Market Snapshot
| Dow | 39065.26 | -605.78 | (-1.53%) | | Nasdaq | 16736.04 | -65.51 | (-0.39%) | | SP 500 | 5267.84 | -39.17 | (-0.74%) | | 10-yr Note | -4/32 | 4.48 |
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| | NYSE | Adv 442 | Dec 2319 | Vol 903 mln | | Nasdaq | Adv 935 | Dec 3304 | Vol 7.7 bln |
Industry Watch
| Strong: Information Technology |
| | Weak: Real Estate, Utilities, Consumer Discretionary, Financials, Communication Services, Industrials |
Moving the Market
-- NVIDIA (NVDA) shares surge after impressive earnings, guidance, and announcing a stock split
-- Jump in market rates keeping broader market in check
-- Mixed responses to other earnings news
-- Broad selling picking up in consolidation trade
| Closing Summary
23-May-24 16:25 ET
Dow -605.78 at 39065.26, Nasdaq -65.51 at 16736.04, S&P -39.17 at 5267.84
[BRIEFING.COM] NVIDIA (NVDA 1037.99, +88.49, +9.3%) shares surged in response to impressive earnings and outlook, which also bolstered semiconductor stocks and AI-related names. This did not translate into broad based buying. In fact, most of today's session featured relatively broad based selling activity.
The S&P 500 and Nasdaq Composite had been trading higher at their best levels, but selling picked up in the afternoon trade. The major indices all closed near their lows of the day with losses ranging from 0.4% to 1.5%.
Ten of the 11 S&P 500 sectors settled lower. The information technology sector was the lone standout in positive territory at the close, gaining 0.6%, benefitting from activity in NVDA. Meanwhile, the rate-sensitive real estate (-2.2%) and utilities (-1.7%) sectors logged the largest declines, clipped by rising rates.
The 10-yr note yield settled four basis points higher at 4.48% and the 2-yr note yield was five basis points higher at 4.93%. The jump in rates kept the equity market in check through the entire session.
Treasuries were reacting to this morning's economic data. The S&P Global U.S. Manufacturing PMI increased to 50.9 from 50.0 while the S&P Global U.S. Services PMI jumped to 54.8 from 51.3. Also, the New Home Sales Report for April was weaker than expected.
The increase in selling interest in the afternoon that brought the market to session lows coincided with mega cap stocks giving back early gains. The Vanguard Mega Cap Growth ETF (MGK) had been as much as 1.3% at its session high, but closed with a 0.04% decline.
The afternoon deterioration was also related to some normal consolidation activity after the market reached record highs recently.
- Nasdaq Composite: +11.4% YTD
- S&P 500:+10.4% YTD
- S&P Midcap 400: +6.1% YTD
- Dow Jones Industrial Average: +3.7% YTD
- Russell 2000: +1.1% YTD
Reviewing today's economic data:
- Weekly Initial Claims 215K (Briefing.com consensus 219K); Prior was revised to 223K from 222K; Weekly Continuing Claims 1.794 mln; Prior was revised to 1.786 mln from 1.794 mln
- The key takeaway from the report is that it covers the week in which the survey for the May employment report was conducted, and with the low -- and encouraging -- level for initial claims, economists are likely to be forecasting another relatively solid increase in nonfarm payrolls.
- May S&P Global US Manufacturing PMI - Prelim 50.9; Prior 50.0
- May S&P Global US Services PMI - Preliminary 54.8; Prior 51.3
- April New Home Sales 634K (Briefing.com consensus 680K); Prior was revised to 665K from 693K
- The key takeaway from the report is that new home sales activity languished in April amid increasing mortgage rates that created affordability concerns for prospective buyers.
Friday's economic calendar features:
- 8:30 ET: April Durable Orders (Briefing.com consensus -0.8%; prior 2.6%) and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.2%)
- 10:00 ET: Final May University of Michigan Consumer Sentiment survey (Briefing.com consensus 67.6; prior 67.4
Treasuries settle with losses
23-May-24 15:35 ET
Dow -85.50 at 39585.54, Nasdaq -42.20 at 16759.35, S&P -1.51 at 5305.50
[BRIEFING.COM] The major indices are near session lows heading into the close.
The 10-yr note yield settled four basis points higher at 4.48% and the 2-yr note yield was five basis points higher at 4.93%.
