Market Snapshot
| Dow | 39475.90 | -305.47 | (-0.77%) | | Nasdaq | 16428.82 | +26.98 | (0.16%) | | SP 500 | 5234.18 | -7.35 | (-0.14%) | | 10-yr Note | +25/32 | 4.22 |
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| | NYSE | Adv 837 | Dec 1820 | Vol 841 mln | | Nasdaq | Adv 1562 | Dec 2701 | Vol 4.3 bln |
Industry Watch
| Strong: Communication Services, Utilities, Information Technology |
| | Weak: Consumer Discretionary, Real Estate, Financials, Energy, Materials, Energy, Consumer Staples |
Moving the Market
-- Cooling off after big run
-- Drop in market rates
-- Strength in some mega cap stocks
-- Broad, yet modest, selling activity
-- Reacting to mixed earnings news from names like NIKE (NKE), lululemon athletica (LULU), and FedEx (FDX)
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Closing Summary
22-Mar-24 16:30 ET
Dow -305.47 at 39475.90, Nasdaq +26.98 at 16428.82, S&P -7.35 at 5234.18
[BRIEFING.COM] The stock market closed this winning week on a mixed note. The Nasdaq Composite (+0.2%) settled at a fresh all-time high, boosted by mega cap components, while the S&P 500 (-0.1%) and Dow Jones Industrial Average (-0.8%) closed with losses.
NVIDIA (NVDA 942.89, +28.54, +3.1%) was among the influential winners from the mega cap space after UBS raised their NVDA target to $1100 from $800. Apple (APPL 172.28, +0.91, +0.5%), Amazon.com (AMZN 178.87, +0.72, +0.4%), Meta Platforms (META 509.58, +1.82, +0.4%), and Alphabet (GOOG 151.77, +3.03, +2.0%) also acted as support for the broader market.
This price action propelled the S&P 500 information technology (+0.5%) and communication services (+0.9%) sectors to the top of the leaderboard today.
Meanwhile, shares of lululemon athletica (LULU 403.19, -75.65, -15.8%) and NIKE (NKE 93.86, -6.96, -6.9%), which were the worst performers in the S&P 500 today, registered sharp declines after disappointing guidance.
Tesla (TSLA 170.83, -1.99, -1.2%) was another notable laggard after lowering production at its China plant amid slowing EV sales, according to Bloomberg.
Losses in the aforementioned stocks contributed to the underperformance of the S&P 500 consumer discretionary sector, which logged a 0.6% decline. The real estate (-1.2%) and financial (-1.2%) sectors also underperformed the broader market.
Meanwhile, FedEx (FDX 284.32, +19.47, +7.4%) was the top performing stock in the S&P 500 today after reporting better than expected earnings and authorizing a new $5 billion share repurchase program.
Small cap stocks lagged the broader market, leading the Russell 2000 to close down 1.3%. The loss in the small cap index was related to weakness in regional bank shares, which also drove the SPDR Regional Banking ETF (KRE) to trade down 2.2%.
Treasuries settled with gains today and this week. The 2-yr note yield declined three basis points today, and 12 basis points this week, to 4.60%. The 10-yr note yield fell five basis points today, and eight basis points this week, to 4.22%.
- S&P 500:+9.7% YTD
- Nasdaq Composite: +9.4% YTD
- S&P Midcap 400: +7.5% YTD
- Dow Jones Industrial Average: +4.7% YTD
- Russell 2000: +2.2% YTD
Looking ahead, Monday's economic calendar features:
- February New Home Sales (Briefing.com consensus 680,000; prior 661,000) at 10:00 ET
There was no U.S. economic data of note today.
Treasuries settle with gains
22-Mar-24 15:40 ET
Dow -258.95 at 39522.42, Nasdaq +29.77 at 16431.60, S&P -3.85 at 5237.68
[BRIEFING.COM] The major indices are recovering from a quick dip recently.
Treasuries settled with gains this week. The 2-yr note yield declined 12 basis point to 4.60% and the 10-yr note yield fell eight basis points to 4.22%.
Looking ahead, Monday's economic calendar features:
- February New Home Sales (Briefing.com consensus 680,000; prior 661,000) at 10:00 ET
Small cap stocks lag, Russell 2000 underperforms other indices
22-Mar-24 15:05 ET
Dow -197.90 at 39583.47, Nasdaq +35.65 at 16437.48, S&P -0.63 at 5240.90
[BRIEFING.COM] The S&P 500 is trading near yesterday's closing level and the Nasdaq Composite trades 0.2% higher.
Small cap stocks are lagging the broader market, leading the Russell 2000 to trade down 1.0%.
