| | | Market Snapshot
| Dow | 38791.35 | +130.30 | (0.34%) | | Nasdaq | 16273.38 | +241.83 | (1.51%) | | SP 500 | 5157.36 | +52.60 | (1.03%) | | 10-yr Note | +1/32 | 4.09 |
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| | NYSE | Adv 1959 | Dec 807 | Vol 945 mln | | Nasdaq | Adv 2553 | Dec 1712 | Vol 5.0 bln |
Industry Watch
| Strong: Materials, Information Technology, Communication Services, Energy, Industrials, Consumer Discretionary, Utilities |
| | Weak: Real Estate, Financials |
Moving the Market
-- Carryover momentum from yesterday's rally
-- Gains in the mega cap space providing boost to index moves
-- Outperforming semiconductor stocks
-- A drop in Treasury yields in response to this morning's data acting as support for stocks
-- Fed Chair Powell testimony before Congress did not bring any surprise headlines, acting as support for the stock market
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Closing Summary
07-Mar-24 16:25 ET
Dow +130.30 at 38791.35, Nasdaq +241.83 at 16273.38, S&P +52.60 at 5157.36
[BRIEFING.COM] Today's trade featured a strong positive bias. The S&P 500 (+1.0%) and Nasdaq Composite (+1.5%) were pushed to all-time highs in a broad advance. The former is now 0.4% higher this week and the latter is unchanged after a soft start to the week for stocks.
Upside moves were partially driven by carryover momentum from yesterday's rally, garnering added support from outperforming mega cap and semiconductor-related names. The Vanguard Mega Cap Growth ETF (MGK) logged a 1.4% gain and the PHLX Semiconductor Index (SOX) jumped 3.4% in front of earnings news this afternoon from some names in the space.
NVIDIA (NVDA 926.69, +39.69, +4.5%), which reached a new all-time today, Meta Platforms (META 512.29, +16.20, +3.3%), and Alphabet (GOOG 135.24, +2.68, +2.0%) were among the most influential winners in the market.
Advancing issues led declining issues by a 5-to-2 margin at the NYSE and by a 3-to-2 margin at the Nasdaq.
Strength in the mega cap and semiconductor spaces drove the outperformance of the S&P 500 information technology sector (+1.9%) and the communication services sector (+1.8%). Nine of the 11 sectors registered gains today while the financials (-0.2%) and real estate (-0.1%) sectors saw slim declines.
Today's positive bias was also stemming from some relief that Fed Chair Powell's remarks before the Senate Banking Committee did not produce any surprise headlines. Mr. Powell echoed prior comments, indicating that it will likely be appropriate to cut rates later this year if the economy evolves as expected. There's also some positive buzz around the potential for the ECB to cut rates later this year like the Fed is expected to.
This morning's economic data largely supported a soft landing scenario for the economy, which also contributed to today's upside bias. The 10-yr note yield hit 4.06% after the release of the weekly initial jobless claims, Q4 Productivity, and January Trade Balance Report, but it settled at 4.09%.
- S&P 500: +8.1% YTD
- Nasdaq Composite: +8.4% YTD
- S&P Midcap 400: +6.7% YTD
- Dow Jones Industrial Average: +2.9% YTD
- Russell 2000: +2.8% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending March 2 were unchanged at 217,000 (Briefing.com consensus 217,000). Continuing jobless claims for the week ending February 24 increased by 8,000 to 1.906 million.
- The key takeaway from the report is the low glide path initial claims (a leading indicator) continues to follow, which is indicative of a labor market that remains on a relatively encouraging glide path.
- Q4 Productivity growth was left unchanged at 3.2% (Briefing.com consensus 3.1%) while unit labor costs were revised down to 0.4% (Briefing.com consensus 0.6%) from 0.5%.
- The key takeaway from the report was the same as the one for the advance estimate: unit labor costs were tame in the fourth quarter thanks to the solid increase in productivity.
- The January trade deficit widened to $67.4 billion (Briefing.com consensus -$63.3 billion) from a downwardly revised $64.2 billion (from -$62.2 billion) for December. The widening was the result of imports being $3.6 billion more than December imports and exports being only $0.3 billion more than December exports.
- The key takeaway from the report is that the increase in imports and exports, most of which was concentrated in autos and capital goods, is indicative of a pickup in global trade that would be associated with a pickup in economic activity.
