| | | Market Snapshot
| Dow | 41091.42 | -159.08 | (-0.39%) | | Nasdaq | 17556.02 | -198.79 | (-1.12%) | | SP 500 | 5592.18 | -33.62 | (-0.60%) | | 10-yr Note | -1/32 | 3.84 |
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| | NYSE | Adv 1012 | Dec 1710 | Vol 754 mln | | Nasdaq | Adv 1257 | Dec 2911 | Vol 5.3 bln |
Industry Watch
| Strong: Financials, Health Care |
| | Weak: Information Technology, Communication Services, Consumer Discretionary, Energy |
Moving the Market
-- Waiting on influential earnings after today's close
-- Light participation ahead of Labor Day
-- Digesting earnings from some retailers
-- Losses in mega caps and semiconductor stocks weighing down major indices
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Closing Summary
28-Aug-24 16:30 ET
Dow -159.08 at 41091.42, Nasdaq -198.79 at 17556.02, S&P -33.62 at 5592.18
[BRIEFING.COM] The stock market closed with losses, but the major indices climbed off session lows in front of the close. Ultimately, the S&P 500 settled 0.6% lower and the Nasdaq Composite closed down 1.1% from yesterday. The index deterioration from opening levels coincided with mega caps and semiconductor-related shares building on initial losses in front of influential earnings news from the spaces after the close.
The PHLX Semiconductor (SOX) logged a 1.8% loss and the Vanguard Mega Cap Growth ETF (MGK) fell 1.1%. This price action had an outsized impact on index performance while the Invesco S&P 500 Equal Weight ETF (RSP) closed modestly lower than yesterday, down 0.3%.
The price action in semiconductor shares and mega caps clipped the information technology sector, which declined 1.3%. A sharp decline in shares of Super Micro Computer (SMCI 443.49, -104.15, -19.0%), the worst performing stock in the S&P 500, also contributed to the underperformance of the info tech sector.
SMCI on news that it is delaying its annual 10K filing for the fiscal year ended June 30, 2024, to "complete its assessment of the design and operating effectiveness of its internals controls over financial reporting."
Bath & Body Works (BBWI 32.29, -2.43, -7.0%) and J.M Smucker (SJM 114.73, -12.35, -4.6%) were the next worst performing stocks in the S&P 500 after SMCI following their quarterly results.
The financial sector (+0.3%) and the health care sector (+0.1%) led S&P 500 sectors and were alone in positive territory at the close. Gains in many bank stocks boosted the financial sector, along with the SPDR S&P Bank ETF (KBE), which logged a 0.8% gain, and the SPDR S&P Regional Banking ETF (KRE), which settled 0.9% higher.
The gain in Berkshire Hathaway (BRK.B 464.59, +3.96, +0.9%) also contributed to the performance of the financial sector after briefly topping a $1 trillion value in terms of market capitalization today.
Volume was still below-average at the NYSE, which has been the case all week, due to light participation in front of Labor Day.
The 10-yr note yield settled one basis point higher at 3.84% and the 2-yr note yield settled three basis points lower at 3.87%.
- S&P 500: +17.2% YTD
- Nasdaq Composite: +17.0% YTD
- S&P Midcap 400: +10.0% YTD
- Dow Jones Industrial Average: +9.0% YTD
- Russell 2000: +8.0% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 0.5%; Prior -10.1
Market participants will receive the following economic data on Thursday:
- 8:30 ET: Q2 GDP -- second estimate (prior 2.8%), Q2 GDP Deflator -- second estimate (prior 2.3%), weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.863 mln), advance July goods trade balance (prior -$96.6 bln), advance July Retail Inventories (prior -$96.8 bln), advance Retail Inventories (prior 0.7%), and advance Wholesale Inventories (prior 0.2%)
- 10:00 ET: July Pending Home Sales (Briefing.com consensus 1.2%; prior 4.8%)
- 10:30 ET: Weekly natural gas inventories (prior +35 bcf)
Stocks move sideways ahead of the close
28-Aug-24 15:25 ET
Dow -208.15 at 41042.35, Nasdaq -175.00 at 17579.81, S&P -32.30 at 5593.50
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent action.
The 10-yr note yield settled one basis point higher at 3.84% and the 2-yr note yield settled three basis points lower at 3.87%.