The loss in the small cap index is related to weakness in regional bank shares, which also has the SPDR Regional Banking ETF (KRE) trading down 2.0%.
AES, Clorox among top gainers in S&P 500 on Friday
22-Mar-24 14:30 ET
Dow -166.04 at 39615.33, Nasdaq +53.58 at 16455.41, S&P +2.99 at 5244.52
[BRIEFING.COM] Seesaw action in the S&P 500 (+0.06%) over the last half hour has the average now modestly ahead of flat lines.
Elsewhere, S&P 500 constituents AES (AES 16.25, +0.49, +3.11%), Constellation Energy (CEG 177.56, +3.43, +1.97%), and Clorox (CLX 149.62, +1.96, +1.33%) pepper the top of the average. AES moves higher as we see some chatter of bullish options moves, while CEG and CLX rebound off yesterday's weakness.
Meanwhile, EPAM Systems (EPAM 269.91, -13.80, -4.86%) is one of today's top laggards, continuing to slide from this month's 52-week highs. Stock is displaying weakness mirroring moves in fellow IT services peer Accenture (ACN 338.48, -6.55, -1.90%) following its earnings/guidance.
Gold retreats into the weekend
22-Mar-24 14:00 ET
Dow -168.60 at 39612.77, Nasdaq +63.57 at 16465.40, S&P +4.14 at 5245.67
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.39%) is near HoDs, up about 64 points.
Gold futures settled $24.70 lower (-1.1%) to $2,160.00/oz, down less than -0.1% this week, retreating from recent rally as the dollar and equities perk up.
Meanwhile, the U.S. Dollar Index is up about +1% to $104.45.
AAR Corp loses some altitude following another small EPS beat and revenue shortfall (AIR)
AAR Corp. (AIR -6%) is losing a bit of altitude today after reporting Q3 (Feb) earnings last night. This provider of aviation services for commercial and defense aircraft buys/sells airplane parts and provides airframe inspection, maintenance, and repair services. The global recovery in commercial air travel has driven increased demand for its services in recent quarters, but AIR stumbled a bit here.
- Revenue rose 8.9% yr/yr and 4% sequentially to $567.3 mln. AIR drove 18% sales growth in its commercial business, capitalizing on continued strong demand for both its parts supply activities and MRO services. AIR expects commercial demand to remain elevated as the life and high utilization of current generation aircraft continue to extend.
- The company beat on EPS, but just barely. This is the second consecutive quarter with small beats after much larger beats the prior three quarters. Also, AIR has now missed on revs in back-to-back quarters. Not huge misses, but still misses. The three prior quarters had nice beats. One quarter of a miss is one thing, but back-to-back top line misses is a bit worrisome. Part of the issue is that AIR does not provide guidance, so analysts are a bit in the dark.
- Margins were a bright spot. Gross margin increased to 19.4% from 18.1% last year primarily due higher operating efficiency on increased sales volumes. Adjusted operating margin increased to 8.3% from 7.6% a year ago, primarily as a result of the growth in commercial sales.
- AIR notes that it has expanded its operating margins every quarter for the last three years and its adjusted operating margins are now 50% higher than they were before COVID. AIR is proud of this achievement in an inflationary environment where labor costs, in particular, have been rising.
Overall, it seems investors are understandably frustrated with AIR's financial performance the last couple of quarters. We suspect investors want AIR to be doing better, considering that commercial demand has remained elevated and considering that airlines are using their planes a lot and these aircraft are getting older. Hopefully, we can see some improvement in Q4 (May).
lululemon athletica sinks on lackluster guidance as soft U.S. demand weighs (LULU)
Shares of lululemon athletica (LULU -14%) are plummeting today, returning toward early November lows after the exercise and athletic apparel retailer projected Q1 (Apr) and FY25 (Jan) earnings and sales figures well below consensus, completely overshadowing healthy top and bottom-line beats in Q4 (Jan). LULU anticipates Q1 EPS of $2.35-2.40 and revs of $2.175-2.200 bln, and FY25 EPS of $14.00-14.20 and revs of $10.7-10.8 bln. The forecasts still translate to yr/yr growth, aided by international markets. However, a soft start to Q1 in the U.S. is creating outsized issues for LULU, which is observing a shift in consumer behavior lately as the cumulative effects of inflation weigh.
Softness in the U.S. is not exclusive to LULU. The fitness apparel retail industry has seen heightened consumer trade-down and deal-hunting as shoppers seek ways to better contend with an inflationary environment. This dynamic was recently illuminated by robust comp growth at off-price retailers like TJX (TJX) and Ross Stores (ROST). Conversely, Adidas AG (ADDYY) and NIKE (NKE) have recently dealt with weak apparel demand. ADDYY noted last week that it remains over-inventoried in apparel. Meanwhile, NKE endured a 1% sales decline in its apparel business in FebQ, trailing its other categories.
