Market Snapshot
| Dow | 38714.77 | -190.89 | (-0.49%) | | Nasdaq | 15973.17 | -155.36 | (-0.96%) | | SP 500 | 5117.09 | -33.39 | (-0.65%) | | 10-yr Note | 0/32 | 4.30 |
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| | NYSE | Adv 1524 | Dec 1208 | Vol 3.8 bln | | Nasdaq | Adv 2218 | Dec 2013 | Vol 8.4 bln |
Industry Watch
| Strong: Energy, Materials, Industrials |
| | Weak: Information Technology, Consumer Discretionary, Health Care, Real Estate, Communication Services |
Moving the Market
-- Expectations for a pullback after big run that left major indices at all-time highs
-- Mega cap losses having an outsized impact
-- Rising Treasury yields
-- High volume on this quarterly options expiration day
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Closing Summary
15-Mar-24 16:35 ET
Dow -190.89 at 38714.77, Nasdaq -155.36 at 15973.17, S&P -33.39 at 5117.09
[BRIEFING.COM] The stock market closed this quarterly options expiration day on a downbeat note on above-average volume at the NYSE. The Dow Jones Industrial Average (-0.5%), the S&P 500 (-0.6%), and the Nasdaq Composite (-1.0%) closed with losses, but off their lows of the day.
Selling activity was partially related to some normal consolidation efforts that left many stocks lower. The equal-weighted S&P 500 declined 0.2% and 23 of the 30 Dow components closed lower. Still, the market was showing signs of resilience to selling efforts, true to 2024 form. The A-D line didn't show a strong bias toward either side of the tape. In fact, advancers had a fractional lead over decliners at both the NYSE and at the Nasdaq.
Also, the Russell 2000 outperformed, gaining 0.4% thanks to strength in its energy stocks and regional bank names. This strength also left the S&P 500 energy sector higher by 0.2% and the SPDR S&P Regional Banking ETF (KRE) with a 0.5% gain.
Aside from energy, the utilities (+0.1%), materials (+0.1%), and industrials (+0.1%) sectors settled higher while the remaining seven sectors logged declines. Relative weakness in the mega cap space drove the information technology (-1.3%), communication services (-1.2%), and consumer discretionary (-1.1%) sectors to last place on the leaderboard.
Sharp earnings-related declines in Jabil (JBL 123.15, -24.31, -16.5%) and Adobe (ADBE 492.46, -77.99, -13.7%) also contributed to the info tech sector's underperformance.
The price action in Treasuries also contributed to the negative bias in the stock market. The 2-yr note yield rose three basis points to 4.72% and the 10-yr note yield settled one basis point higher at 4.30%.
- S&P 500: +7.3% YTD
- Nasdaq Composite: +6.4% YTD
- S&P Midcap 400: +5.1% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +0.6% YTD
Reviewing today's economic data:
- February Import Prices 0.3%; Prior 0.8%
- February Import Prices ex-oil 0.2%; Prior 0.7%
- February Export Prices 0.8%; Prior was revised to 0.9% from 0.8%
- February Export Prices ex-ag. 0.8%; Prior was revised to 1.1% from 0.9%
- March NY Fed Empire Manufacturing Index -20.9 (Briefing.com consensus -8.0); Prior -2.4
- February Industrial Production 0.1% (Briefing.com consensus 0.0%); Prior was revised to -0.5% from -0.1%; February Capacity Utilization 78.3% (Briefing.com consensus 78.4%); Prior was revised to 78.3% from 78.5%
- The key takeaway from the report is that manufacturing output improved notably in February, reversing some of its decrease that was recorded in January, though even with the February rebound, manufacturing output remains down 0.7% yr/yr.
- March Univ. of Michigan Consumer Sentiment - Prelim 76.5 (Briefing.com consensus 77.3); Prior 76.9
- The key takeaway from the report is that overall sentiment has shown little change so far in 2024 and it remains halfway between the low reached in June 2022 and pre-pandemic highs.
Looking ahead, Monday's economic data is limited to the March NAHB Housing Market Index (Briefing.com consensus 49; prior 48) at 10:00 ET.