Market participants will receive the following economic data on Thursday:
- 8:30 ET: Q2 GDP -- second estimate (prior 2.8%), Q2 GDP Deflator -- second estimate (prior 2.3%), weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.863 mln), advance July goods trade balance (prior -$96.6 bln), advance July Retail Inventories (prior -$96.8 bln), advance Retail Inventories (prior 0.7%), and advance Wholesale Inventories (prior 0.2%)
- 10:00 ET: July Pending Home Sales (Briefing.com consensus 1.2%; prior 4.8%)
- 10:30 ET: Weekly natural gas inventories (prior +35 bcf)
Some sectors trade higher as market climbs off lows
28-Aug-24 15:05 ET
Dow -182.46 at 41068.04, Nasdaq -173.61 at 17581.20, S&P -30.80 at 5595.00
[BRIEFING.COM] The market is slowly climbing off session lows.
A short time ago, all 11 S&P 500 sectors were lower. Now, the utilities (+0.3%), financial (+0.2%), health care (+0.1%), and industrial (+0.1%) sectors trade above prior closing levels.
The heavily-weighted information technology sector remains near the bottom of the pack, trading 1.1% lower.
Bath & Body Works, J.M. Smucker among top S&P 500 laggards following earnings
28-Aug-24 14:30 ET
Dow -363.90 at 40886.60, Nasdaq -273.10 at 17481.71, S&P -56.43 at 5569.37
[BRIEFING.COM] The markets bounced of weakness in the last half hour, to middling results, with the S&P 500 down a clean -1% as it stands.
Elsewhere, S&P 500 constituents Bath & Body Works (BBWI 31.84, -2.88, -8.29%), lululemon athletica (LULU 259.06, -12.11, -4.47%), and J.M. Smucker (SJM 115.12, -5.58, -4.62%) pepper the bottom of the standings. BBWI and SJM fall following earnings, while LULU caught a bearish analyst call out of Wedbush.
Meanwhile, Insulet (PODD 201.41, +8.83, +4.59%) bucks the market trend lower today, continuing to bounce off Monday's losses.
Gold loses ground as dollar, yields firm up
28-Aug-24 14:00 ET
Dow -367.25 at 40883.25, Nasdaq -197.09 at 17557.72, S&P -60.51 at 5565.29
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-1.67%) is at the bottom of the major averages with about two hours to go on the session; trading has slid to session lows in recent action as the markets fall in tandem.
Gold futures settled $15.10 lower (-0.6%) to $2,537.80/oz, pressured by a rise in the dollar and yields.
Meanwhile, the U.S. Dollar Index is up about +0.6% to $101.17.
PVH fashioning sizable losses as Q3 outlook points to increasingly difficult sales climate (PVH)
PVH (PVH), the parent company of apparel brands Calvin Klein and Tommy Hilfiger, isn't looking too stylish today following the company's Q2 earnings report which showed that macroeconomic headwinds are still pressuring its business, especially in its international markets. While the headlines of a sizable Q2 EPS beat, and a corresponding FY25 EPS guidance raise look promising, the earnings upside was mostly tied to a one-time item, and not PVH's normal business operations.
- Specifically, PVH's Q2 EPS of $3.01 included a tax benefit of approximately $0.55 related to the favorable settlement of an audit in an international jurisdiction. When PVH issued Q1 results on June 4, and guided for Q2 EPS of approximately $2.25, the company wasn't aware that it would receive this benefit during the quarter. Relatedly, the company raised its FY25 EPS guidance by the same $0.55 amount from this tax benefit. After guiding for EPS of $11.00-$11.25 last quarter, PVH is now projecting EPS of $11.55-$11.80.
- Unexpected tax benefits aside, PVH's results were lackluster and appear to be trending in the wrong direction, based on its downside Q3 outlook. In the relatively stronger North America market, revenue in the Tommy Hilfiger and Calvin Klein businesses increased by just 1% on a combined basis, down from last quarter's growth of 3%. While the wholesale business saw modest growth again, the DTC business weakened qtr/qtr with revenue decreasing by low-single digits. The company blamed recent softness in the consumer backdrop for the 4% drop in its owned and operated stores.
- Similarly, an increasingly difficult consumer environment in Asia Pacific, most notably including China and Australia, drove a 4% decrease in PVH's international business. That decline, though, is partly by design as PVH continues to implement its sales reduction initiative in Europe. The strategy is to reduce lower-margin sales and to drive higher quality sales in the region. On that note, PVH's non-GAAP gross margin improved by 250 bps yr/yr to 60.1%, reflecting a reduction in sales to lower margin wholesale accounts in Europe, as well as lower product costs.
- Unfortunately, the demand picture has darkened, so the anticipated sales declines will likely cloud over the margin improvements. For Q3, the company is forecasting a 6-7% drop in revenue to $2.05-$2.07 bln, falling short of expectations. Likewise, its EPS guidance of $2.50 also badly missed the mark.