- Weekly EIA Natural Gas Inventories showed a draw of 40 bcf versus last week's draw of 96 bcf
Friday's economic calendar features:
- 8:30 ET: February Nonfarm Payrolls (Briefing.com consensus 195,000; prior 353,000), Nonfarm Private Payrolls (Briefing.com consensus 150,000; prior 317,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.6%), Unemployment Rate (Briefing.com consensus 3.7%; prior 3.7%), and Average Workweek (Briefing.com consensus 34.3; prior 34.1)
Stocks hold steady into the close; Jan. Consumer Credit report
07-Mar-24 15:25 ET
Dow +104.87 at 38765.92, Nasdaq +232.15 at 16263.69, S&P +48.66 at 5153.42
[BRIEFING.COM] The major indices pulled back slightly from their highs around the same time that the January consumer credit report was released. Still, the S&P 500 is up 1.0% and the Nasdaq Composite is up 1.5%.
Consumer credit increased by $19.5 bln in January (Briefing.com consensus $10.0 bln) following a downwardly revised $0.9 bln (from $1.6 bln) in December.
The key takeaway from the report is that credit expansion accelerated in January with lower mortgage rates helping to spur increased demand for nonrevolving credit.
Separately, the 2-yr note yield declined five basis points today to 4.51% and the 10-yr note yield fell one basis point 4.09%.
COST, AVGO, GPS, DOCU trade up ahead of afternoon earnings reports
07-Mar-24 15:00 ET
Dow +97.02 at 38758.07, Nasdaq +234.05 at 16265.59, S&P +48.29 at 5153.05
[BRIEFING.COM] The major indices moved slightly lower recently, but remain near session highs.
Mega caps and semiconductor names continue to lead. The Vanguard Mega Cap Growth ETF (MGK) is up 1.3% and the PHLX Semiconductor Index (SOX) is up 3.2%.
Costco (COST 783.98, +10.87, +1.5%), Broadcom (AVGO 1395.00, +43.36, +3.3%), Gap (GPS 19.24, +0.18, +1.0%), and DocuSign (DOCU 53.73, +1.26, +2.5%) are trading up ahead of their earnings reports after the close.
On Semi outperforming, atop S&P 500
07-Mar-24 14:30 ET
Dow +136.60 at 38797.65, Nasdaq +261.46 at 16293.00, S&P +54.79 at 5159.55
[BRIEFING.COM] The S&P 500 (+1.07%) in still in second place today, shaving just a hair off levels from the previous half hour.
Elsewhere, S&P 500 constituents On Semi (ON 84.00, +6.38, +8.22%), Insulet (PODD 178.62, +12.92, +7.80%), and Edwards Lifesciences (EW92.66, +4.33, +4.90%) pepper the top of today's standings. ON moves higher alongside broader strength in technology/semi stocks, while EW caught a BofA upgrade to Buy earlier in the session.
Meanwhile, Hewlett Packard Enterprise (HPE 18.11, -0.66, -3.52%) is at the bottom of the S&P, cooling from its recent +26% rally.
Gold settles higher, Nasdaq remains atop markets
07-Mar-24 14:00 ET
Dow +220.49 at 38881.54, Nasdaq +272.63 at 16304.17, S&P +60.45 at 5165.21
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.70%) continues to lead with about two hours remaining in the penultimate session of the week.
Gold futures settled $7.00 higher (+0.3%) to $2,165.20/oz, helped higher by weakness in the dollar and renewed interest in haven demand.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $102.87.
Kroger rings up impressive numbers in Q4; continues benefiting from value-seeking behavior (KR)
Kroger (KR +8%) is ringing up excellent gains today, reaching multi-year highs on impressive profitability during Q4 (Jan), which management anticipates will persist through FY25 (Jan). The national grocer has steadily trended higher since its previous earnings report in late November. Encouraging developments from Q3 (Oct), including outperforming despite economic pressures, sustained household growth, particularly among digitally engaged households, and ongoing success in eliminating excess costs, carried into the final quarter of KR's fiscal year and likely into FY25.
- Investors approved of Kroger's headline numbers in Q4, including a 35% bump in adjusted EPS yr/yr to $1.34, translating to the company's widest beat in over five years, and a 6.4% improvement in revenue to $37.06 bln. Identical sales excluding fuel decreased by -0.8%, consistent with expectations. Kroger finished the year with comp growth of +0.9%, hitting the higher end of its +0.6-1.0% forecast.
