Market Snapshot
| Dow | 39069.59 | +4.33 | (0.01%) | | Nasdaq | 16920.80 | +184.76 | (1.10%) | | SP 500 | 5304.72 | +36.88 | (0.70%) | | 10-yr Note | +1/32 | 4.46 |
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| | NYSE | Adv 2017 | Dec 725 | Vol 747 mln | | Nasdaq | Adv 2757 | Dec 1435 | Vol 5.8 bln |
Industry Watch
| Strong: Materials, Consumer Discretionary, Energy, Utilities, Consumer Staples, Financials |
| | Weak: Health Care |
Moving the Market
-- Lack of conviction in front of three-day weekend; below-average volume at the NYSE
-- Bouncing back from yesterday's retreat
-- Calm action in the Treasury market
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Closing Summary
24-May-24 16:30 ET
Dow +4.33 at 39069.59, Nasdaq +184.76 at 16920.80, S&P +36.88 at 5304.72
[BRIEFING.COM] The S&P 500 (+0.7%) and Nasdaq Composite (+1.1%), which hit a new record high, closed at or near intraday highs. The Dow Jones Industrial Average underperformed, closing little changed from yesterday near its session low.
Volume was light at the NYSE, reflecting a lack of participation in front of the three-day weekend. Markets will closed on Monday for Memorial Day.
Many stocks settled with gains in today's broad rally. Advancers lead decliners by a 3-to-1 margin at the NYSE and by a 2-to-1 margin at the Nasdaq. The equal-weighted S&P 500 settled 0.7% higher and ten of the 11 S&P 500 sectors closed gains.
The communication services (+1.3%) and information technology (+1.1%) sectors saw the largest gains while the health care sector (-0.3%) sat alone in negative territory.
The underlying positive bias was related to rebound action after recent losses. Calm price action in the Treasury market also contributed to the upside bias.
Treasuries initially saw an uptick in selling following a stronger-than-expected April Durable Orders report (actual 0.7%; Briefing.com consensus -0.8%), but selling pressure eased following the final reading of the University of Michigan's Consumer Sentiment survey, which showed that year-ahead inflation expectations slowed to 3.3% from 3.5% in the preliminary reading.
The 2-yr note yield settled two basis points higher today, and 13 basis points higher this week, at 4.95%. The 10-yr note yield settled one basis point lower today, and four basis points higher this week, at 4.46%.
- Nasdaq Composite: +12.7% YTD
- S&P 500:+11.2% YTD
- S&P Midcap 400: +7.0% YTD
- Dow Jones Industrial Average: +3.7% YTD
- Russell 2000: +2.1% YTD
Reviewing today's economic data:
- April Durable Orders 0.7% (Briefing.com consensus -0.8%); Prior was revised to 0.8% from 2.6%; April Durable Orders -ex transportation 0.4% (Briefing.com consensus 0.2%); Prior was revised to 0.0% from 0.2%
- The key takeaway from the report is that order increases were seen for most components, underscoring the idea that manufacturing activity remains supportive of ongoing growth for the U.S. economy.
- May Univ. of Michigan Consumer Sentiment -Final 69.1 (Briefing.com consensus 67.6); Prior 67.4
- The key takeaway from the market's vantage point is that the report carried helpful revisions, including an uptick in the overall index and downticks in both year-ahead and long-run inflation expectations, from the preliminary report.
As a reminder, bond and equity markets will be closed on Monday for Memorial Day. Looking ahead to Tuesday, market participants will receive the following economic data: March FHFA Housing Price Index (prior 1.2%) and March S&P Case-Shiller Home Price Index (prior 7.3%) at 9:00 ET; May Consumer Confidence (prior 97.0) at 10:00 ET; $69 bln 2-yr Treasury note auction results at 11:30 ET; and $70 bln 5-yr Treasury note auction results at 13:0
S&P 500 flirting with 5,300 in front of close
24-May-24 15:40 ET
Dow +1.69 at 39066.95, Nasdaq +166.95 at 16902.99, S&P +33.00 at 5300.84
[BRIEFING.COM] The Dow Jones Industrial Average is moving off its intraday low in front of the close. The S&P 500 is still flirting with the 5,300 level, trading 0.6% higher.