Friday's economic calendar features:
- 8:30 ET: April Durable Orders (Briefing.com consensus -0.8%; prior 2.6%) and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.2%)
- 10:00 ET: Final May University of Michigan Consumer Sentiment survey (Briefing.com consensus 67.6; prior 67.4
Consolidation-related retreat continues
23-May-24 14:55 ET
Dow -625.53 at 39045.51, Nasdaq -112.50 at 16689.05, S&P -48.31 at 5258.70
[BRIEFING.COM] The broad based selling activity continued over the last half hour. The major indices all trade at or near session lows. The Russell 2000 is underperforming other major indices, showing a 1.9% loss.
The pickup in selling interest is related to normal consolidation efforts after the market reached record highs recently. Even NVIDIA (NVDA 1032.00, +82.00, +8.6%), which had been up as much as 12% earlier, participated in the broad decline.
Treasuries have pulled back from intraday high yields, but that hasn't translated into support for equities. The 10-yr note yield was at 4.49% earlier, but sits at 4.47% now, which is four basis points higher than yesterday.
Int'l Paper bucks broader trend lower on Jefferies upgrade; Comerica dips on OCC agreement
23-May-24 14:30 ET
Dow -590.16 at 39080.88, Nasdaq -58.83 at 16742.72, S&P -37.36 at 5269.65
[BRIEFING.COM] The S&P 500 (-0.70%) is in second place on Thursday afternoon, holding near session lows.
Elsewhere, S&P 500 constituents Comerica (CMA 50.34, -2.92, -5.48%), Caesars Entertainment (CZR 32.68, -2.04, -5.88%), and Insulet (PODD 171.26, -9.82, -5.42%) dot the bottom of the average. CMA slides on Thursday after the OCC found unsafe or unsound practices, including those relating to the bank's risk governance framework and internal controls, naming Comerica Bank & Trust NA, while CZR and PODD dip despite a dearth of corporate news.
Meanwhile, Int'l Paper (IP 44.19, +2.55, +6.13%) is near the top of today's standings, outperforming on an upgrade to Buy at Jefferies.
Gold shrivels as traders gauge rate picture following yesterday's FOMC minutes
23-May-24 14:00 ET
Dow -542.25 at 39128.79, Nasdaq -31.08 at 16770.47, S&P -30.05 at 5276.96
[BRIEFING.COM] The broader market has extended its fade over the prior half hour, the tech-heavy Nasdaq Composite (-0.18%) now joining its counterparts in the red with about two hours to go on Thursday.
Gold futures settled $55.70 lower (-2.3%) to $2,337.20/oz, running into some pretty decisive profit taking as traders peel a bit off from the recent run in metals following yesterday's comments from the FOMC minutes which suggested some participants were open to rate hikes if necessary.
Meanwhile, the U.S. Dollar Index up +0.1% to $105.04.
V.F. Corp stuck in a slump as its turnaround strategy has yet to produce meaningful results (VFC)
Investors remain cold towards V.F. Corp (VFC -2%) today after the outdoor apparel retailer recorded Q4 (Mar) numbers failing to meet analyst expectations. The company, known for The North Face and Vans, has struggled considerably since late 2021 to produce sustainable growth. Revenue growth slumped in 4Q22, drifting into negative territory shortly thereafter, where it has remained for seven consecutive quarters following a 13.4% drop yr/yr to $2.37 bln in Q4.
To reverse course, VFC kicked off a turnaround strategy in 2Q24 (Sep) under new CEO Bracken Darrel, who turned around Old Spice and Logitech. Mr. Darrel's strategy involves three key pillars: Reinvent, a blueprint for returning to positive yr/yr growth; Ignite, which centers on elevating the consumer experience; and Accelerate, bringing the two phases together.
VFC withdrew its guidance last year and has yet to issue formal P&L forecasts. This increases uncertainty, as analysts and investors are without a roadmap on where management expects to go in the near term. It also can weigh on the market's patience. This dynamic is on display today.
- VFC registered a net loss of $0.32 per share, a striking drop from the positive $0.17 delivered in the year-ago period. Alongside disappointing sales growth, non-GAAP gross and operating margins contracting by 120 bps and 770 bps yr/yr, respectively, pulled down VFC's bottom line. Meanwhile, the double-digit yr/yr revenue decline emerged from weakness across The North Face, which endured a 5% sales decline, and Vans, which plunged by 26%.