Treasuries settle with solid losses on the week
15-Mar-24 15:30 ET
Dow -177.56 at 38728.10, Nasdaq -133.78 at 15994.75, S&P -30.59 at 5119.89
[BRIEFING.COM] The major indices are moving mostly sideways ahead of the close.
The 10-yr note yield jumped 21 basis points this week to 4.30% and the 2-yr note yield settled 23 basis points to 4.72%.
Looking ahead, Monday's economic data is limited to the March NAHB Housing Market Index (Briefing.com consensus 49; prior 48) at 10:00 ET.
NVDA, TSLA are trading higher, boosting index performance
15-Mar-24 15:05 ET
Dow -169.33 at 38736.33, Nasdaq -123.62 at 16004.91, S&P -27.66 at 5122.82
[BRIEFING.COM] The major indices are slightly higher in recent action. The Russell 2000 (+0.5%) and S&P Mid Cap 400 (+0.2%) are just below session highs.
The Invesco S&P 500 (RSP) is down only 0.1% now.
NVIDIA (NVDA 891.04, +12.49, +1.4%) and Tesla (TSLA 163.53, +1.04, +0.6%) are trading higher, acting as support for the broader market.
Abbott dips as peer settles infant formula suit; CoStar atop S&P 500 following NAR settlement
15-Mar-24 14:30 ET
Dow -190.29 at 38715.37, Nasdaq -148.04 at 15980.49, S&P -32.76 at 5117.72
[BRIEFING.COM] The S&P 500 (-0.64%) is in second place as we approach the last stretch of trading on Friday, poised to end the week about -0.12%.
Elsewhere, S&P 500 constituents Abbott Labs (ABT 113.27, -5.58, -4.69%), Synchrony Financial (SYF 41.89, -1.36, -3.14%), and Intuit (INTU 628.13, -21.91, -3.37%) dot the bottom of the standings. ABT slides as peer Reckitt Benckiser (RBGLY 11.38, -1.93, -14.50%) hit an 11-year low this morning in light of a $60 mln order in an infant formula death lawsuit, while SYF and INTU dip despite a dearth of corporate news.
Meanwhile, real estate firm CoStar Group (CSGP 94.23, +6.36, +7.24%) is atop the S&P after investors eye potential beneficiaries of today's NAR settlement.
Gold dips as June rate cut sentiment cools a little
15-Mar-24 14:00 ET
Dow -226.01 at 38679.65, Nasdaq -153.12 at 15975.41, S&P -34.63 at 5115.85
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.95%) holds at the bottom of the major averages.
Gold futures settled $6.00 lower (-0.3%) to $2,161.50/oz, down -1.1% this week, as the yellow metal saw weakness stem from this week's core CPI data which served to ease June rate cut sentiment.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $103.49.
Hibbett gets knocked down after Q4 revs and FY25 sales guidance come up short (HIBB)
Hibbett (HIBB -8%) strikes out today as Q4 (Jan) revs and FY25 sales guidance fall short of analyst expectations. The sporting goods retailer, whose focus is footwear, comprising roughly two-thirds of its FY24 revs, has been running into some turbulence lately. After shares reached one-year highs to start the month, they have continued to trek downhill, slipping by around 17% following today's sell-the-news reaction.
Footwear retail counterpart Foot Locker (FL) sparked initial fear last week, projecting disappointing FY25 (Jan) earnings guidance as it transitions from heightened promotional activity to a more normalized selling environment, potentially kicking off a more resistant end-consumer. A tricky retail landscape was so concerning that even after fellow sporting goods retailer Dick's Sporting Goods (DKS) hit a home run yesterday, delivering an outsized performance in Q4 (Jan) on growth across footwear, apparel, and hardlines, shares of HIBB only ticked lower.
- While HIBB reversed two consecutive quarterly revenue declines in Q4, registering 1.8% growth yr/yr to $466.6 mln, analysts anticipated more. Comps ended the quarter down -6.4% due to a -9.2% drop in physical retail sales, which overshadowed a +6.9% jump in e-commerce comps. HIBB's remarks last quarter made the lackluster growth frustrating: it anticipated customers would purchase more this holiday season compared to last year and that concerns around student loan repayments have declined.