Two S&P 500 sectors trade lower heading into the close -- energy (-0.01%) and health care (-0.3%) -- while the remaining nine sectors show gains ranging from 0.1% to 1.1%.
Small and mid cap stocks are participating in today's rally. The Russell 2000 is up 0.8% and the S&P Mid Cap 400 shows a 0.7% gain.
Treasuries settle mixed and little changed today
24-May-24 15:00 ET
Dow -17.14 at 39048.12, Nasdaq +158.56 at 16894.60, S&P +26.56 at 5294.40
[BRIEFING.COM] The Dow Jones Industrial Average moved lower in recent action while the S&P 500 and Nasdaq Composite trade near session highs.
The 2-yr note yield settled two basis points higher today, and 13 basis points higher this week, at 4.95%. The 10-yr note yield settled one basis point lower today, and four basis points higher this week, at 4.46%.
As a reminder, bond and equity markets will be closed on Monday for Memorial Day. Looking ahead to Tuesday, market participants will receive the following economic data: March FHFA Housing Price Index (prior 1.2%) and March S&P Case-Shiller Home Price Index (prior 7.3%) at 9:00 ET; May Consumer Confidence (prior 97.0) at 10:00 ET; $69 bln 2-yr Treasury note auction results at 11:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET.
Markets flush with gainers on Friday afternoon, First Solar & GE Vernova aid S&P 500's gains
24-May-24 14:30 ET
Dow +25.59 at 39090.85, Nasdaq +185.08 at 16921.12, S&P +35.15 at 5302.99
[BRIEFING.COM] The S&P 500 (+0.67%) is in second place once more on Friday afternoon, up about 35 points.
Elsewhere, S&P 500 constituents First Solar (FSLR 274.71, +24.90, +9.97%), GE Vernova (GEV 175.35, +13.68, +8.46%), and Vistra Energy (VST 102.47, +6.34, +6.60%) pepper the top of today's standings. FSLR continues its recent rally, up now to 15-year highs, while GEV and VST push to fresh all-time highs in their own rights.
Meanwhile, Dayforce (DAY 56.08, -4.72, -7.76%) slips to the bottom of the average despite a dearth of corporate news.
Gold modestly lower on Friday, week
24-May-24 14:00 ET
Dow +62.83 at 39128.09, Nasdaq +190.89 at 16926.93, S&P +37.89 at 5305.73
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.14%) is comfortably in the lead with about two hours to go on Friday.
Gold futures settled $2.70 lower (-0.1%) to $2,340.30/oz, about -0.2% lower this week, pinched by easing rate cut sentiment following this week's FOMC minutes.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $104.70.
Deckers Outdoor steps up in MarQ, delivering expansive top and bottom-line upside (DECK)
A mirror image of last quarter, Deckers Outdoor (DECK +13%) is kicking back today as its shares rocket to all-time highs on impressive Q4 (Mar) results and sufficient FY25 guidance. The footwear maker, known for its Hoka and Ugg brands, has been making all the right moves lately as it pounces on staleness and an accompanied softening of demand at long-established footwear giants, such as NIKE (NKE), Adidas (ADDYY), and Under Armour (UAA). A similar trend has been favoring peer On (ONON), which registered sizeable top and bottom-line beats in Q1 (Mar), leading to its lifted FY24 revenue outlook.
- As has become the norm lately, Hoka and Ugg led DECK's accelerating revenue growth of 21.2% yr/yr to $959.76 mln in Q4, while its Teva and Sanuk brands continued to post sizeable net sales declines. However, with Ugg and Hoka comprising over 93% of this quarter's total revenue, its jumps of 34.0% and 14.9%, respectively, overpowered weakness across DECK's less familiar brands.
- Wide earnings beats have also become typical for DECK, delivering its third consecutive quarter of well over a $1.00 in upside. Direct-to-consumer (DTC) demand has been a major contributor to DECK's buoyant bottom-line performances, a channel NKE has been trying to lean on more to raise its margin profile, only for it to backfire, as its ties with retailers proved more vital to its overall health than management expected. DECK's DTC net sales increased by 21.0% yr/yr in Q4.
- However, strong DTC sales growth has not led to softness in wholesale growth for DECK, delivering a similar 21.4% improvement in wholesale revenue yr/yr in Q4.
