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Market Snapshot
briefing.com
| Dow | 33540.58 | -22.19 | (-0.07%) | | Nasdaq | 13277.41 | +47.81 | (0.36%) | | SP 500 | 4282.34 | +7.28 | (0.17%) | | 10-yr Note | 0/32 | 3.690 |
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| | NYSE | Adv 2274 | Dec 623 | Vol 857 mln | | Nasdaq | Adv 3155 | Dec 1292 | Vol 4.8 bln |
Industry Watch
| Strong: Financials, Materials, Communication Services |
| | Weak: Health Care, Consumer Staples, Information Technology |
Moving the Market
-- Growing sense that mega cap stocks are overbought on a short term basis and are due for a pullback
-- Rising Treasury yields
-- Wait-and-see vibe ahead of next week's release of the May Consumer Price Index and the FOMC decision
-- Strength from regional bank stocks
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Closing Summary
06-Jun-23 16:30 ET
Dow +10.42 at 33573.19, Nasdaq +46.99 at 13276.59, S&P +10.06 at 4285.12
[BRIEFING.COM] The market had a decent showing today. The Russell 2000 paced index level gains while lagging mega cap stocks acted as a drag on the S&P 500, Dow Jones Industrial Average, and Nasdaq. The three major indices were all in negative territory around midday, but rebounded and ended near their best levels by the close.
Apple (AAPL 179.21, -0.37, -0.2%), which had been down as much as 1.2% after being downgraded by D.A. Davidson to Neutral from Buy, climbed off its lows to close with a slim loss. Still, mega cap losses were a limiting factor for index performance today. Microsoft (MSFT 333.68, -2.26, -0.7%), NVIDIA (NVDA 386.54, -5.17, -1.3%), and Meta Platforms (META 271.12, -0.27, -0.1%) all closed in the red.
The Vanguard Mega Cap Growth ETF (MGK), though, rose 0.1% as Alphabet (GOOG 127.91, +1.28, +1.0%), Tesla (TSLA 221.31, +3.70, +1.7%), and Amazon.com (AMZN 126.61, +1.31, +1.1%) provided offsetting support. The strength in the broader market was reflected in the 0.7% gain recorded by the Invesco S&P 500 Equal Weight ETF (RSP). The market-cap weighted S&P 500 rose 0.2%.
Strength from regional bank shares, along with energy stocks, helped to propel the Russell 2000 to a robust 2.7% gain. The SPDR S&P Regional Banking ETF (KRE) rose 5.0% and the SPDR S&P Bank ETF (KBE) rose 4.4%. Those moves were partially influenced by Goldman Sachs lowering its probability of a recession in the next 12 months to 25% from 35%, citing receding banking risks.
The S&P 500 financials sector was the top performer today, advancing 1.3%. Other outperformers included the consumer discretionary (+1.0%), energy (+0.7%), materials (+0.7%), and industrials (+0.6%) sectors.
On the flip side, the health care (-0.9%) and consumer staples (-0.5%) sectors were the worst performers among the 11 sectors.
The information technology sector (-0.1%) was another notable underperformer, weighed down by Apple and Microsoft, while most of its semiconductor components exhibited relative strength. The PHLX Semiconductor Index rose 1.3%.
Separately, Coinbase Global (COIN 51.61, -7.09, -12.1%) shares tumbled today following news that the SEC is charging Coinbase for operating as an unregistered securities exchange, broker, and clearing agency.
The 2-yr Treasury note yield rose four basis points to 4.52% and the 10-yr note yield settled unchanged at 3.69%.
- Nasdaq Composite: +26.9% YTD
- S&P 500: +11.6% YTD
- Russell 2000: +5.4% YTD
- Dow Jones Industrial Average: +1.3% YTD
- S&P Midcap 400: +4.1% YTD
There was no U.S. economic data of note today.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior -3.7%)
- 8:30 a.m. ET: April Trade Balance (Briefing.com consensus -$75.3 billion; prior -$64.2 billion)
- 10:30 a.m. ET: EIA Crude Oil Inventories (prior +4.49 million barrels)
- 3:00 p.m. ET: April Consumer Credit (Briefing.com consensus $21.0 billion; prior $26.5 billion)
Treasuries settle mostly lower
06-Jun-23 15:35 ET
Dow +0.96 at 33563.73, Nasdaq +45.64 at 13275.24, S&P +8.96 at 4284.02
[BRIEFING.COM] The Dow Jones Industrial Average has joined the other major indices in positive territory.
