Market Snapshot
briefing.com
| Dow | 32167.71 | +391.23 | (1.23%) | | Nasdaq | 12107.77 | +245.67 | (2.07%) | | SP 500 | 4066.35 | +60.10 | (1.50%) | | 10-yr Note |
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| | NYSE | Adv 2619 | Dec 514 | Vol 823 mln | | Nasdaq | Adv 3060 | Dec 1340 | Vol 4.3 bln |
Industry Watch
| Strong: Communication Services, Energy, Information Technology, Consumer Discretionary |
| | Weak: -- |
Moving the Market
-- Carryover momentum from recent gains
-- Bearish sentiment readings acting as a contrarian catalyst
-- Moderation in the dollar after recent run up
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Closing Stock Market Summary
09-Sep-22 16:35 ET
Dow +377.19 at 32153.67, Nasdaq +250.18 at 12112.28, S&P +61.18 at 4067.43
[BRIEFING.COM] The stock market started the day in rally mode and it never really let up, carrying on with the upside momentum it has enjoyed the past few sessions and ignoring, as it did in previous sessions this week, some hawkish-minded Fedspeak.
The major indices finished near their best levels of the day on relatively light volume; meanwhile, the S&P 500 and Nasdaq Composite reclaimed a posture back above their 50-day moving averages.
Catalysts for today's advance included:
- A weakening dollar (the U.S. Dollar Index is down 0.7% to 108.98)
- Encouraging price action with stocks trading higher over the past two sessions in the face of bad news, which fostered a sense that the bad news (and specifically near-term rate hikes) have been priced in already
- A recognition that bearish sentiment has reached extreme levels, which was viewed as a contrarian indicator
- Leadership from growth stocks following better-than-expected earnings reports from DocuSign (DOCU 64.04, +6.09, +10.5%) and Zscaler (ZS 188.00, +33.75, +21.9%)
- The S&P 500 and Nasdaq Composite breaking above their 50-day moving averages
All 11 S&P 500 sectors ended in positive territory with gains ranging from 0.4% (utilities) to 2.5% (communication services). Today's leadership, meanwhile, was rooted in the cyclical sectors and was reflective of a risk-on disposition that also sparked a rally in cryptocurrencies. The Russell 3000 Growth Index was up 1.9% versus a 1.4% gain for the Russell 3000 Value Index.
The CBOE Volatility Index was down 3.2% to 22.85.
Market breadth conveyed the broad-based buying interest. Advancers led decliners by a 5-to-1 margin at the NYSE and by a better than 2-to-1 margin at the Nasdaq. Mega-cap stocks were leadership stocks, providing influential support to the broader market. The Vanguard Mega-Cap Growth ETF (MGK) rose 2.0% versus a 1.4% gain for the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.5% gain for the S&P 500.
The lone economic release today was July Wholesale Inventories, which were up 0.6% month-over-month (Briefing.com consensus +0.8%) versus a 1.8% gain in June.
There is no U.S. economic data of note on Monday.
- Dow Jones Industrial Average: -11.4% YTD
- S&P 400: -12.1% YTD
- S&P 500: -14.7% YTD
- Russell 2000: -16.1% YTD
- Nasdaq Composite: -22.6% YTD
Market trading near highs into the close
09-Sep-22 15:30 ET
Dow +431.50 at 32207.98, Nasdaq +253.45 at 12115.55, S&P +68.10 at 4074.35
[BRIEFING.COM] Heading into the close, the three main indices trade near session highs.
WTI crude oil futures settled the session noticeably higher, up 3.7% to $86.35/bbl.
Treasury note yields also settled noticeably higher with the 2-yr note yield up eight basis points to 3.57%. The 10-yr note yield rose three basis points to 3.32%.
Ahead of Monday's open, Oracle (ORCL) will report earnings.
There's no notable US economic data on Monday.