- Each of HIBB's categories experienced falling sales growth. Footwear was down by mid-single digits and apparel by high-single digits, while team sports plummeted by over 30%. The only silver lining from HIBB's categories was women's footwear, which edged higher by low-single digits.
- Management attributed the relative weakness to two persistent headwinds: promotional activity and inflation. High inventory levels spurred the sustained markdown activity during the quarter. However, encouragingly, HIBB's inventory levels fell by a high-teens percentage yr/yr and low-teens sequentially. Still, inflation has been particularly troubling as it weighs on consumer sentiment and hikes HIBB's operating costs, with gross margins ticking 70 bps lower yr/yr to 34.5% in Q4.
- Inflation's one-two punch is a primary factor behind HIBB's tepid FY25 guidance. The company predicted EPS of $8.00-8.75 -- the midpoint falling well below consensus -- flat to +2% revenue growth, and negative low-single digit to flat same-store sales growth. Like FL, HIBB is transitioning toward a typical selling backdrop filled with fewer promotions, which is providing a modest boost to gross margins yr/yr but could generate consumer blowback, especially in a value-seeking environment.
Investors' concerns in front of HIBB's Q4 report proved accurate as the retailer continues facing a challenging economic landscape. Following DKS's impressive performance, we mentioned yesterday that if HIBB's results lagged, it would provide further credence to DKS's bold move toward increasing its store sizes. While there are promising trends on the horizon for HIBB, especially if consumers fully accept fewer markdowns, we continue to prefer DKS as the sporting goods retail market leader.
Adobe lower on tepid guidance for MayQ; stock falls below $500 for first time since late Sept (ADBE)
Adobe (ADBE -14%) is trading sharply lower despite reporting EPS upside for its Q1 (Feb) earnings last night. This digital document giant has now posted six consecutive double digit EPS beats following four small beats, so that is a good trend. However, this beat was the smallest in five quarters. Revenue rose 11.3% yr/yr to $5.18 bln, which also was better than expected. Adobe has now posted back-to-back $5+ bln quarters for the first time with a third expected in Q2.
- The guidance was more of a problem as the mid-point of Q2 (May) revenue guidance was below expectations. Also, it sounds like analysts on the call were a bit disappointed in the ARR result and guidance. In Q1, Adobe achieved net new Digital Media ARR of $432 mln, which was above the $410 mln prior guidance. Adobe guided this metric to approx. $440 mln in Q2 but it seems a bigger sequential improvement would have been better.
- A concern is that Adobe did not raise its FY24 guidance for Digital Media net new ARR, despite the upside performance in Q1. The guidance last quarter was $1.90 bln, which we assume has not changed since there was no update.
- Its Digital Media segment performed well with revenue rising 12% yr/yr (+13% CC) to $3.82 bln, which was above prior guidance of $3.77-3.80 bln. DM is by far Adobe's larger segment, so people watch it closely. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 10% yr/yr (+10% CC) to $1.29 bln, which was at the high end of its $1.27-1.29 bln prior guidance.
- Adobe says that Acrobat Web continues to be an incredible source of customer acquisition with monthly active users up 70+% yr/yr and surpassing 100 mln users in Q1. Creative Cloud remains the solution of choice for creators, whether their medium is design, photography, video, illustration or 3D. Adobe Express is inspiring millions of users to design more quickly and easily. In the year since Adobe released Adobe Firefly, its creative generative AI model, the company has aggressively integrated this functionality into both its Creative Cloud flagship applications and, more recently, Adobe Express.
Overall, investors were not thrilled with Adobe's Q1 result, but the bigger concern seems to be the guidance. We think investors wanted to see a more bullish Digital Media net new ARR number for Q2, or at least an increase in full year guidance. Also, the revenue guidance was a bit light. Adobe typically guides in-line for revs for the next quarter, so even modest downside is spooking investors a bit. This is the second quarter in a row where Adobe did this.
Hopefully that trend changes with its next report. On a final note, Adobe did announce a new $25 bln stock repurchase authorization, so that was good to see. That is more than 10% of its current market cap, so that it pretty substantial. Management may use this pullback to buy shares.