- DECK sustained its upward momentum from last quarter across DTC and wholesale. Hoka enjoyed increasing DTC volume growth and reaccelerating wholesale volume, benefitting from product launches and wholesale fill-in activity. Likewise, Ugg saw another healthy increase in DTC growth, overcoming some inventory shortages and wholesale growth.
- Moving through the rest of the year, DECK anticipates Hoka and Ugg to maintain their positive momentum, projecting around 20% and mid-single-digit yr/yr sales growth, respectively. As a result, DECK issued relatively decent FY25 guidance, projecting EPS of $29.50-30.00 and revs of $4.70 bln. DECK's FY25 EPS figure did miss analyst expectations, one of its few blemishes from the quarter. Management noted that margins will get squeezed this year due to a more normalized promotional environment, hindering its ability to pass through full prices.
While the retail demand environment may be plagued by the cumulative effects of inflation, DECK is showcasing its competitive edge, delivering consistently robust sales growth as it takes advantage of some of its rivals' recent woes. There may be some added uncertainty on the horizon as DECK replaces its CEO, Dave Powers, with current CCO Stefano Caroti on August 1. However, we suspect that given the company's success, recording a revenue CAGR of 19% and EPS CAGR of 32% over the past four years, incoming CEO Stefano Caroti will not implement sweeping changes but continue to leverage DECK's core Hoka and Ugg brands to sustain profitable growth.
Workday takes a tumble after lowering subscription revenue outlook as pace of hiring slows (WDAY)
When HR and financial management software company Workday (WDAY) reported solid Q4 results in February, it disappointed investors by only reaffirming its FY25 subscription revenue guidance of $7.725-$7.775 bln, sending shares sharply lower. Today, a reiteration of that guidance would look pretty good because in last night's Q1 earnings press release the company lowered its subscription revenue outlook to $7.700-$7.725 bln, representing yr/yr growth of about 17% at the midpoint.
- The cause for the softer outlook is a familiar one: namely, WDAY is seeing elevated deal scrutiny as enterprises continue to contend with high interest rates and persistent inflation. Due to these macroeconomic headwinds, companies have slowed the pace of their hiring activity, resulting in lower customer headcount growth and fewer large deals for WDAY in Q1. The good news is, when purchase decisions are being made, WDAY says that its win rates remain strong.
- A key component of WDAY's growth strategy is to expand internationally, but the macro-related pressures were especially prevalent in EMEA, where the company closed fewer large deals compared to the year-earlier period. Its customers are committing to lower headcount levels on renewals compared to what it was anticipating. Overall, WDAY's international revenue grew 18% yr/yr to $497 mln, down from last quarter's growth of 21%.
- Despite the reduced subscription revenue guidance, WDAY did nudge its FY25 non-GAAP operating margin guidance higher to 25.0% from its prior forecast of 24.5%. During the earnings call, CFO Zane Rowe credited the WDAY's focus on driving increased efficiencies across the company for the improved margin outlook. Considering that WDAY is ramping up its investments in AI-powered technologies, the improved margin outlook is a notable positive.
- On the topic of new AI capabilities and products, WDAY released its AI-powered Payroll Insights product in Q1, which helps payroll workers to quickly detect anomalies. Furthermore, its new talent optimization tool is experiencing strong attach rates on new deals. In fact, over half of WDAY's core customer base is now licensed for this AI product and the product has significant momentum heading into Q2.
The main takeaway is that macroeconomic headwinds have strengthened, causing enterprises to take a more cautious approach with their IT spending. Therefore, WDAY's softer outlook could be a red flag for other enterprise software companies such as Salesforce (CRM), Oracle (ORCL), ServiceNow (NOW), and Atlassian (TEAM). From a company-specific standpoint, WDAY's expanding AI capabilities and its improving operating margins are two appealing fundamental attributes.
Intuit lower despite EPS beat during tax quarter, but market share on lower end a concern (INTU)
Intuit (INTU -8%) is trading lower despite reporting strong upside for its Q3 (Apr) earnings report last night. INTU focuses on small businesses and consumers (QuickBooks, TurboTax, Mint, Credit Karma, Mailchimp). INTU beat handily on EPS, its ninth consecutive double-digit EPS beat. Revenue grew 11.9% yr/yr to $6.74 bln. The top line upside to consensus was more modest, but still solid. The Q4 (Jul) guidance was mixed with upside revs but downside EPS. As we noted in our preview, Q3 is always an important quarter because tax season is huge for Intuit. As such, Q3 is always its largest revenue quarter of the year.