- However, several highlights from the quarter are worth mentioning. For starters, VFC remains on track to deliver its $300 mln cost-savings target by midway through FY25. Secondly, VFC has done a decent job reducing its excess inventory, bringing the total down by 23% yr/yr by the end of Q4 and helping to lower its debt profile meaningfully. Thirdly, VFC generated over $800 mln in free cash flow in FY24, exceeding its $600 mln target.
- Furthermore, green shoots from VFC's turnaround plan emerged. In Vans, management remarked that its inventory reset actions produced a cleaner market for introducing new products. While this has yet to generate noticeable financial improvements, it is the first step toward reigniting growth. Meanwhile, VFC has started elevating The North Face brand by increasing its portfolio of premium performance products, leveraging what the brand has been most known for over the years.
- As a result, VFC felt confident in quarterly performance steadily improving sequentially each quarter after Q1 (Jun), which will coincide with the completion of its channel inventory resets. VFC also warned that financials will remain constrained in Q1 as a result.
VFC's Q4 report did not underpin apparent benefits from the company's ambitious turnaround strategy. However, the company is starting to show some early signs of success, albeit relatively modest. Still, given VFC's past setbacks and its bearish Q1 commentary, investors are not springing to buy into VFC's anticipated recovery. It may take another quarter or two, whereby VFC must display noticeable turnaround signals before investors start warming up toward the stock.
Snowflake's earnings report receives chilly reception as company ramps up AI investments (SNOW)
Data platform and analytics company Snowflake (SNOW) has been ramping up its generative AI product offerings and those investments are starting to pay off in the form of stronger-than-expected product revenue growth -- a key metric that oftentimes steers the stock. In Q1, product revenue, which comprises the majority of SNOW's total revenue, grew by 34% yr/yr to $789.6 mln, easily beating its guidance of $745-$750 mln. However, to achieve this product revenue outperformance, SNOW has had to boost its spending on GPU chips to support its new AI initiatives, causing the company to fall short of EPS estimates.
- Recently appointed CEO Sridhar Ramaswamy, a former Google (GOOG) executive who also founded AI-powered search engine Neeva, was largely brought in to advance SNOW's AI capabilities and, in turn, reignite the company's growth. To that end, he has no intention of taking his foot off the accelerator when it comes to investing in GPUs.
- Accordingly, SNOW lowered its FY25 non-GAAP operating margin guidance to 3% from its prior outlook of 6%, and its adjusted free cash flow margin guidance to 26% from 29%. The lower margin forecast is likely weighing on the stock, although the investments SNOW is making are necessary to drive revenue growth through its new AI products, like its Cortex large language model.
- SNOW's rich valuation is also likely playing a role in the stock's muted reaction. Currently, the stock is trading with a 1-year forward P/S of about 15.6x. Although SNOW raised its FY25 product revenue guidance, the increase was quite modest with the company increasing its forecast to $3.30 bln from $3.25 bln, which essentially only covers the amount of upside seen in Q1.
- The slightly better projected growth rate of 24% compared to 22% also still represents a slowdown from the 33% growth achieved in FY24.
- Lastly, another potential issue is that during the earnings call, SNOW stated that consumption growth moderated in April following a strong February and March. This moderation likely explains why SNOW took a rather cautious stance with its FY25 guidance.
Overall, though, business is healthy for SNOW, as reflected in its impressive net revenue retention rate of 128% and the addition of fourteen customers from last quarter which are spending more than $1 mln over a trailing 12-month period. In total, the company now has 485 customers that are spending at that level. Furthermore, SNOW is just beginning to scratch the surface in terms of its AI opportunities. The company stated that it's seen a strong ramp in Cortex AI adoption, and that as of last week, over 750 customers are using these features.
e.l.f. Beauty looking beautiful to investors following robust MarQ upside and new retail wins (ELF)
e.l.f Beauty (ELF +18%) is trading sharply higher following its large EPS beat for Q4 (Mar) earnings last night. Revenue rose 71.4% yr/yr to $321.1 mln, well ahead of analyst expectations. Shares for this affordable cosmetics company initially traded lower because ELF's FY25 EPS and revenue guidance was below expectations. However, bullish commentary on the call and some new retail wins have pushed the stock back into positive territory.