- Kroger attributes its success to the four strategic pillars it has focused on throughout the year: fresh produce, private labels, seamless (digital growth), and personalization. An omnichannel consumer experience is the foundation of Kroger's long-term strategy, targeting greater digital penetration and an expanding store network. Within digital, Kroger expanded sales by 12% yr/yr during FY24 and anticipates another double-digit year in FY25. Meanwhile, regarding stores, Kroger plans more openings this year than in 2023.
- The omnichannel experience is vital to Kroger's long-term growth. Management mentioned that in-store and online customers spend three to four times more than in-store-only shoppers.
- Kroger's previously announced $24.6 bln takeover of Albertsons (ACI) will also bolster its physical footprint substantially. While Kroger has hit some roadblocks in pursuit of closing the deal, given an ongoing FTC lawsuit, Kroger remains confident in closing the merger, pointing to a strong M&A track record.
- Also likely supporting robust demand is a broad trade-down trend among value-seeking consumers. United Natural Foods (UNFI) pointed out yesterday how it is struggling to compete with mass merchants and club stores as inflation pushes customers toward lower-priced outlets. While Kroger does not boast as expansive a store network as Walmart (WMT) or Costco (COST), it is likely taking traffic from more regional grocery stores. For example, like UNFI, SpartanNash (SPTN) recently endured declining yr/yr sales growth in its most recent quarter.
- Looking ahead, favorable trends are not budging. Kroger anticipates adjusted EPS of $4.30-4.50, the midpoint of which surpassed analyst estimates, and identical sales growth without fuel of +0.25-1.75%.
Kroger's solid Q4 report demonstrates that the more value a grocer offers the consumer, the better it performs during the current inflationary environment. Rivals such as WMT and COST are further proof of this with their healthy comp growth. BJ's Wholesale (BJ) is another example following its improving traffic and comp trends in Q4 (Jan). Kroger's pending Albertsons acquisition may keep volatility relatively high, given the uncertainty surrounding the deal closing. However, we like how Kroger has showcased its ability to continue attracting shoppers while balancing cost-saving tactics with meaningful investment initiatives.
BJ's Wholesale not quite on par with Costco, but stronger traffic and comp trends are promising (BJ)
Fueled by an acceleration in traffic at its clubs and strong membership growth, membership warehouse retailer BJ's Wholesale (BJ) edged past Q4 EPS estimates as comparable club sales (excluding gas) came in at the high end of its guidance range of (2.0)% - 1.0%, increasing by 0.5%. After declining by 1.0% in FY24 (ending February 3, 2024), the company also expects comparable club sales to return to positive territory in FY25, forecasting growth of 1-2%.
- The comp growth does look rather pedestrian, especially when stacked up against BJ's larger rival Costco (COST), which is slated to report Q2 earnings after the close today. For instance, in Q1, COST posted comp growth of +3.8%, led by continued strength in the food and sundries category. Reflecting steady market share gains against grocery chains, this category has consistently generated high-single-digit comp growth for COST. In comparison, BJ's perishables, grocery, and sundries categories posted comp growth of about 1%.
- However, the good news is that sales trends are moving in a positive direction for BJ, helping to mitigate the impact of disinflation.
- The 1% comp increase for perishables and grocery was entirely driven by volume gains, which is encouraging because the rest of the market continues to face unit declines, according to BJ. Like COST, the company is gaining share due to the more attractive value proposition of buying items in bulk.
- These market share gains are also evidenced by BJ's robust membership growth and strong 90% membership renewal rate in FY24. In Q4, membership fee income grew by 6.5% to $108.4 mln, essentially matching last quarter's growth of 6.6%.
- While a solid performance in the perishables and grocery category was broadly anticipated due to the buying in bulk trend, the more pressing question revolved around the health of BJ's general merchandise category. Last quarter, general merchandise and services comps decreased by 11%, illustrating softness in discretionary spending, but sales trends began to improve as the quarter progressed. In fact, October general merchandise comps improved by nearly 800 bps on a yr/yr basis.
- That momentum continued into Q4 and demand was especially strong during the Black Friday shopping period. As a result, general merchandise comps increased by nearly 2%, representing an improvement of approximately 1,200 bps from Q3. Consumer electronics particularly stood out, delivering a positive comp of 9%, led by double-digit increases in TVs, video games, and audio.
