posted its widest net loss since 4Q21, returning to the red after delivering back-to-back quarters of net gains. Active customers contracted yr/yr for the second straight quarter, worsening to a 4.5% drop versus a 2.3% decline in Q3. Meanwhile, orders were essentially flat at 1.85 per active customer. As a result, revenue was virtually flat, ticking 0.2% higher yr/yr to $3.12 bln.
These trends reflect an unfavorable housing market as mortgage rates remain elevated alongside stubborn inflationary pressures. Management is not trying to call out a bottom in the current cycle either; instead, it is focusing on how it can benefit now and once the cycle turns around.
- Capturing market share has been central to Wayfair's strategy during the bearish cycle. Last month, the company exited the German market, citing headwinds surrounding establishing a presence and taking share. With the exit, Wayfair can shift its attention to fortifying its footprint in the U.S., U.K., Canada, and Ireland. The company has done this through marketing, merchandising, supply chain, and technology. In Q4, management mentioned that it continued to gain market share even though the home furnishing category was still under pressure.
- Wayfair's departure from Germany may have served as an early sign of more exits from overseas markets in the future. Demand in Europe has struggled versus the U.S. lately, illuminated by a 5.7% drop in International net revs in Q4.
- While EPS disappointed, Wayfair is still firmly on its path to sustainable profitability, generating another quarter of 3% adjusted EBITDA margins, marking its third consecutive quarter of positive adjusted EBITDA. Wayfair reiterated its focus on driving adjusted EBITDA above CapEx, anticipating another year of growth in adjusted EBITDA dollars in 2025. The company expects to achieve this milestone through cost-cutting, furthering its progress over the past few years.
- Nevertheless, in the near term, housing market trends remain gloomy. Meanwhile, inflationary pressures continue to erode discretionary demand. Wayfair stated that revenue QTD in Q1 is trending just below flat growth yr/yr and expects the quarter to end similarly. It is worth noting that the German exit is clipping roughly 100 bps off growth in Q1. Still, for perspective on the prolonged unfavorable demand trends, Wayfair has not posted sales growth above 4% since 2020. For adjusted EBITDA margins, Wayfair projects around 2-4% in Q1.
Wayfair has been bouncing between a tight range over the past seven months, reflecting mixed investor sentiment as the housing market contains some signs of a recovery but is still surrounded by economic uncertainty. Still, we like Wayfair's game plan during the current economic cycle, focusing on profitability and customer experience that should set the groundwork for a swift acceleration once demand eventually turns around more meaningfully.
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