Nevertheless, LULU remains optimistic about its growth opportunities domestically and abroad.
- This confidence was reassured by healthy headline results in Q4, including a 20% improvement in EPS yr/yr to $5.29 and a 16% jump in revs to $3.21 bln. Meanwhile, comparable store sales climbed by +12%. Traffic was strong across all channels, with stores and e-commerce both increasing revs by around 20%. Meanwhile, lower freight costs helped provide a 200 bp lift to LULU's adjusted gross margins.
- Revenue growth was geographically broad-based. Americas comps grew by +7% while international comps surged by +43%. On a reported revenue basis, the Americas enjoyed a 9% bump, China increased by 78%, and the Rest of The World grew by 36%. LULU was pleased with its international growth, anticipating this upward momentum to carry into FY25.
- Another highlight from Q4 was LULU tracking ahead of its Power of Three x2 growth plan, which targets a doubling of 2021 net revs of $6.25 bln by 2026. Management added that it remains ahead of schedule in 2024.
While demand trends overseas are encouraging, they are proving futile in offsetting the weakness in the U.S. LULU is a retailer that keeps a lid on markdown activity, keeping its promotional rate relatively flat over the past several years. It does not plan to increase markdowns either in 2024, which should keep margins stable, but it is an underlying cause of its tepid revenue growth forecast. While the near-term road ahead will remain choppy for LULU, its long-term prospects should not be overly discounted. The company remains ahead of its longer-term growth plan. It also boasts tremendous growth opportunities overseas.
FedEx up sharply as it delivered big EPS upside even as revenue declines (FDX)
FedEx (FDX +8%) is up sharply today after reporting a huge EPS beat last night. Revenue in Q3 (Feb) fell 1.9% yr/yr to $22.74 bln, which was a bit light. However, that has typically been the case in recent quarters, so investors are not too worried. FedEx also narrowed its FY24 EPS guidance and reaffirmed its full year revenue outlook. For the third consecutive quarter, FDX delivered operating margin expansion despite a declining revenue environment.
- FDX says that conditions in the US have been weaker than it had anticipated and, internationally, FDX continues to see softness. Q3 marks FedEx's sixth consecutive quarter of a yr/yr revenue decline. In response, the company has been aggressively cutting costs, which has led to margin expansion despite falling revenue. Also, broadly speaking, FedEx believes that volumes are stabilizing as it laps weaker demand from a year ago.
- FedEx Express segment revenue fell 2% yr/yr to $10.10 bln, driven by continued volume softness, lower fuel and demand surcharges. Yields remained pressured due to a tapering of international export demand surcharges and an increasing mix of lower yielding e-commerce and deferred products. Yield was also pressured by increased capacity in the market. However, FedEx should be commended for being more efficient with costs for its Express segment. It has been flying fewer, but fuller planes.
- FedEx Ground segment revenue grew 1% yr/yr to $8.70 bln on a modest yield improvement and flat volumes. FedEx Freight segment revenue declined 3% yr/yr to $2.13 bln. While volume decreased yr/yr, the yr/yr decline moderated on a sequential basis. Freight segment revenue per shipment was down 1% driven by lower fuel surcharges and lower weights.
- Postal volumes were a headwind in the quarter. FedEx's contract with the US Postal Service, its largest customer, expires on September 29. FDX says it has made significant progress in negotiations for a new contract. A new multiyear agreement would provide a more efficient network with service to fewer markets. It would allow FDX to better adjust its overall network to demand.
Overall, this was an impressive holiday report for FedEx. The huge EPS upside was a nice bounce back from a loss in Q2. When we see big EPS upside even as revenue came up shy of expectations, that tells us analysts underestimated margins. FedEx's business has been slowing, but it has responded with cutting costs and being more efficient and that was evident with its Q3 results, especially the EPS upside. Also, we think FDX's comments about volumes stabilizing are helping the stock today. UPS is trading higher in sympathy.
NIKE tripped up after warning of a weak start to FY25 as it steps up its revitalization plan (NKE)
NIKE (NKE -8%) started off on the right foot yesterday after the close by delivering upbeat Q3 (Feb) numbers. The global footwear and apparel retailer registered sizeable top and bottom-line beats, pushing its shares over +7.0% higher. However, things quickly went south during NIKE's conference call. Although the company reiterated its FY24 (May) revenue growth outlook of +1% yr/yr, it warned investors of a tepid start to FY25, projecting the first half of the year to endure a low single-digit percentage sales drop.