Although BJ's growth rates don't necessarily jump off the page and its comp growth continues to lag behind COST, BJ turned in a solid Q4 earnings report with improvement seen across a few key metrics, such as traffic and general merchandise comps. The company's FY25 EPS guidance of $3.75-$4.00 is also slightly below expectations at the midpoint, but investors are giving BJ a pass since the company is looking to accelerate its growth by ramping up investments in new store openings. Specifically, BJ plans to open twelve new clubs in FY25 and states that it currently has more units in its pipeline than at any time during the past twenty years.
Ciena weak despite EPS upside; guidance weak as service provider recovery slows (CIEN)
Ciena (CIEN -14%) is under pressure despite reporting a huge EPS beat for Q1 (Jan). This was its largest upside EPS surprise in four quarters. The problem was the Q2 (Apr) revenue guidance of just $850-930 mln, well below analyst expectations. Ciena also expects Q2 adjusted gross margin in the low 40s, down from 45.7% in Q1. Ciena also lowered its FY24 revenue outlook to $4.0-4.3 bln, which is a slight decline from FY23 vs prior guidance of +1-4% growth.
- So what is going on? It is important to understand that Ciena has two main types of customers: cloud companies and service providers. As a reminder, supply chain constraints led to elongated lead times which resulted in large advanced order volumes. In FY23, a faster than anticipated improvement in lead times required some customers to digest the large amounts of equipment ordered in prior periods.
- Ciena explained on its Q4 call that cloud providers were really the first to experience this dynamic, and they are very clearly the first to have worked through it. However, the normalization of order volumes from its service provider segment is not materializing as quickly as Ciena had expected. Ciena was clear that its financial performance would be largely determined by the timing and magnitude of order flow from its service provider customers.
- Ciena said this morning that it had expected to see orders from service provider customers to begin to increase significantly in Q2. However, it is taking longer than Ciena and many in the industry anticipated for these customers to absorb their high levels of inventory. Ciena explains that this in part is due to difficulties installing and deploying equipment, including site readiness and access to fiber, which is limiting placement of new orders and absorption of existing inventories. In addition, Ciena is seeing some caution from service providers in certain geographies, almost entirely and predominantly being Europe.
- Ciena's current view is that it now expects a recovery in order patterns from service providers to occur more gradually over the next few quarters. However, Ciena emphasized that it views these dynamics as temporary. Also, Ciena is confident in the durability of the underlying demand drivers in the industry.
Overall, the Q1 results were quite good, but the Q2 and FY24 guidance took a hit as the service provider segment is taking longer than expected to return to normal. It has been a whirlwind past few quarters for Ciena. First, there were supply chain bottlenecks, then huge amounts of orders pushed through when that got fixed, but now customers have too much inventory. It has been a very boom-bust and unpredictable several quarters for Ciena, and it has been aggravating for investors. The good news is that the demand drivers are durable as network traffic keeps increasing, but it will take some time before its SP segment is back to normal.
Burlington Stores soars following upbeat Q4 results underpinned by elevated trade-down (BURL)
Burlington Stores' (BURL +7%) top and bottom-line beats in Q4 (Jan), impressive comparable sales growth, and solid guidance proved aces up its sleeve, keeping its current stock rally active today as shares break to one-year highs. The off-price clothing retailer had to follow a few tough acts after peers TJX (TJX) and Ross Stores (ROST) posted decent JanQ reports over the past week. However, downbeat FY25 (Jan) earnings forecasts from both TJX and ROST provided an opening where BURL could outperform, which it did, guiding FY25 adjusted EPS mostly ahead of consensus.
- Off-price retail remains an attractive outlet for shoppers amid the inflationary environment. BURL rang up +2% comp growth in Q4, well ahead of its negative 2% to flat outlook. Meanwhile, revenue growth of 13.9% yr/yr to $3.13 bln represented a second straight quarter of accelerating growth.
- Management chalked up the buoyant numbers to two primary variables. For one, disinflation is easing the cost-of-living burden among BURL's core lower-income customer base. Secondly, BURL's strides at targeting slightly higher-income shoppers who are trading down are paying off. Given how many higher-income shoppers have started frequenting its stores, the company expressed mild disappointment that comps were not higher.