Market sticks to narrow range
09-Sep-22 15:05 ET
Dow +391.23 at 32167.71, Nasdaq +245.67 at 12107.77, S&P +60.10 at 4066.35
[BRIEFING.COM] The major indices are little changed in the last half hour.
Russia will ship the first cargo from its liquefied natural gas plant to Greece, according to Bloomberg. Natural gas futures are up 1.4% to 8.02/mmbtu.
On a related note, energy (+2.3%) overtook communication services (+2.3%) as the top performer today. Utilities (+0.7%) and financials (+1.0%) show the slimmest gains.
Kroger outperforms following earnings, Enphase Energy dips on downgrade
09-Sep-22 14:30 ET
Dow +402.14 at 32178.62, Nasdaq +251.51 at 12113.61, S&P +62.65 at 4068.90
[BRIEFING.COM] The S&P 500 (+1.56%) is firmly in second place to this point on Friday, narrowly etching out session highs in the last half hour.
S&P 500 constituents DISH Network (DISH 19.27, +1.47, +8.26%), Kroger (KR 51.41, +3.05, +6.31%), and Take-Two (TTWO 127.25, +6.67, +5.53%) are atop the index on Friday afternoon. DISH gains after Director DeFranco disclosed a purchase of nearly $1.8 mln in stock, Kroger is higher following earnings, while TTWO outperforms following favorable comments from Jefferies.
Meanwhile, solar firm Enphase Energy (ENPH 302.91, -14.50, -4.57%) is today's worst performer after Guggenheim downgraded the stock to Neutral after the stock's recent rally.
Gold climbs out of the red on Friday, ends narrowly higher on the week
09-Sep-22 14:00 ET
Dow +374.30 at 32150.78, Nasdaq +242.43 at 12104.53, S&P +59.80 at 4066.05
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+2.04%) remains atop the standings.
Gold futures settled $8.40 higher (+0.5%) to $1,728.60/oz, ending about +0.3% higher on the week, aided in part today's gains which stem from a weaker dollar following yesterday's ECB rate hike.
Meanwhile, the U.S. Dollar Index is down about -0.7% to $108.92.
Kroger produces solid JulQ results, lifted by higher fuel sales and robust private label growth (KR)
With at-home consumption trends still strong, grocery retailer Kroger (KR +6%) was able to extend its streak of earnings and revenue outperformance in Q2 (Jul) while also raising its FY23 outlook. KR's JulQ numbers stand out meaningfully, especially after spices and seasonings supplier McCormick (MKC) slashed its FY22 targets yesterday due to at-home eating trends slowing quicker than expected.
- KR grew earnings 12.5% yr/yr to $0.90, driven by higher fuel sales and profitability. Overall sales rose 9.3% to $34.64 bln, with comps, excluding fuel, of +5.8%.
- It is worth noting that KR's selection of fresh products was a significant driver of its solid same-store sales growth in Q2, affirming that eat-at-home trends remain robust. We heard similar comments from grocers like Albertsons (ACI) and SpartanNash (SPTN), as well as larger retailers like Walmart (WMT) and BJ's Wholesale (BJ).
- Like in Q1 (Apr), KR's private label assortment, "Our Brands," outpaced overall same-store sales growth in the quarter, boasting comps of +10.2%. We have been bullish on off-brand demand for some time due to unabated inflationary pressures. For instance, SPTN's private label sales doubled the pace of national brands in JunQ. Also, WMT's private brand growth rate doubled in JulQ compared to AprQ levels.
- On a side note, the exceptional performance of off-brands bodes well for Costco (COST), which reports AugQ earnings on September 22, and whose private labels made up roughly 30% of FY21 sales.
- Looking ahead, KR expects FY23 EPS of $3.95-4.05, up slightly from its prior forecast of $3.85-3.95, and comparable sales excluding fuel to grow +4.0-4.5%, up nicely from +2.5-3.5%.