- Of note, ELF closed on its acquisition of Naturium on October 4, 2023. So that is partly why sales growth was so robust. Growth will slow in DecQ when ELF laps that deal. FY24 was the first year for ELF to eclipse $1 bln in annual sales, so that was an important milestone. The Naturium deal certainly helped and has boosted its skin care segment. But from where ELF was a few years ago, it has certainly come a long way from that little cosmetics startup.
- The company has been prioritizing three areas where it sees significant runway for growth: color cosmetics, skin care and international.
- In color cosmetics, ELF continues to significantly outperform the category. In Q4, e.l.f. Cosmetics grew +30% in tracked channels vs a category that was down -3%. ELF ended FY24 with about a 10.5% market share, more than double vs four years ago, and it reached the #2 brand rank in Q4 with a 12.8% share. In Target, its longest standing national retail customer, ELF already is the #1 brand with over a 19% share.
- In skin care, ELF says it similarly continues to meaningfully outperform the category. In Q4, e.l.f. SKIN grew 38% in tracked channels vs category growth of 2%. It has grown to the #11 brand position vs #14 a year ago. ELF is also pleased with the growth it sees from Naturium.
- Turning to international, Q4 sales jumped 115% yr/yr, fueled by strength in Canada and the UK. International drove 16% of total sales in Q4 on a much bigger total business vs 13% a year ago.
- Looking ahead, ELF sees an opportunity in color cosmetics to double market share again over the next few years as it replicates its success at Target across other key retailers. And Target is not standing still, ELF expanded its market share at Target to 23% in Q4, growing its business by 70+% for the year. ELF announced last night that it's expanding shelf space for e.l.f. in fall 2024 with CVS, in addition to the previously announced space gains in spring 2024 with CVS and in summer 2024 with Walmart.
- Turning to skin care, ELF is excited about the innovation pipeline it has for e.l.f. SKIN, starting with the in-store launch of Bronzing Drops this summer. With the acquisition of Naturium, ELF explains that it now has two of the fastest growing mass skin care brands. In the US, Naturium is currently available in Target, Amazon and naturium.com. However, ELF announced last night that it will be launching Naturium in Ulta Beauty for the first time in summer 2024.
Overall, investors seem to be focusing more on the hefty Q4 beat and bullish commentary/new retail deals. ELF is very excited about its growth potential in color cosmetics, skin care and international. Briefing.com has been monitoring/profiling ELF since it made its IPO debut a few years ago and it has been impressive. With consumers watching spend, we think ELF fits the moment well as it provides high performance cosmetics at an affordable price.
ELF's results stand in notable contrast to higher end cosmetics brand, Estee Lauder (EL), which recently announced a restructuring and layoffs. We like that ELF is popular with young people and ELF is very savvy at using online media, like TikTok, to promote its brand. A possible TikTok ban, plus an online privacy bill making its way through Congress are concerns but we are confident ELF will adapt as needed.
NVIDIA breaches $1,000 a share after crushing Q1 expectations on unwavering demand for AI (NVDA)
In what has become a common occurrence over the past year, AI powerhouse NVIDIA (NVDA +10%) cleared analysts' Q1 (Apr) earnings and sales estimates and projected Q2 (Jul) revs well ahead of consensus. NVDA's performance continues to speak volumes to the health of the AI demand landscape. Prominent tech firms, from Meta Platforms (META) and Microsoft (MSFT) to Google (GOOG) and Tesla (TSLA), are pouring billions into AI. With NVDA leading the AI race, boasting more powerful and efficient chips than its closest rival, Advanced Micro (AMD), its quarterly results continue to benefit enormously.
However, few signs pointed to abrupt pullbacks in AI spending, and shares of NVDA were already near all-time highs leading into its Q1 report after doubling YTD, driving lofty investor expectations. Meanwhile, concerns were cropping up regarding the possibility customers reigned in their orders for NVDA's current flagship AI platform, Hopper (H100 and its successor H200), after the company announced its upcoming Blackwell platform touting magnitudes more power and efficiency.