The 2-yr Treasury note yield rose four basis points to 4.52% and the 10-yr note yield settled unchanged at 3.69%.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior -3.7%)
- 8:30 a.m. ET: April Trade Balance (Briefing.com consensus -$75.3 billion; prior -$64.2 billion)
- 10:30 a.m. ET: EIA Crude Oil Inventories (prior +4.49 million barrels)
- 3:00 p.m. ET: April Consumer Credit (Briefing.com consensus $21.0 billion; prior $26.5 billion)
BA turns lower on reports of production issue; Energy complex settles mixed
06-Jun-23 15:00 ET
Dow -22.19 at 33540.58, Nasdaq +47.81 at 13277.41, S&P +7.28 at 4282.34
[BRIEFING.COM] The major indices have been climbing somewhat higher recently.
Boeing (BA 207.28, -1.50, -0.7%) took a turn lower recently on news that a new 787 production issue could slow delivery of 90 BA jets.
Energy complex futures settled mixed. WTI crude oil futures fell 0.4% to $71.72/bbl and natural gas futures rose 1.4% to $2.26/mmbtu.
V.F. Corp outperforms, Elevance Health underperforms in S&P 500 on Tuesday
06-Jun-23 14:25 ET
Dow -98.95 at 33463.82, Nasdaq +19.38 at 13248.98, S&P -1.27 at 4273.79
[BRIEFING.COM] The S&P 500 is down less than -0.1% to this point on Tuesday, firmly in second place.
S&P 500 constituents V.F. Corp (VFC 19.06, +1.14, +6.36%), Comerica (CMA 42.46, +2.12, +5.26%), and Etsy (ETSY 89.30, +4.05, +4.75%) dot the top of the S&P. CMA moves higher alongside banking strength, and ETSY outperforms in tandem with other e-commerce stocks -- SHOP +5.9%, PINS +2.5%.
Meanwhile, Indiana-based managed care firm Elevance Health (ELV 462.32, -18.11, -3.77%) is today's top laggard, underperforming alongside other managed care peers -- CYH -4.1%, HUM -3.2%.
Gold ends higher, nabs back-to-back gains to start the week
06-Jun-23 14:00 ET
Dow -98.29 at 33464.48, Nasdaq +9.31 at 13238.91, S&P -3.89 at 4271.17
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.07%) is the only major average in positive territory.
Gold futures settled $7.20 higher (+0.4%) to $1,981.50/oz, up for back-to-back days as investors shrug off a modestly higher dollar and yields.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.20.
Early action looking like a dud
If today was the Fourth of July and the futures for the major indices were the fireworks, we would have to call them duds. There is no ooh-and-ah in the current indications, only meh.
Currently, the S&P 500 futures are down four points and are trading fractionally below fair value, the Nasdaq 100 futures are down 20 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are down 31 points and are trading fractionally below fair value.
The lack of conviction is a little bit of a summer thing, but it's mostly a product of thinking the run the mega-cap stocks has been on is apt to hit a wall and that the broader market will be stymied by that collision.
The narrative also features a wait-and-see perspective in front of next week's release of the May Consumer Price Index and the FOMC decision.
In any case, it is shaping up to be a slow start for the cash market, which had a nice start yesterday before rolling over in the afternoon trade as Apple (AAPL) and the mega-cap stocks faded after registering larger gains earlier in the session.
The attention to that reversal, coupled with the recognition that the S&P 500 tested 4,300 but failed to break above 4,300, is another factor behind the dud-like action in the futures market.
Coinbase (COIN), however, is a bomb bursting in air. It is down 16% following a CNBC report that the SEC is suing Coinbase in New York federal court on the allegation that it is as an unregistered broker and exchange. This news follows on the heels of the SEC filing suit against Binance yesterday for improper business practices.
News of the Coinbase suit has undercut other crypto-related companies in pre-market trading, yet it hasn't lit a fuse among sellers beyond that industry.
Other news of note this morning includes D.A. Davidson downgrading Apple to Neutral from Buy, saying the Vison pro headset had already been priced in to the stock, the Reserve Bank of Australia surprising with a 25-basis points rate hike to 4.10% and noting further tightening may be required, venture capital firm Sequoia Capital announcing it will split into three different firms, and reports that a major dam in Ukraine's Kherson region has been destroyed.