Smartsheet's revenue guidance falls short as spending from SMB customers tightens up (SMAR)
Like workplace management platform competitor Asana (ASAN) before it, Smartsheet (SMAR) cruised past Q4 EPS and revenue expectations, but the company's guidance for Q1 and FY25 underwhelmed investors, instigating a steep selloff. ASAN, which reported earnings on March 12, noted during its earnings call that market conditions are still generating near-term headwinds for its business. Last night, SMAR echoed those sentiments with CFO Pete Godbole stating that the company is seeing "tighter domestic spending ... particularly in the SMB segment of our business."
- Mr. Godbole added that these pressures impacted the company's growth rate and that the macro impact on the SMB segment was worse than in Q3. Accordingly, SMAR's revenue growth slipped to 21% -- its slowest yr/yr growth rate in its history as a public company -- while its downside Q1 revenue guidance indicates a further slowdown in on the way. Specifically, the midpoint of its $257-$258 mln outlook equates to growth of about 17%.
- Most discouraging, SMAR is expecting the SMB business to remain under pressure for the entire fiscal year; hence, the downside FY25 revenue guidance of $1.113-$1.118 bln.
- While macro headwinds are clearly pressuring SMAR's growth, it's also important to point out that the company's larger revenue base is also a factor. On that note, SMAR crossed the $1 bln ARR mark in Q4, fueled by healthy demand from its larger enterprise customers. The number of customers with ARR over $100K increased by 28% yr/yr to 1,904, representing 53% of total ARR.
- As SMAR enters a more mature stage of its growth cycle, the company is looking to refine and expand its go-to-market strategy. To execute this strategy, the company also announced that it has hired Max Long to serve as President of a new go-to-market team.
- Most recently, he served as NetApp's (NTAP) Chief Commercial Officer, after working for Microsoft (MSFT) and Adobe (ADBE). Mr. Long will be tasked with helping SMAR win additional market share by developing more efficient go-to-market motions that are paired with product innovations.
- Simplified design and pricing, combined with a more streamlined onboarding process, are a few key facets of the strategy.
The main takeaway is that the company's SMB customers are feeling the effects of higher interest rates and macro/geopolitical uncertainties, cutting into its growth. SMAR is still executing well despite these challenges, as EPS increased to $0.34 from $0.07 a year ago and operating cash flow nearly tripled yr/yr to $59.7 mln. Those positives, though, are being overshadowed by SMAR's soft revenue guidance.
Ulta Beauty's downbeat FY25 EPS forecast proves quite unattractive, sparks profit-taking (ULTA)
Ulta Beauty (ULTA -5%) surpassed its earnings, revenue, and comparable sales forecasts in Q4 (Jan), announced its international expansion plans, and approved $2.0 bln for share repurchases. However, investors find the beauty retailer's mixed FY25 (Jan) guidance quite unattractive today.
We mentioned ahead of ULTA's Q4 report that given the numerous positive developments within the cosmetics industry, from upbeat sales growth at retailers Kohl's (KSS) and Target (TGT) to manufacturers e.l.f. Beauty (ELF) and Coty (COTY), investors had a high bar for ULTA, as reflected in the stock breaching all-time highs yesterday. Therefore, by projecting FY25 EPS below consensus, forecasting $26.20-27.00, a 2% lift yr/yr at the midpoint, ULTA is enduring a sell-the-news reaction today.
Nevertheless, even when incorporating today's ugly price action, shares of ULTA are still positive on the year and up roughly +40% since late October lows, underscoring a healthy dose of enthusiasm over the resilience of the beauty market.
- This trend remained on display during Q4. ULTA registered a 21% pop in earnings yr/yr to $8.08 per share on top-line growth of 10% to $3.55 bln, both trumping prior estimates. Meanwhile, same-store sales growth edged +2.5% higher, despite lapping +15.6% in the year-ago period, fueled by a 4.5% increase in transactions offsetting a 1.9% dip in average ticket.
- Management noted that it gained market share in the mass market category (value products), while its prestige beauty lineup was more pressured, largely due to increased competition. Categorically, skincare was the notable highlight, posting double-digit comp growth underpinned by exclusive brands. Likewise, fragrance and bath enjoyed low double-digit comp growth in Q4. Conversely, makeup and hair care comps fell by low single digits and mid-single digits, respectively.