- The star of the show was again Small Business and Self-Employed Group (SBSE), which is mostly QuickBooks. Segment revs grew 18% to $2.4 bln despite an uncertain macro background. QuickBooks Online Accounting revenue grew 19%, driven primarily by customer growth, higher prices, and mix-shift towards higher end offerings. Online Services revenue grew 20%. Intuit is increasingly targeting the Small Business mid-market as these customers drive a higher ARPC over time, given their more complex needs and higher usage of services on the platform.
- Consumer Group segment (TurboTax, both DIY and assisted) revenue grew 9% yr/yr to $3.7 bln. Intuit sees TurboTax Live, its assisted offering, as a large and durable growth opportunity. Intuit expects TurboTax Live customers to grow 12% and revenue to grow 17% in FY24. TurboTax Live revenue is expected to be $1.4 billion in FY24, representing 30% of segment revenue and growing at a significant scale.
- Maybe the most worrying part is that Intuit expects total TurboTax units to decline 1%, due to share loss with pay-nothing and lower average revenue per return customers. It seems like Intuit wants to focus more on the higher end customer with its assisted service. In fact, Intuit said that, for the first time, is has moved the needle in terms of taking share in assisted. The company is not interested in pursuing customers who want free tax software.
- Its Credit Karma segment has been a laggard in recent quarters with higher rates acting as a headwind. However, revenue rose a healthy 8% yr/yr to $443 mln, driven by strength in Credit Karma Money, credit cards, auto insurance, and personal loans. This was a nice improvement from flat in Q2 and a -5% revenue decline in Q1. While the trend is encouraging, Intuit cited the product integration of TurboTax and Credit Karma as a reason for the growth. So maybe it just got a tax season boost, let's see if the trend continues in JulQ. Intuit also said it continues to see select partners taking a conservative approach to extending credit in both personal loans and credit cards.
Overall, this was a bit of a mixed quarter. Nice upside for Q3, but we think investors were somewhat disappointed in its TurboTax unit sales outlook. Intuit clearly wants to focus on higher end customers, but it does look like it is losing some share among lower end customers. Also, Credit Karma sales improved, but was that just a tax season boost? Intuit also said some lenders remain cautious on extending credit in personal loans and credit cards. Finally, given its rally in recent weeks, we think sentiment was running hot heading into this report, so any chink in the armor was going to lead to a pullback.
Ross Stores stiches together a solid Q1 report; trade-down still benefiting off-price retail (ROST)
Off-price apparel retailer Ross Stores (ROST +8%) stitched together a solid Q1 (Apr) report despite stubborn macroeconomic headwinds continuing to pressure low-to-moderate-income customers' purchasing power. ROST registered similar headlines as last quarter, when the market's reaction was relatively muted, including a double-digit earnings beat, moderate revenue outperformance, and decent quarterly guidance. However, the stock was trading near all-time highs ahead of ROST's Q4 report in early March, reflecting lofty expectations that ROST would take full advantage of a healthy holiday shopping season. Therefore, investors were not surprised by ROST's same-store sales growth in Q4 of +7%, which crushed its +2-3% forecast.
- On the flip side, given how inflation has clouded near-term demand, ROST's +3% comps in Q1, hitting the high-end of its +2-3% outlook, was a welcomed surprise, especially given that shares gave back over 10% since March, providing plenty of runway for a bounce today, even if Q1 results were not eye-popping.
- While not as buoyant as last quarter, ROST still delivered solid numbers in Q1, expanding its top line by 8.1% yr/yr to $4.86 bln, primarily driven by increased traffic. Meanwhile, ROST posted a 34% improvement in its EPS to $1.46, supported by lower distribution, incentive, and freight costs, pushing ROST's operating margins over 200 bps higher yr/yr to 12.2%.