There is no U.S. economic data of note today, but with labor disruptions continuing at West Coast ports, the economic outlook remains a focal point.
-- Patrick J. O'Hare, Briefing.com
G-III looking stylish today after topping Q1 estimates and announcing new licensing agreement (GIII)
G-III (GIII), which designs and markets apparel under many well-known brands such as DKNY, Donna Karan, Calvin Klein, and Tommy Hilfiger, easily surpassed Q1 earnings and revenue expectations, ending a three-quarter losing streak against analysts' EPS estimates. Revenue still declined by nearly 12% on a yr/yr basis, but significant improvements in GIII's inventory levels and gross margin were key difference makers in its turnaround quarter.
- Although inventory was higher by about 15% compared to last year, almost half of that increase is due to GIII's acquisition of Karl Lagerfeld from June of 2022. On a sequential basis, inventory levels were down by $80 mln as the company works to reduce its exposure to lower-margin licensed brands within the wholesale channel.
- GIII's licensing agreements with PVH (PVH) pertaining to the Calvin Klein and Tommy Hilfiger brands have staggered expirations in the 2025-2027 timeframe, creating a massive void in GIII's future revenue base. With these two brands accounting for approximately half of GIII's sales, the looming expirations of these licensing agreements have created a major overhang on the stock.
- However, the company took a big step in its efforts to replace that lost revenue, announcing this morning that it secured a new 25-year licensing agreement with Xcel Brands to design and produce all categories of men's and women's products for the Halston Brand.
- Primary sold in higher end department stores like Saks Fifth Avenue, Neiman Marcus, and Bloomingdale's, Halston is a luxury fashion brand that should fit in well with GIII's "power brands" such as DKNY and Karl Lagerfeld.
- The first deliveries of Halston products to top-tier department stores are expected this fall.
As GIII right-sizes its inventory position and looks to gradually replace Calvin Klein and Tommy Hilfiger with high-end brands, its margin profile should continue to improve.
- On that note, gross margin expanded to 41.2% from 35.7% in the year-earlier quarter partly due to the inclusion of the Karl Lagerfeld business which operates at a higher gross margin percentage than the rest of GIII's wholesale segment. Additionally, freight costs have moderated compared to last year, providing an extra boost to margins.
- One blemish is that the company's Q2 EPS forecast badly missed expectations, even as its revenue outlook topped estimates. The primary issue is related to the acquired Karl Lagerfeld business, which is causing a deleveraging of SG&A costs due to elevated warehousing costs associated with higher inventory levels.
- This seems to be a short-lived headwind to EPS, though, since the company also raised its FY24 EPS guidance sharply higher and well above estimates.
The main takeaway is that GIII eased concerns over its high inventory situation and its licensing expirations with PVH in the coming years in a very meaningful way, launching the stock higher.
J.M. Smucker sells off from initial gains as future growth concerns weigh (SJM)
J.M. Smucker (SJM -2%) finds itself in a jam today as shares quickly sell off after opening up around +2%, sliding toward lows on the year. Today's action followed SJM's upbeat Q4 (Apr) earnings report, where the consumer goods company, which owns the Smuckers, Jif, and Folger's banners, registered beats on its top and bottom lines. SJM also guided to yr/yr adjusted earnings and revenue growth of +3.1-6.5% and +8.5-9.5% yr/yr, respectively, in FY24.
Why are investors unimpressed? SJM's FY24 sales outlook is on a comparable net sales basis, backing out the divestiture of certain pet food brands -- recall in February SJM's agreement with Post Holdings (POST) to sell several pet food brands for $1.2 bln. If incorporated in its FY24 guidance, SJM predicts net sales to fall 10-11% yr/yr. Also, even though SJM has a relatively low incidence of private labels within its categories, investors may remain worried that its brands could struggle to maintain market share if inflation stays high for an extended period. This is intensified by SJM potentially not commanding the same brand loyalty as some of its peers, which could suppress its future pricing power.
- Still, SJM's Q4 results were solid. The company increased its top line by 10% yr/yr to $2.2 bln, fueling its double-digit earnings beat. Strength was broad-based, with SJM's Pet Foods, Coffee, Consumer Foods, and International segments all seeing decent yr/yr growth in the quarter, with Consumer Foods and International experiencing volume gains.
