Market Snapshot
briefing.com
| Dow | 31643.45 | +60.21 | (0.19%) | | Nasdaq | 11800.47 | +8.60 | (0.07%) | | SP 500 | 3987.97 | +8.03 | (0.20%) | | 10-yr Note |
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| | NYSE | Adv 1672 | Dec 1326 | Vol 861 mln | | Nasdaq | Adv 2463 | Dec 1859 | Vol 4.2 bln |
Industry Watch
| Strong: Health Care, Financials, Energy, Materials, Consumer Discretionary |
| | Weak: Consumer Staples, Communication Services, Utilities |
Moving the Market
-- Follow-through from yesterday's bounce
-- S&P 500 testing the 4,000 level
--Directional leadership from mega cap stocks
-- Weekly jobs report showed labor market remains stronger than Fed wants to see
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Closing summary
08-Sep-22 16:25 ET
Dow +193.24 at 31776.48, Nasdaq +70.23 at 11862.10, S&P +26.31 at 4006.25
[BRIEFING.COM] The stock market had a somewhat volatile session that ultimately left the major indices with modest gains, building on yesterday's bounce. The market opened on a softer note before reaching session highs midmorning. Selling efforts ramped up and sent the indices toward session lows after the S&P 500 tested, and found resistance at, the 4,000 level. The market climbed off those levels throughout the afternoon with the S&P 500 closing just a hair over the 4,000 mark.
Selling efforts were fueled by rate hike concerns after the ECB's 75 basis point rate hike, a low weekly initial jobless claims number that showed the labor market remains tight, and Fed Chair Powell reiterating at the Cato Institute's Monetary Conference that the Fed is committed to restoring price stability and will keep at it until the job is done. Rising market rates piled on to these factors as the 2-yr note yield rose above 3.50% today before settling at 3.49%. The 10-yr note yield rose three basis points to 3.29%.
On the flip side, buying efforts were fueled by a lack of selling conviction in spite of the aforementioned headlines. The resilience was construed as a sign that a lot of bad news, and worries about near-term rate hikes, have been priced in already.
Buying was generally broad based, but mega caps were at a slight disadvantage as the Vanguard Mega Cap Growth ETF (MGK) closed with a more modest gain of 0.5% versus the Invesco S&P 500 Equal Weight ETF (RSP) (+0.9%) and the S&P 500 (+0.7%).
Only three S&P 500 sectors closed with losses on the day, utilities (-0.1%), consumer staples (-0.2%), and communication services (-0.4%). Health care (+1.8%) and financials (+1.7%) sat atop the leaderboard. Semiconductor stocks were notably strong today with the PHLX Semiconductor Index closing up 1.8%.
Energy (+0.5%) closed near the middle of the pack as oil prices climbed. WTI crude oil futures rose 1.7% to $83.26/bbl while natural gas rose 1.2% to $7.92/mmbtu.
Separately, it was announced that Queen Elizabeth II passed away today. In recognition of her death, the UK will observe a 10-day national mourning period.
Kroger (KR) is set to report quarterly results ahead of Friday's open.
Friday's economic data is limited to July Wholesale Inventories (Briefing.com consensus 0.8%; prior 1.8%) at 10:00 a.m. ET.
Reviewing today's economic data:
- For the week ending September 3, initial jobless claims decreased by 6,000 to 222,000 (Briefing.com consensus 246,000). That is the lowest levels of initial claims since late May. Continuing jobless claims for the week ending August 27 increased by 36,000 to 1.473 million.
- The key takeaway from the report remains the same: initial claims are running at levels indicative of a tight labor market that is still running against the grain of the Fed's policy aim.
- Weekly EIA Natural Gas Inventories showed a build of 54 bcf versus a build of 61 bcf last week.