Remaining a force to be reckoned with, NVDA not only crushed elevated expectations but also alleviated fears of order delays connected to Blackwell, commenting that everybody remains anxious to get their AI infrastructure online as soon as possible. Further good news came from Mr. Huang's remarks that NVDA should see plenty of Blackwell-related revs this year, an earlier timeline than the market may have expected, as the company previously projected shipping Blackwell around early 2025.
- Unwavering demand for AI was reflected in another quarter of exceptional headline numbers. NVDA delivered adjusted EPS of $6.12, an over 400% improvement yr/yr, on top-line growth of 262% to $26.04 bln, well ahead of NVDA's $23.52-24.48 bln forecast.
- Data Center revenue growth of 427% yr/yr led the charge in Q1, reflecting customer's hunger for Hopper GPUs even as Blackwell sits on the horizon. NVDA's other segments, including Gaming, Professional Visualization, and Automotive, each enjoyed double-digit yr/yr revenue growth.
- NVDA also announced a ten-for-one stock split, effective June 7 and a $0.01 per share quarterly dividend following the split. Even though a stock split merely makes shares appear less expensive, it can often generate investor enthusiasm; a lower price per share has a psychological effect and a real benefit for options traders.
- Looking ahead, NVDA anticipates another phenomenal quarter, projecting Q2 revenue of $27.44-28.56 bln or roughly 107% yr/yr growth. Non-GAAP gross margins are expected to cool off compared to Q1, landing around 75.5% compared to 78.9% this quarter. However, this is consistent with management's previous comments that favorable component costs would die down.
While nothing seems to be able to slow NVDA down, risks are still present. Tech firms are allocating massive sums toward AI in anticipation of private companies and governments signing on to extract massive productivity enhancements. Jumps in productivity could materialize as expected, but the timeline behind it is unclear, potentially leading to excess supply and orders drying up. Nevertheless, without any slowdown in capital spending on AI, NVDA will likely continue to deliver excellent quarterly performance.
Williams-Sonoma succumbs to some profit-taking as lack of guidance increase disappoints (WSM)
After launching to new all-time highs following the release of its Q1 earnings report this morning, home furnishings and decor company Williams-Sonoma (WSM) has since surrendered those gains as investors continue to digest its results and outlook. At first glance, it's easy to see why the stock immediately shot higher with WSM blowing out EPS estimates and posting a better-than-expected comp of -4.9% compared to Q4's comp of -6.8%.
- Impressively, the company's namesake brand, Williams-Sonoma, delivered back-to-back positive comps in Q1 and Q4 at +0.9% and +1.6%, respectively. Considering the slow housing market and sluggish consumer spending trends for big-ticket items, like furniture, that is a notable accomplishment.
- The Williams-Sonoma banner is particularly benefiting from ongoing strength in the kitchen business, which posted a positive comp for the fourth consecutive quarter. In Q1, the company parlayed that strength by introducing new products in categories like bakeware and cutlery.
- More broadly, WSM also believes that it's gaining market share, even as it remains committed to not running extensive promotional campaigns to drive sales. The company is achieving this through a few key competitive advantages, including its strong in-house design capabilities, its digital marketing optimization capabilities that's backed by extensive first-party data collection tools, and its superior in-store customer service and improved in-stock inventory levels.
- Furthermore, WSM was able to reinvest the savings from limiting its out-of-market and multiple shipments, and from fewer returns and replacements, into increased marketing and ad spending. These investments drove new customer acquisition and market share gains.
- Still, WSM's results were far from perfect. Most notably, the Pottery Barn brand continues to struggle, posting a comp of -10.8% on the heels of last quarter's -9.6% mark. The softness in big-ticket furniture purchases is especially hurting Pottery Barn, but WSM did state that the brand experienced some qtr/qtr improvement in that category.
- We believe most of the disappointment, though, stems from the fact that WSM didn't raise its FY25 guidance, despite outperforming its expectations in Q1. Instead, it merely reaffirmed its comp outlook of -4.5% to +1.5% and its revenue outlook of -3% to +3%. With shares up by 55% on a year-to-date basis and trading near record highs heading into the report, investors may be looking for an excuse to lock in profits and the lack of a guidance increase may fit the bill.
That issue aside, WSM delivered solid results amid a difficult retail climate, showing yet again why it's considered to be a premier name in the home furnishings space.
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