- A minor rough patch was SJM's two largest segments, Pet Foods (~35% of Q4 revs) and Coffee (~31%), seeing volume declines in the quarter. Pet Foods' higher prices added 12 pts to the segment's sales growth while volume/mix decreased sales by 1 pt. A similar story played out in Coffee, where price/mix erased 3 pts of sales growth.
- Also, profit margins took a slight hit in Consumer Foods (~20%), contracting 110 bps yr/yr to 22.8%. Still, on a consolidated basis, SJM recorded a respectable 230 bp improvement in adjusted gross margins to 34.5% in the quarter. The company also anticipates further improvement in FY24, projecting adjusted margins of 36.5-37.0%.
SJM's Q4 report was sound, but growth concerns are weighing on shares today. Although the company is targeting a commendable +8.5-9.5% sales growth rate in FY24, it will primarily be fueled by relatively higher prices. Also, SJM's earnings growth projections of +3.1-6.5% are on the lighter side. They could be missed entirely if SJM's brand power proves insufficient in staving off trade-down activity to private labels, especially given that its core brands like Smuckers, Jif, Folgers, and Milkbone are fairly easy to replace.
GitLab is getting it done; upside earnings/guidance is spurring today's big move (GTLB)
GitLab (GTLB +30%) is sharply higher today after it reported a much narrower than expected loss for Q1 (Apr) last night with nice revenue upside. Importantly, this provider of software development tools also guided above analyst expectations for Q2 (Jul) and the full year. After a big guide down last quarter, this was a pleasant surprise for investors.
- Many tech names talked about higher levels of deal scrutiny by customers this earnings cycle. GitLab used similar language, so it was good to see them guide higher despite being realistic about macro headwinds. Specifically, Gitlab continues to see sales cycles remaining at Q4 levels due to more people involved in deal approvals. On the positive side, bookings predictability in Q1 was much better than Q4.
- Contraction (fewer seat licenses) improved over Q4 but it is still higher than prior quarters. GitLab sees the macro trends continuing and that's putting pressure on seat count. At the same time, customers are increasingly seeing the need to consolidate their DevSecOps suppliers, which is good news for bigger operators like GitLab that are able to offer a broad portfolio of capabilities.
- Another key development for GitLab was that it recently raised the price of its premium SKU for the first time in five years. The price increase, which took effect on April 3, is going as planned. With it starting so late in the quarter, GitLab saw only a mild benefit in Q1, but the guidance suggests a bigger impact in Q2. And FY25 is when GitLab really expects a big impact to its financials. To date, customer churn is unchanged for the premium customers who renewed in April.
- The company talked quite a bit on the call about how incorporating AI throughout its DevSecOps platform is a key focus. AI is not only changing how software is developed, but it's also amplifying the value of having a DevSecOps platform. GitLab currently has 10 AI features available to customers today, almost 3x more than the competition. GitLab expects AI will make writing code easier, which should expand the audience of people, such as junior and citizen developers who build software.
- GitLab has seen a lot of excitement surrounding AI at the executive level. Enterprise level companies who may not have been in the market until 2024, 2025, 2026 are reevaluating their strategies. GitLab says AI will speed up different aspects of software creation and development. This, in turn, creates the need for a more robust security, compliance, and planning capabilities.
Overall, we think the upside guidance is largely responsible for the big move in the stock today. After a guide down last quarter, investors were likely bracing for tough guidance, especially given the talk we were hearing from others about tighter deal scrutiny and macro headwinds generally. What stands out to us is that GitLab also talked about similar issues and still guided above range. That tells us the guidance is based on a realistic view from GitLab.
Academy Sports + Outdoors misses target in Q1, but company eyes improving sales in 2H24 (ASO)
For the first time since going public in October 2020, Academy Sports + Outdoors (ASO) fell short of earnings expectations as the company became the latest retail victim of a slowdown in consumer spending. ASO also cut its EPS, revenue, and comparable sales guidance for FY24 after reaffirming its outlook in early April, indicating that business trends weakened as the quarter progressed.
The disappointing results and outlook from ASO, as well as from Hibbett (HIBB) and Foot Locker (FL), shine an even brighter light on the outperformance of Dick's Sporting Goods (DKS).
- Recall that on May 23, DKS reported upside Q1 results and reaffirmed its FY24 EPS guidance of $12.90-$13.80 and its comps outlook of flat to +2%. In comparison, ASO lowered its FY24 comps guidance to (7.5%)-(4.5%) from (2%) to +1%.