- Merchandise margins did tick 15 bps lower yr/yr, partially offsetting the benefits from lower logistical costs. However, this aligned with management's ongoing strategy to offer more sharply priced brands as it tries to cater to a surge in higher-income shoppers trading down amid an inflationary environment. Branded merchandise tends to carry lower margins than less recognizable brands, eating into margins slightly. ROST anticipates pressure on its merchandise margins to persist throughout the year as it continues progressing on this initiative.
- ROST also hiked its FY25 (Jan) EPS forecast by more than the size of its Q1 beat, projecting $5.79-5.98 compared to its previous $5.64-5.89 outlook. Furthermore, even though ROST left its FY25 comp growth forecast of +2-3% unchanged, investors view this as a positive development considering the challenging economic landscape.
The higher cost of living continues to generate tailwinds for off-price retailers as a higher-income demographic trades down to stretch their squeezed budgets. This dynamic was on full display with TJX (TJX), which delivered healthy comp growth in AprQ. While inflation also keeps near-term uncertainty elevated, forcing ROST to maintain a prudent approach to its guidance, the company is positioned to continue capitalizing on a broad trade-down effect, making pullbacks attractive entry points.
Lastly, keep an eye on others in this industry reporting AprQ results in the coming weeks, including Burlington Stores (BURL) on May 30, Dollar Tree (DLTR) on June 5, Ollie's Bargain Outlet (OLLI) on June 5, and Big Lots (BIG) on June 6.
V.F. Corp stuck in a slump as its turnaround strategy has yet to produce meaningful results (VFC)
Investors remain cold towards V.F. Corp (VFC -2%) today after the outdoor apparel retailer recorded Q4 (Mar) numbers failing to meet analyst expectations. The company, known for The North Face and Vans, has struggled considerably since late 2021 to produce sustainable growth. Revenue growth slumped in 4Q22, drifting into negative territory shortly thereafter, where it has remained for seven consecutive quarters following a 13.4% drop yr/yr to $2.37 bln in Q4.
To reverse course, VFC kicked off a turnaround strategy in 2Q24 (Sep) under new CEO Bracken Darrel, who turned around Old Spice and Logitech. Mr. Darrel's strategy involves three key pillars: Reinvent, a blueprint for returning to positive yr/yr growth; Ignite, which centers on elevating the consumer experience; and Accelerate, bringing the two phases together.
VFC withdrew its guidance last year and has yet to issue formal P&L forecasts. This increases uncertainty, as analysts and investors are without a roadmap on where management expects to go in the near term. It also can weigh on the market's patience. This dynamic is on display today.
- VFC registered a net loss of $0.32 per share, a striking drop from the positive $0.17 delivered in the year-ago period. Alongside disappointing sales growth, non-GAAP gross and operating margins contracting by 120 bps and 770 bps yr/yr, respectively, pulled down VFC's bottom line. Meanwhile, the double-digit yr/yr revenue decline emerged from weakness across The North Face, which endured a 5% sales decline, and Vans, which plunged by 26%.
- However, several highlights from the quarter are worth mentioning. For starters, VFC remains on track to deliver its $300 mln cost-savings target by midway through FY25. Secondly, VFC has done a decent job reducing its excess inventory, bringing the total down by 23% yr/yr by the end of Q4 and helping to lower its debt profile meaningfully. Thirdly, VFC generated over $800 mln in free cash flow in FY24, exceeding its $600 mln target.
- Furthermore, green shoots from VFC's turnaround plan emerged. In Vans, management remarked that its inventory reset actions produced a cleaner market for introducing new products. While this has yet to generate noticeable financial improvements, it is the first step toward reigniting growth. Meanwhile, VFC has started elevating The North Face brand by increasing its portfolio of premium performance products, leveraging what the brand has been most known for over the years.
- As a result, VFC felt confident in quarterly performance steadily improving sequentially each quarter after Q1 (Jun), which will coincide with the completion of its channel inventory resets. VFC also warned that financials will remain constrained in Q1 as a result.
VFC's Q4 report did not underpin apparent benefits from the company's ambitious turnaround strategy. However, the company is starting to show some early signs of success, albeit relatively modest. Still, given VFC's past setbacks and its bearish Q1 commentary, investors are not springing to buy into VFC's anticipated recovery. It may take another quarter or two, whereby VFC must display noticeable turnaround signals before investors start warming up toward the stock.
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