Intensifying competition is creating problems for NIKE. To better compete in the highly fragmented footwear environment, NIKE is shifting its product portfolio toward newness and innovation. In order to bring fresh sneakers onto the market, it is dialing back some of its prominent lifestyle and performance franchises to free up space, resulting in a revenue headwind during the first half of FY25.
On the plus side, management anticipates an inflection point in the back half of FY25, ultimately resulting in positive earnings and sales growth for the year alongside expanding operating margins. However, NIKE's revitalization strategy is generating enough near-term issues to dampen any excitement over the multiple silver linings from Q3.
- Headline numbers in the quarter mainly performed in-line with NIKE's expectations. The company expanded its bottom line by 24% yr/yr to $0.98 on flat revenue growth at $12.4 bln. Gross margins edged 150 bps higher yr/yr to 44.8%, supported by strategic pricing actions and lower ocean freight rates.
- Geographically, the positive standouts were North America and China, both improving revs by 3% and 6%, respectively. Likewise, in APLA (NIKE's smallest region at 13% of FY23 sales), revenue ticked 4% higher. The weakling was EMEA (28% of FY23 revs), which recorded a 4% drop in revenue, underscored by softness in digital and wholesale channels.
- NIKE noted that customers were already responding positively to the newness it brought to market. For instance, performance footwear grew by high single digits yr/yr, with double-digit growth from $100-plus franchises, such as its Kobe and Ja basketball lines. Additionally, NIKE's running pipeline is enjoying some green shoots, with specific brands growing by double digits.
NIKE has been missing out on an ongoing trend where customers rapidly gravitate toward newness. As such, the company embarked on a revitalization plan last quarter. However, it may have been too late since NIKE conceded it needs to step on the gas, accelerating its innovation cycle and clipping the first part of FY25. Even though management anticipates growth exiting next fiscal year, investors are worried that NIKE may be losing market share relatively quickly in an industry it has dominated for decades.
In recent quarters, we have highlighted the robust demand surrounding competing brands like HOKA (DECK) and On (ONON), reflecting shifting consumer tastes. With NIKE starting to show cracks, these companies will likely only accelerate the rate at which they attract frustrated NIKE customers to their brands, which could magnify NIKE's near-term headwinds.
Winnebago heads higher; projects healthy medium-term demand following solid FebQ results (WGO)
Following rival RV maker Thor Industries' (THO) deflating JanQ results earlier this month, Winnebago (WGO +6%) shares turned sharply lower, erasing their 2024 gains. However, even though the near-term demand landscape remains cloudy, WGO is seeing a few rays of sunshine peak through. The company exceeded Q2 (Feb) earnings estimates, a welcoming reversal from the double-digit miss posted last quarter. Meanwhile, WGO forecasted reasonably uplifting financial performance over the coming years as the RV industry returns to pre-COVID dynamics, projecting around +51% revenue growth, several points of gross margin expansion, and a couple of points of RV market share capture. As a result, WGO is enjoying a healthy push higher today.
- It is no secret that the RV industry is amid numerous headwinds, from elevated interest rates keeping financing costs high to insurance, gasoline, and parts prices pushing the cost of ownership beyond consumers' comfort levels. As a result, WGO registered its sixth consecutive quarter of declining yr/yr revenue growth in Q2, recording an 18.8% drop to $703.6 mln, barely missing analyst expectations.
- The issues weighing on WGO's top line mirrored those discussed by THO. Dealers are similarly hurting from higher interest rates, forcing them to manage inventory levels tightly. Meanwhile, seasonality hindered top-line growth as dealers gear up for a typically robust spring selling season. As such, WGO reported a 16.9% drop in Towable RV sales and a 16.2% decline in Motorhome RV sales.
- WGO's Marine division, which comprised only 10% of revenue, did not fare any better, delivering a 38.2% drop in revs yr/yr. Again, dealers were reluctant to take on more inventory during the quarter. However, on the bright side, WGO continued to gain market share for its Barletta brand in the quarter, increasing to 7.9% on a TTM basis.
- Current unfavorable demand dynamics will likely persist over the near term. WGO expects Q3 (May) consolidated net revs to be up compared to Q2 but down mid to high-single digits yr/yr. The company reiterated that the destocking of aged inventory on the Towable RV side was largely finished, while the Motorhome RV category still had excess inventory on dealer lots. The same is true for WGO's Marine segment. Given the pressure economic conditions are placing on revenue, WGO warned that profitability will remain challenged in the short run.
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