- This divergence not only shows that DKS is weathering the macroeconomic headwinds better than its competitors, but it also suggests that it's taking market share from smaller rivals like ASO and HIBB.
- A key to DKS's success is its strategy to emphasize the in-store experience for customers by providing batting cages, rock walls, putting greens, and even indoor ice rinks at some locations.
- Additionally, DKS's strong merchandise assortment, which leans on top brands like NIKE (NKE), is another competitive advantage that's helping to distance the company from the field.
As for ASO, most of the company's financial metrics took a turn for the worse this quarter.
- For instance, comps declined by 7.3% following last quarter's 5.1% decrease, while total revenue slipped by nearly 6% yr/yr to $1.38 bln, missing expectations by a fairly wide margin.
- Along with the tough business conditions, Executive Chairman Ken Hicks, who relinquished his CEO role to Chief Merchandising Officer Steven Lawrence on June 1, commented that unfavorable weather also played a role in the soft results.
- A more promotional retail environment is likely to blame for a contraction in ASO's gross margin to 33.8% from 35.5% in the year-earlier period. The margin erosion, combined with ASO's fifth consecutive quarter of sales declines, led to a yr/yr EPS decrease of about 25%.
Despite the downside Q1 results and guidance cut, shares of ASO are trading higher today. We believe the rally is partly a function of the stock selling off by nearly 30% since late April. However, CFO Michael Mullican also commented that sales are anticipated to improve in 2H24, driven by new store openings, the introduction of new brands, and a strengthening of ASO's outdoor business.
With the bad news of a rough quarter already priced in to shares, investors are looking ahead to a potential improvement in results, especially with ASO lapping easier yr/yr comps now.
Thor Industries travels to greener pastures as massive Q3 EPS beat signals possible turnaround (THO)
Thor Industries (THO +14%) journeys toward greener pastures as shares break out from a long consolidation pattern following the RV manufacturer's massive earnings beat in Q3 (Apr). THO also hiked the low end of its FY23 earnings outlook. However, it did clip $0.5 bln off the high end of its revenue guidance. That minor blemish is being brushed aside, however, as investors focus on what could be THO finally turning a corner after the pandemic pulled forward considerable sales growth and rising interest rates clouded demand.
- THO's earnings may have plummeted 64.6% yr/yr to $2.24 per share, but it was far better than analysts predicted and a stark reversal from a rare miss last quarter. It also translated to a triple-digit beat, a return to form for THO, which was surpassing bottom-line estimates by over a dollar throughout all of FY22 (Jul). Additionally, THO topped sales forecasts, posting revs of $2.93 bln, a 37.1% decline.
- Today's gains were also helped by low expectations. RV dealer Camping World Holdings (CWH) may have registered record numbers for its used RV business in MarQ, but new RV sales lagged, a warning sign that consumers were opting for less expensive RV options. Parts supplier LCI Industries (LCII) noticed similar dynamics during MarQ, noting that its other businesses, such as Marine and International, offset continued weakness in RV.
- Also, long-term fundamentals remain intact. THO has not budged from its optimism surrounding long-term demand, reiterating today that there remains a high level of interest in the RV lifestyle in North America and Europe.
- Furthermore, even though used unit sales at CWH exceeded new unit sales, this still represented a net increase in RV owners, contributing to a stronger foundation for future demand, especially if consumers begin upgrading once macroeconomic conditions turn. Meanwhile, LCII noticed rising demand amongst a younger demographic and RV rentals.
- Still, THO acknowledged the current softness within the global economy and that a swift demand return will depend on outside factors, such as inflation and interest rates. As a result, it maintained a conservative outlook to end FY23, raising the low end of its EPS guidance by $0.30 to $5.80-6.50 while trimming the high end of its revenue guidance, projecting $10.5-11.0 bln.
Downbeat sentiment surrounding discretionary spending, especially after dismal Q2 (Jan) earnings, kept a lid on THO's shares leading into its Q3 report. Therefore, by delivering a massive bottom-line beat in the quarter, THO is enjoying considerable gains today, returning to levels before its Q2 report in early March. There are still reasons to tread cautiously even if the Federal Reserve pauses interest rate hikes, as stubborn inflationary pressures can weigh on RV demand for an extended period, especially since it keeps the cost of RV ownership relatively high. Nevertheless, the market is excited about a quicker-than-expected turnaround in the RV industry, a positive sign ahead of rival Winnebago's (WGO) MayQ report later this month.
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