PVH's Q2 results and guidance add to a string of recent disappointing performances from the apparel industry, including from Levi's (LEVI), NIKE (NKE), and G-III (GIII). While PVH is taking the appropriate steps to rein in inventory in Europe (overall inventory decreased by 12% in Q2) and focus on higher-margin sales, the underlying business climate has become incrementally more challenging.
Chewy's energetic Q2 results fetch plenty of buyers today; Autoship remains an x-factor (CHWY)
Shares of Chewy (CHWY +16%) have been unleashed today, popping toward previous 52-week highs reached in June after the e-commerce pet supplies retailer delivered another sizeable earnings beat in Q2 (Jul). While CHWY's Q3 (Oct) revenue outlook was relatively tame, with the midpoint missing consensus, it again reaffirmed its FY25 (Jan) sales outlook of $11.6-11.8 bln, easing concerns over potentially shaky near-term economic conditions.
- Headline earnings and sales numbers in Q2 resembled Q1 (Apr). Adjusted EPS of $0.24 represented CHWY's second consecutive double-digit beat. Meanwhile, sales growth was again consistent with analyst forecasts, inching 2.5% higher y/yr to $2.86 bln.
- CHWY's key differentiating factor, Autoship, remained the star of the quarter, growing sales by around 6%, more than double the rate of company-wide net sales growth, reaching over three-quarters of consolidated revenue. Autoship not only provides a relatively stable revenue stream for CHWY but also increases engagement. Management noted that Autoship is helping grow CHWY's market share, with net sales per active customer (NSPAC) rates at a new record of $565, a 6% lift yr/yr.
- Despite the cumulative effects of inflation, consumers continue to shift their tastes toward premium pet foods. This development reflects how important pets are to pet owners and the relatively low elasticity of pet food. Furthermore, CHWY's progress in redesigning and enhancing its mobile app strengthened customer engagement on the company's mobile platform. Unique customers placing orders through the app jumped by around 13% yr/yr, with overall app orders increasing by approximately 15%.
- Speaking of customers, CHWY ended Q2 with roughly 20.0 mln active customers, a minor bump sequentially (less than 100K), marking the first quarter of sequential growth in over a year.
- Chewy vet care clinics, a strategic priority for the company, have been serving as an acquisition funnel as vet customers help accelerate NSPAC rates. For instance, many clinic-goers are deepening their commitment to CHWY's ecosystem by purchasing pharmacy or food products for the first time. Management has also noticed a positive impact on its website following a clinic appointment. Thus far, CHWY has six clinics opened, right in the middle of its four-to-eight goal for 2024.
CHWY's Q2 report held onto the uplifting turnaround dynamics experienced last quarter. One of the significant positive themes from Q1 was management's remark that it did not notice any further deterioration in the discretionary spending environment. This headwind weighed heavily on FY24 numbers. With demand continuing to hold despite the broader economy enduring pockets of noticeable weakness, investors continue to warm up toward CHWY. However, the stock still has a long road to climb to reach 2021 highs of $120.00.
Ambarella issues strong beat-and-raise report on new product growth and normalized inventory (AMBA)
With the inventory correction now in the rearview mirror and with demand for its AI inference and edge products picking up steam, Ambarella (AMBA) delivered an impressive beat-and-raise 2Q25 earnings report and returned to positive yr/yr revenue growth of +2.6%. Over the past several quarters, AMBA's automotive and IoT customers engaged in destocking as they rebalanced their inventory, resulting in seven consecutive quarters of yr/yr revenue declines. However, during the earnings call, the company stated that it expects revenue in 2H25 to reflect actual end market demand since most of its customers have completed their rebalancing efforts.
- AMBA also commented that while the macroeconomic environment and slowing EV market are headwinds for its business, company-specific catalysts are overcoming those pressures. This is illustrated by the company's Q3 revenue guidance of $77.0-$81.0 mln, which easily exceeded expectations and represents strong sequential growth of 24% at the midpoint.
- One of those key catalysts is the emergence of AMBA's new AI inference and edge products -- notably including its CV5 chips -- and the higher average ASPs that those products carry. Currently, the CV5 family is the only new product on the market, being sold into the automotive and IoT end markets. Demand is quite healthy as AMBA expects to exceed 1.0 mln units shipped this year across more than 1,000 design wins.
- Looking ahead to late FY25, the CV7 family is slated to enter production, with the initial applications also centering on computer vision for the auto and IoT markets. However, CV7 is ultimately expected to power vision-language models in data center settings, representing the next stage of this growth cycle. In simple terms, vision-language models are defined as models that can learn from both text and images.
- The ramp up of AMBA's new products should also eventually provide a boost to AMBA's gross margin, thanks to their higher ASPs. In Q2, non-GAAP gross margin slipped by 130 bps yr/yr to 63.3%, and for Q3, the company is forecasting gross margin of 62.5%-64.0%.