- Weekly EIA Crude Oil Inventories showed a build of 8.84 million barrels after last week's draw of 3.33 million barrels
Dow Jones Industrial Average: -12.6% YTD
S&P 400: -13.6% YTD
S&P 500: -16.0% YTD
Russell 2000: -17.7% YTD
Nasdaq Composite: -24.2% YTD
Market holds gains heading into the close
08-Sep-22 15:35 ET
Dow +96.17 at 31679.41, Nasdaq +27.56 at 11819.43, S&P +12.86 at 3992.80
[BRIEFING.COM] The stock market holds onto modest gains heading into the close. The S&P 500 is again drawn to 4,000 level.
Treasury yields settled just off session highs with the 2-yr note yield rising four basis points to 3.49% while the 10-yr note yield rose three basis points to 3.29%.
After the close, RH (RH), DocuSign (DOCU), and Zscaler (ZS) report earnings.
Kroger (KR) is set to report quarterly results ahead of Friday's open.
Friday's economic data is limited to July Wholesale Inventories (Briefing.com consensus 0.8%; prior 1.8%) at 10:00 a.m. ET.
S&P 500 again tests 4,000 and finds resistance
08-Sep-22 15:00 ET
Dow +60.21 at 31643.45, Nasdaq +8.60 at 11800.47, S&P +8.03 at 3987.97
[BRIEFING.COM] The S&P 500 again tested the 4,000 level, where it found resistance.
Small and mid cap stocks have a slight performance edge over their peers as the Russell 2000 (+0.7%) and S&P Mid Cap 400 (+0.8%) show the largest gains. At the same time, value stocks have the edge over growth stocks with the Russell 3000 Value Index (+0.9%) outpacing the Russell 3000 Growth Index (+0.3%).
Separately, energy complex futures settled higher today. WTI crude oil futures rose 1.7% to $83.26/bbl while natural gas rose 1.2% to $7.92/mmbtu.
Regeneron outperforms after beating trial primary endpoints
08-Sep-22 14:30 ET
Dow +124.09 at 31707.33, Nasdaq +18.13 at 11810.00, S&P +14.69 at 3994.63
[BRIEFING.COM] The broader market is higher across the board on Thursday afternoon, the S&P 500 (+0.37%) in second place to this point.
S&P 500 constituents Regeneron Pharma (REGN 705.97, +109.53, +18.36%), Freeport-McMoRan (FCX 30.47, +2.09, +7.36%), and Schlumberger (SLB 38.39, +1.33, +3.59%) pepper the top of the standings. REGN is strong today after news that aflibercept 8 mg had net primary endpoints in two global pivotal trials for DME and wAMD, FCX moves higher amid strength in copper prices, and SLB is higher alongside gains in crude oil.
Meanwhile, Williams Cos (WMB 32.06, -0.80, -2.45%) is near the bottom of the index, the stock trading ex-dividend today.
Gold modestly lower on Thursday
08-Sep-22 14:00 ET
Dow +53.10 at 31636.34, Nasdaq -9.21 at 11782.66, S&P +5.74 at 3985.68
[BRIEFING.COM] The broader market is now split with about two hours to go on Thursday, the tech-heavy Nasdaq Composite (-0.08%) having dipped modestly into the red.
Gold futures settled $7.60 lower (-0.4%) to $1,720.20/oz after comments from Fed Chair Jerome Powell signaled more interest rate hikes are inbound given the Fed's commitment to bringing down inflation.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $109.63.
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.
American Eagle gets its wings clipped as it was forced into markdowns and a dividend pause (AEO)
American Eagle Outfitters (AEO -8%) is under pressure today following a disappointing Q2 (Jul) earnings report last night. Revenue was in-line but AEO posted a pretty large EPS miss because margins took a hit as management had to mark down prices to clear inventory. Also, comps were negative in both brands, Aerie and American Eagle. And if that were not enough, AEO also will pause its dividend to conserve cash.
- AEO's main goal in Q2 was to right-size its inventory to match consumer demand, which included pretty significant markdowns. The good news is that AEO says it cleared all excess spring and summer goods and entered Q3 (Oct) with better inventory levels and fresh back-to-school and fall merchandise. AEO has significantly pulled back on fall receipts and continues to adjust forward inventory.