Overall, KR's Q2 numbers are further evidence that household staples, like groceries, perform well during an inflationary period. With demand for less expensive off-brand items elevated, KR also benefits from the higher margins these products carry. Meanwhile, its fuel business, the primary driver behind its solid earnings beat in Q2, is adding another growth layer. KR's fuel rewards program, which helps consumers stretch their dollars, is a significant reason it saw exceptional fuel performance in Q2. Again, this is another plus for COST, which tends to offer gas prices aggressively below the local average.
Bottom line, we remain bullish on KR for the short and long term. Although MKC noted that at-home consumption trends are cooling, it is not showing up meaningfully for KR. This is likely due to its diverse set of products boasting a broad range of price points, which should continue to provide a tailwind for the company despite a challenging macro environment.
Zscaler establishes trust with investors today following excellent JulQ results (ZS)
Zscaler (ZS +19%) is establishing trust with investors today after crushing consensus on its top and bottom lines in Q4 (Jul), as well as providing an upbeat FY23 outlook. Although huge numbers are a recurring theme for the zero trust cybersecurity firm, its Q4 results are significant given the many concerning comments expressed lately by its peers, including Okta (OKTA), CrowdStrike (CRWD), and SentinelOne (S). These companies noted that the shaky macroeconomic backdrop lengthened sales cycles and spurred increased cost consciousness within organizations' IT departments.
Although ZS was not immune to these headwinds, stating that there was more deal scrutiny toward the end of Q4, it successfully navigated these pressures by offering more value assessments, helping it close many large multi-year, multi-product deals. As a result, the stock's relatively lofty valuation of ~15x FY23 sales is not getting in its way today, especially given the numerous highlights the company delivered in Q4.
- By posting beats on its top and bottom lines in Q4, ZS extended its streak of never missing estimates in either metric since its 2018 IPO. Adjusted EPS grew 78.6% yr/yr to $0.25 while revs jumped 61.4% to $318.06 mln. Meanwhile, calculated billings, grew 57% to $520.4 mln.
- Growth was broad-based, with strong demand across ZS's products, industry verticals, and geographies. Still, there were a few standouts, such as the finance, manufacturing, health care, and technology markets, as well as the Americas and Asia Pacific Japan (APJ), which saw revs leap 52% and 88% yr/yr, respectively.
- A major positive development in Q4 was the exceptional 62% yr/yr customer growth in the $1.0 mln in ARR cohort. Even though OKTA and Cloudflare (NET) both saw more resilience amongst larger enterprises during their respective quarters, it was still good to see a similar theme play out for ZS in Q4.
- We think that given the increased attention toward cybersecurity, especially after numerous cyber attacks this year combined with the rise in remote work, more prominent businesses will continue to spend on cybersecurity, helping cushion ZS from further downside if the economy were to deteriorate.
- Looking ahead, ZS provided its first glimpse into FY23, expecting adjusted earnings of $1.16-1.18, revs of $1.49-1.50 bln, and billings of $1.92-1.94 bln, each representing over 30% growth yr/yr and topping analyst expectations. Gross margins are expected to dip slightly to around 80% in FY23. However, this is due to ZS's focus on time to market and growth rather than margins. Also, the company remains confident of achieving operating margins of 20-22% in the long term, a significant jump from just 12% in Q4.
With shares down roughly 50% on the year leading into ZS's Q4 earnings report, its results are sparking a much-needed relief rally today. ZS's ability to close deals during a period where organizations are becoming more nervous about the macro economy is significant, as it demonstrates ZS's capability to thrive even during a shaky economic period.
RH feeling right at home today after beating Q2 expectations, but outlook not very comforting (RH)
Amid a macro environment that RH (RH) describes as "deteriorating", the luxury furniture and home decor company still comfortably exceeded revenue and EPS expectations. The company attributes its outperformance to faster-than-expected backlog relief, along with strong margin performance, as it resists joining the discounting trend that has taken hold in its industry. In 2Q23, RH's adjusted gross margin expanded by 350 bps yr/yr to 52.8%, despite facing the same rising freight, labor, and commodity costs that have pressured the margins of many other retailers. For instance, peer Williams-Sonoma (WSM) experienced a 60 bps drop in Q2 gross margin to 43.5%.