- After over three decades since its founding, ULTA is finally expanding outside the U.S. This is its first time trying to launch outside U.S. borders, scrapping its Canadian expansion plans roughly four years ago. However, this time, ULTA is eyeing Mexico, where it commands existing brand awareness, as its next lucrative market, announcing a joint venture with Axo, a global brand operator, to launch Ulta Beauty in Mexico in 2025. Given the timeframe, the venture will not be material to ULTA's financials until FY26.
- In the meantime, ULTA must navigate a somewhat tricky economic backdrop. Management expects beauty to remain healthy but for growth to moderate this year, mainly from intensified competition. Still, ULTA's FY25 revenue outlook of $11.70-11.80 bln was ahead of consensus. The company also issued solid comp guidance of +4.0-5.0%, which is on top of +5.7% growth in FY24. However, ULTA anticipates gross margins to compress modestly yr/yr in FY25 due to lower merchandise margin and deleverage of supply chain costs.
There were several silver linings from ULTA's Q4 report. However, after such an impressive run over the past four months, aided by unwavering demand dynamics seen from many beauty retailers and manufacturers, weak earnings guidance was sufficient to trigger profit-taking today. Nonetheless, we continue to like the positive developments in the beauty space and ULTA's positioning to capitalize on them.
UiPath turns negative on the year after initial gains following JanQ results reverse course (PATH)
Even after delivering beats on its top and bottom lines in Q4 (Jan) and projecting uplifting FY25 revenue growth, UiPath (PATH -6%) is heading downhill today. Potentially frustrating investors is the unevenness embedded in the robotic process automation software developer's FY25 outlook. PATH anticipates a speed bump in Q1 (Apr), forecasting revs below consensus, reflecting a consistent seasonal pattern that tends to be weighted to its fourth quarter. Also, even as Generative AI continues to be implemented across enterprises' operations, PATH's programs, which enable actionable AI insights, are not driving outsized growth.
This shows up in PATH's FY25 outlook. The company anticipates a slowdown in revenue growth this year, projecting $1.555-1.560 bln, a 19% jump yr/yr at the midpoint compared to a +24% improvement in FY24. Similarly, PATH's FY25 ARR forecast of $1.725-1.730 bln translates to 18% growth yr/yr versus a 22% uptick exiting FY24.
AI not positively impacting revenue may be linked to customers remaining in the experimentation phase of adopting Gen AI. However, PATH remained excited about C-level executives prioritizing not just their digital transformations but also their AI transformations. PATH is also heavily investing in new AI capabilities, anticipating accelerated customer productivity following the latest version of its Autopilot software, powered by Gen AI.
Meanwhile, macroeconomic challenges persist, increasing scrutiny over new deals and capping IT budgets. This is particularly true for the lower end of the market, an immaterial portion of its overall business. Still, PATH's outlook incorporates a dynamic economic backdrop, which can trigger additional wary investors.
- There were still highlights from Q4 worth revealing. For starters, PATH delivered its first quarter of GAAP profitability. Meanwhile, when adjusting for non-recurring items, the company continued improving its profitability, expanding its bottom line by 47% yr/yr to $0.22 per share.
- Customer expansion was healthy, boasting a 26% pop yr/yr in customers with $1.0 mln or more in ARR, while customers with $5.0 mln or more in ARR grew by 50%. As a result, PATH was well-positioned to deliver accelerating revenue growth of 31.1% to $405.25 mln, crushing its $381-386 mln forecast.
- PATH's partnership with SAP SE (SAP) continues progressing well. Management was happy with the partnership's upward momentum and pipeline generation across all geographies.
PATH kicked off today's trading session in the green, underscoring decent investor approval over its Q4 results. However, those initial gains quickly reversed course as investors digested a few underwhelming trends, sending shares negative for the year. There was still much to like from PATH's Q4 report. AI is still in an experimentation phase, which may not produce outstanding gains in the near term. However, as customers continue embedding PATH's Gen AI features into their workflows, over a longer timeframe, AI may be the kindling needed to reignite top-line growth.
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