- Breaking it down by brand, Aerie posted an 11% revenue increase, but that was fueled by new store openings. Aerie comps were -6%, but to be fair it was lapping huge federal stimulus fueled comps of +25% last year. Also, Aerie revenue has nearly doubled in the past three years. American Eagle revenue declined 8% yr/yr with comps at -10%. Again, it was lapping huge +39% comps last year.
- One of the few positives about the quarter is that AEO's supply chain problems are finally showing signs of improvement. AEO says shipping delays and bottlenecks are easing, transit times are shorter and freight costs have come down substantially from their highs. An improving supply chain is important not just from a cost standpoint, but it allows AEO to be more agile and responsive to changes in demand.
- AEO is also clearly in cash preservation mode in the near term. The biggest item was pausing the dividend. AEO was paying a quarterly dividend of $0.18/sh, which computes as a 6.2% yield at yesterday's close. Investors are clearly not happy to lose such a big payday, however, a yield that size for a struggling company was not sustainable. We are not surprised to see it paused and we think it's likely it will get reduced when AEO turns it back on. AEO is also instituting a hiring freeze, making further reductions in non-critical expenses and is lowering cap-ex all to conserve cash.
Overall, this was a rough quarter for AEO and it has been a rough quarter generally for many mall-based apparel retailers. While margins took a big hit in Q2 from markdowns, we think it was the right thing to do to clear it out before the fall and holiday seasons. Some retailers have delayed doing this, but the pain will eventually come. Overall, we remain cautious on AEO in the near term. Pausing the dividend was probably the right move, but it is a signal that the company is undergoing a cash crunch, which always makes us nervous as a shareholder. Perhaps an equity raise is in the offing?
Casey's General misses on sales in JulQ from lower fuel consumption; future remains bright (CASY)
Shares of Casey's General (CASY -1%) are making up lost ground from earlier losses that ensued despite the convenience store chain posting its largest earnings beat in two years in Q1 (Jul) and reiterating its FY23 outlook. The stock has been driven considerably higher since prices at the pump peaked around mid-June, up roughly 22% from June 17. As a result, investors may have seized the opportunity to take profits, especially since CASY's Q1 report did contain a few blemishes.
Revenue growth of 40.0% yr/yr may have continued a string of 30+% growth seen over the past six quarters, but it did not meet analyst expectations. The weak overall sales growth is mainly due to fuel gallons same-store sales contracting by -2.3% in the quarter. During CASY's Q4 (Apr) earnings call on June 8, it noted that quarter-to-date same-store gallon growth was at the low end of its annual projection of flat to +2, displaying that even though gas prices started declining shortly thereafter, fuel comps still worsened. On the plus side, the high prices did help fuel margins expand considerably to 44.7 cents per gallon (CPG) from 36.2 CPG last quarter, but like a double-edged sword, it drove an overall reduction in fuel consumption.
Nevertheless, CASY delivered plenty of other highlights in the quarter, likely fueling the current comeback.
- Inside same-store sales growth of +6.3% was above its annual target of +4-6%, driven by prepared foods -- notably pizza -- and dispensed beverages. CASY's growing private label program also helped lift sales. The solid comps stand out further given the unfavorable +8.0% comps in the year-ago period. Also, unlike fuel gallon comps, inside comps improved slightly as the quarter progressed. CASY noted that inside sales were only at the midpoint of its annual expectations during its Q4 earnings call.
- Elevated prepared food and beverage ingredient costs dinged inside margins slightly, with the figure contracting by 70 bps yr/yr. However, margins did improve by 40 bps from the prior quarter.