However, RH's stance against discounting is coming at a cost.
- Sales are slowing at a time when RH is lapping difficult comparisons from a year ago when the housing market was red-hot. Also, at that time, consumers were spending more freely on home updates and renovations. This is reflected in RH's sales surging by 39% in last year's Q2. Now, inflation, rising interest rates, and an accompanying slowdown in the housing market, has caused many consumers to reevaluate their plans of making big-ticket purchases.
- With RH refusing to budge on pricing, it's not overly surprising that sales were virtually flat yr/yr in this tough climate. In contrast, WSM's Q2 revenue was up by nearly 10%, suggesting that some consumers may be trading down to a price point that's a notch or two below RH's lofty prices.
- RH's revenue guidance for FY23 keeps getting worse. After initially issuing downside guidance of $3.759-$3.834 bln (flat to +2%) in its Q1 report on June 1, RH revised its outlook lower just a few weeks later on June 29. At that time, it forecasted a 2-5% decline in FY23 revenue, which was nudged lower to a 3.5-5.5% decline last night.
In RH's view, losing some sales in the short term is an acceptable price to pay in order to protect its brand. The company aspires to be much more than just a high-end furniture retailer. Ultimately, it envisions becoming a luxury brand that caters to the very wealthy, offering yachts for charter, private jets, fine dining, and upscale hotels. By discounting its products now, RH would risk tarnishing the luxury brand image that it's creating for the future of its business.
The highly promotional selling environment isn't the only challenge and disappointment that RH is contending with. Due to construction and approval delays, the company has pushed out the opening of RH England to the spring of 2023. RH England is a gallery store at Aynhoe Park, a massive 73-acre site, and represents the company's entrance into the U.K. market. The company has also secured locations for galleries in London, Paris, and Munich, as part of its mission to open design galleries in every major market in the world. In total, RH believes its gallery business can eventually generate revenue of $20-$25 bln globally.
For the time being, though, growth will likely remain subdued, especially if mortgage and interest rates keep climbing higher.
DocuSign signs off on an impressive quarter with upside to billings guidance (DOCU)
DocuSign (DOCU +7%) is up sharply following its Q2 (Jul) results last night. After a rare miss in Q1, DOCU bounced back with an EPS beat in Q2, albeit a small one. Probably the more exciting part of the report was the sizeable upside revenue and especially the huge upside for billings (+9% yr/yr to $647.7 mln vs $599-609 mln prior guidance). Recall that the big problem in Q1 was DOCU lowering full year billings guidance by a significant amount.
- DOCU added 44,000 new customers, which was up 22% yr/yr. We see that as an encouraging number and it brings DOCU's total global paying customer count to 1.28 mln. Furthermore, it closed a number of large enterprise deals during the quarter, which included both Microsoft and Goldman Sachs. In addition, DOCU has been focusing on partner expansions and in Q2 this included a new integration with Stripe to enable users to view DocuSign agreements and Stripe payments side by side.
- The company was a little more sanguine on the macro outlook and this may explain why DOCU guided for a sequential decline in billings in Q3 (Oct), although seasonality may also be playing a role. Specifically, DOCU says that with rates rising and inflation, the company has started to see more measured buying patterns coupled with generally longer conversion cycles within some verticals, especially real estate and lending (financial services).
- Another big issue last quarter was higher churn with its sales reps. Closing deals has gotten harder for sales reps in a post-COVID world. DOCU was asked about this on the call and said that it has definitely stabilized the attrition. DOCU also thinks that there has been some tightening in terms of job availability, especially in the US, which has enabled DOCU to have a little bit more stability with the current workforce.