- Notably, BURL's comps on clearance merchandise fell by double digits in the quarter, underpinning robust demand for regular-priced merchandise. BURL noted that comps on purely regular-priced merchandise were +4%. This dynamic supported a 140 bp improvement in merchandise margins yr/yr, helping fuel BURL's 24.7% jump in adjusted EPS to $3.69, marking its widest beat in over two years.
- BURL is optimistic trends will persist throughout the year, projecting adjusted EPS of $7.00-7.60, the midpoint of which was above consensus, revenue growth of +9-11% yr/yr, and comps of 0-2%. While the trade-down activity among higher-income shoppers has been encouraging, BURL's core lower-income base remains fragile, driving uncertainty for the year. Still, buoyant merchandise margins and easing supply chain costs will spur a 10-50 bp expansion in adjusted operating margins.
- Long-term financial targets remain unchanged. BURL continues to target low double-digit annual revenue growth over the next five years alongside average comp growth in the mid-single digits and operating margins climbing to 10%.
The lower-income shopper historically has been BURL's primary growth driver. However, starting around early 2022, when inflation began taking off, higher incomes traded down. BURL quickly enacted several strategies to pounce on this trend, delivering a higher mix of recognizable brands and elevating its assortments in certain businesses. While management conceded it should have been more aggressive, its actions have propped up comps despite weakness across its core customer base.
The year ahead still offers the opportunity for BURL to expand its base of higher-income shoppers, which will remain its focus. If it continues to succeed on this front, BURL is positioned to outperform its relatively conservative FY25 comp guidance, which would likely keep its stock trending higher.
Foot Locker tumbles after issuing weak FY25 EPS guidance, delaying long-term margin goal (FL)
Foot Locker (FL -30%) exited Q4 (Jan) on the wrong foot, delaying its path to 8.5-9.0% operating margins by two years, triggering a substantial correction today. The footwear and apparel retailer continues encountering unfavorable macroeconomic trends, forcing elevated promotional activity to clear out excess inventory.
Unfortunately, these markdowns are generating additional problems. Consumers have grown accustomed to lower prices and may experience sticker shock as FL transitions away from its high promotional levels. As such, management anticipates continual merchandise margin pressure in the immediate term. For reference, merchandise margins slipped by 400 bps yr/yr in Q4. Meanwhile, FL is rolling out its enhanced loyalty program, further dampening margin growth. As a result, FL issued disappointing adjusted EPS guidance for FY25, projecting $1.50-1.70, a minor uptick from the $1.42 delivered in FY24.
When combining these trends with a stock that has moved over 100% since bottoming in late August, investors are fleeing today, sending shares back toward levels prior to upbeat Q3 (Oct) results in late November.
- There were still several uplifting developments from Q4 (Jan). FL delivered comps of -0.7%, substantially above its negative 7-9% forecast, providing a 2% revenue lift yr/yr to $2.38, exceeding analyst estimates. The healthy top-line growth fueled FL's bottom-line outperformance, delivering adjusted EPS above consensus at $0.38.
- FL noted that trends meaningfully accelerated sequentially, primarily at its Foot Locker and Kids Foot Locker banners. As such, it was able to proactively reinvest into selected markdowns, particularly apparel, to end FY24 with a healthy inventory position, which should lead to gross margin recovery this year, albeit toward the back half.
- As FL's biggest partner, NIKE (NKE), moves toward a DTC model, FL has been making strides in diversifying its brand portfolio. Sales from brands outside NIKE increased to 40% during Q4, up from 37% last year. A notable highlight was New Balance, which more than doubled sales.
- Shifting off-mall is a vital component of FL's long-term strategy. As of Q4, FL's off-mall penetration reached 39% of its total North American square footage, up 5 pts yr/yr and edging closer to the company's 50% by 2026 target. Additionally, FL's new store formats represented 16% of its global square footage, up from 11% in the year-ago period. Comp and traffic trends tend to be more favorable at these new formats, making it critical for FL to reach its 20% target by 2026.
FL's journey toward expanding sneaker culture and becoming the go-to footwear retailer is ambitious, and it may continue facing various setbacks given the challenging economic conditions. While today's sell-off presents a decent buying opportunity given the several bright spots from Q4, we advise caution as FL has been a highly volatile stock throughout the past year.
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