- Inflationary pressures continue to provide a healthy dose of unpredictability, causing CASY to maintain its FY23 inside comp forecast of +4-6% despite the minor outperformance in Q1. However, on the flip side, with gas prices continuing to fall, dipping to an average of $4.08/gal in August from $4.67/gal in July, CASY was able to reaffirm its FY23 same-store fuel gallon sales of flat to +2% higher despite the negative number in Q1.
- During the company's earnings call today, it noted that quarter-to-date, inside comp growth remains within its annual guidance, margins are up slightly from Q1, and same-store fuel gallons are trending between Q1 levels and the low-end of its FY23 outlook.
Bottom line, fuel consumption suffered from higher prices in Q1. However, the inside same-store sales growth was an encouraging sign that mobility has not dropped off meaningfully. Although fuel comps are still below CASY's annual target, gas prices are declining toward Q3 (Jan) levels, which should pave the way for fewer headwinds in subsequent quarters.
Asana sets itself apart from other work management platform providers with strong Q2 report (ASAN)
Following in the footsteps of Monday.com (MNDY) and Smartsheet (SMAR), Asana (ASAN) became the latest work management platform provider to deliver strong, better-than-expected quarterly results. Unlike SMAR, though, the company did not warn that it's experiencing longer sales cycles and deal compression, causing it to lower its billings and revenue growth for the year. To the contrary, ASAN highlighted the strength it's experiencing in the enterprise customer segment, enabling the company to lift its FY23 revenue guidance again. After raising its revenue outlook to $536-$540 mln last quarter, ASAN boosted its forecast to $544-547 mln last night.
The beat-and-raise performance isn't the only piece of good news. ASAN also announced that its CEO, Dustin Moskovitz, bought $350 mln of common stock through a private placement. Not only does the investment represent a major vote of confidence from ASAN's leader (who now owns well over 50% of the company), but it also puts the company in a stronger financial position. On that note, ASAN stated that the additional capital, combined with other cost savings initiatives, positions it to achieve positive free cash flow before the end of FY24. For some perspective, free cash flow was $(42.3) mln in 2Q23, compared to $(9.3) mln in the year-earlier period.
One premise that has weighed on ASAN's stock, which is down by about 85% since last November, is the idea that work management software is not viewed as mission-critical by IT departments. SMAR's cautious commentary and outlook provides some validity to that assertion. Furthermore, MNDY acknowledged that it saw some softening of demand late in its Q2, particularly in Europe. However, ASAN's key metrics, and its commentary surrounding those metrics, indicate that companies are prioritizing spending on its platform.
- ASAN's executives seem most excited about the rapid growth in large accounts. The company ended Q2 with 462 customers spending $100,000 or more on an annualized basis, good for a 105% yr/yr increase. Impressively, this cohort of customers has a dollar-based net retention rate exceeding 145%, illustrating how large deals have the highest expansion rate among ASAN's customer base.
- According to ASAN, larger companies in particular need solutions that can help them generate better returns on investment from their existing technologies. Applications that free up time for employees to focus on initiatives that improve a company's competitive standing, or its revenue generating capabilities, are also vital. ASAN believes its platform checks off both of those boxes.
- In ASAN's view, the quality that sets its platform apart from its competitors is its ability to create value across work functions. More than half of all work tracked across ASAN's platform is cross-functional in nature, with the number climbing to over 60% for large enterprise customers.
- Healthy expansion in the smaller accounts is a good indicator for future growth, given that customers are substantially increasing their usage over time. In Q2, customers spending $5,000 or more grew by 41% to 18,040, while revenue from this group jumped by 64% yr/yr.
ASAN's robust growth and promising outlook for FY23 are significant positives. What's putting the report over the top, though, is ASAN's cost-saving initiatives, including a moderation in headcount growth. The company has already slowed the pace of hiring as headcount grew by 5% sequentially in Q2, compared to 13% in Q1. Additionally, the company says it's taking meaningful measures to manage spending in order to drive more leverage from is cost structure. When combined with ASAN's strong growth and the infusion of capital from the CEO, this cost savings approach should greatly accelerate the company's path to profitability. |