- We also got an update on the CEO search. While the company did not name a new hire, it did say that it has been actively interviewing great candidates and it is close to making a decision. Briefing.com sees DOCU at a bit of a crossroads, do they soldier on or do they consider being acquired, perhaps by a partner like MSFT? Their soon-to-be-announced choice of CEO may provide a clue.
Probably the main highlight was that big billings number in Q2. Billings are probably just as, if not more, important than revenue and EPS. It is a good forward look into the sales pipeline. It was also good to see DOCU raise full year billings guidance, albeit by less than the Q2 upside which technically could be downside 2H guidance. However, we feel like we are splitting hairs by saying that. Investors are just happy to not see another guide-down.
Despite the good Q2 results, DocuSign is still not out of the woods. It has really struggled in recent quarters after seeing its business explode during the pandemic when in-person meetings became a no-no. However, lapping those huge numbers while face-to-face meetings resume and, at the same time, facing inflationary pressures has caused DOCU to stumble. The outlook remains cautious but this Q2 report was an incremental positive.
Dave & Buster's earnings miss not sitting well as it integrates Main Event in tough climate (PLAY)
Dave & Buster's (PLAY) first quarter with recently acquired Main Event in the fold is leaving a bad taste in investors' mouths. Despite easily surpassing analysts' 2Q23 revenue expectations, the owner of entertainment and dining venues badly missed earnings forecasts. Wage inflation and rising commodity costs were the primary culprits that drove EPS lower by a much steeper-than-expected 45% yr/yr.
This is a familiar story, though, within the restaurant industry. In late August, Brinker (EAT), which owns Chili's and Maggiano's, issued very weak FY23 EPS guidance due to the same inflationary pressures. Rewinding a bit further, Olive Garden owner Darden Restaurants (DRI) also guided FY23 EPS well below expectations when it reported Q4 results on June 23.
While it's not surprising that PLAY was unable to fully mitigate these intense inflationary headwinds, the severity of the impact is probably catching some investors off guard. Adjusted EBITDA margin tumbled by 610 bps yr/yr to 25.5%, suggesting that the company hasn't been aggressive enough with its pricing actions. Taking it a step further, the huge EPS miss accentuates prior concerns that PLAY may take its eye off the ball as it integrates its $835 mln acquisition of Main Event. That acquisition also facilitated a transition in the CEO role as Main Event's leader, Chris Morris, took over for Kevin Sheehan, who was serving as PLAY's CEO on an interim basis.
The main point is that PLAY is juggling many balls right now and its attention may not be squarely landing on its near-term performance. That may be a source of frustration for investors, especially since the current business environment is so demanding.
Beyond the earnings miss, the earnings report did offer some notable positives.
- PLAY noted that guests are spending at higher levels relative to 2021 and 2019. The healthy spending is reflected in comparable sales for Dave & Buster's branded stores increasing by a healthy 9.6% compared to the same period in 2019.
- The addition of Main Event, which contributed $51.4 mln in revenue from June 29 through July 31, provided a significant top-line catalyst as revenue reached a new Q2 record of $468.4 mln. Comps for Main Event were also impressive at +29.7% versus 2019.
- During the earnings call, Morris commented that the merger integration is ahead of schedule and that PLAY has already implemented over $11.5 mln of annualized synergies to date. Accordingly, PLAY raised its total synergies target to $25 mln from $20 mln.
- With comparable sales up by 22.1% on a consolidated basis through the first five weeks of Q3, compared to the same period in 2019, it's evident that PLAY is off to a solid start this quarter. For some context, comparable sales in 3Q22 were up by just 1.1% versus the same period in 2019.
The main takeaway is that the huge EPS miss places the company's execution and focus under the spotlight as it integrates the Main Event acquisition. That assertion may not be totally fair since other restaurant chains are also struggling with inflationary pressures, causing them to cut earnings guidance. However, when PLAY first announced its intention to acquire Main Event last April, the stock dove sharply lower as some investors questioned the timing of the deal given the mounting economic headwinds. The poor bottom-line performance is validating those concerns since PLAY is contending with so many variables right now. |