The main takeaway is that AMBA has finally turned a corner in terms of the inventory-related headwinds that have plagued its business, setting the stage for much stronger growth in the coming quarters as its launches and ramps new AI inference products.
Abercrombie & Fitch tumbles despite uplifting Q2 results as gloomy economy sparks concerns (ANF)
Abercrombie & Fitch (ANF -16%) rolled up its sleeves in Q2 (Jul), posting top and bottom-line beats, robust same-store sales growth, and lifting its FY25 revenue growth outlook. The numbers were sound across the board, with the Abercrombie and Hollister brands, as well as all geographies, registering double-digit comp growth.
Why are shares selling off then? ANF warned of an increasingly challenging macroeconomic environment, which will coincide with unfavorable yr/yr comparisons in Q3 (Oct) and Q4 (Jan). ANF's FY25 revenue growth outlook, albeit up 2-3 pts from its previous forecast, incorporates a significant slowdown compared to the first half of the year, reflecting the more difficult comparisons and a stubbornly uncertain economic backdrop. Meanwhile, ANF's projected Q3 operating margins fell modestly below street estimates, largely due to higher-than-expected freight costs. When combining these weak points with a +35% run in the stock since August 5 lows, investors are locking in profits today.
- ANF's Q2 performance carried many of the highlights over from last quarter, expanding its EPS by 127% yr/yr to $2.50 on revenue growth of 21.2% to $1.13 bln and same-store sales growth of +18%. ANF focused on trimming its inventory late last year to be better positioned in FY25 to reduce markdowns and preserve margins. On that note, operating margins swelled by 590 bps yr/yr to 15.5% in the quarter.
- Abercrombie comps ballooned by +21%, while Hollister trailed but still posted comps of +15%, an acceleration from +13% last quarter. Abercrombie growth remained balanced between men and women, as well as with new and existing customers. The Wedding Shop, which launched last quarter to provide customers with a curated set of dresses and other wedding-related apparel, continued to contribute nicely to overall comps. At Hollister, upward momentum continued to mount, aided by a healthy back-to-school season, which is trickling into Q3.
- Geographically, the Americas, EMEA, and APAC regions each delivered excellent comp growth at +18%, +17%, and +21%, respectively. The outsized gains outside of the Americas reflect ANF's success with localizing its playbook.
- Following another impressive quarter, ANF projected upbeat Q3 and FY25 growth, targeting low double-digit revenue growth yr/yr in Q3, higher than analyst expectations, and +12-13% growth for the year, up from +10%, which was already raised from +4-6%. Management added that it is looking forward to the holiday shopping season and improving profitability throughout the year.
At a surface level, ANF's Q2 report was solid. The company continued to benefit from its appealing brands domestically and abroad. As we have mentioned in the past, ANF has done a tremendous job transforming itself from a stale T-shirt and jeans company to an organization offering attractive brands with a more diverse assortment that has expanded its age demographic. However, a continuously conservative outlook, with FY25 growth guidance implying around a +7% sales lift in Q4, well below the over +20% jumps registered in Q1 and Q2, amid an increasingly challenging economic environment, is enough to spark concern amongst investors, fueling a significant pullback today.
Paramount Global forced to stick with Skydance after Mr. Bronfman drops out (PARA)
Paramount Global (PARA -5%) turns lower after ending its "Go-Shop" period, which was extended last week after Edgar Bronfman Jr. and several other investors tossed out a bid to purchase the company. Paramount has been seeking acquirers for some time now, recently signing a definitive agreement with Skydance, which is buying National Amusements, the entity that owns most of the Class A voting shares.
However, Mr. Bronfman, the former Chairman and CEO of Warner Music and current Chairman of Fubo (FUBO), made a competing offer, initially outlining a $4.3 bln proposal, which he raised to $6.0 bln, only to withdraw this bid last night. The withdrawal reportedly followed some of Mr. Bronfman's partners dropping out, keeping him from piecing together the equity to finance the acquisition.
Skydance's and Mr. Bronfman's offers are similar. For example, each will pour $1.5 bln of cash into Paramount and purchase the company through National Amusements. However, there are a few key differences explaining why shares of Paramount slipping today.
- Skydance is offering Paramount Class B shareholders the option to either sell around half of their holdings for $15.00 per share, representing a premium of around 40% when using today's stock price, or hold onto them while the companies merge.
- While the details of Mr. Bronfman's offer are murky, his takeover deal does not appear to involve shareholders being able to offload half their Class B shares at $15.00 per share. Instead, reports show that it offered shareholders the ability to cash a significantly smaller percentage of their holdings at $16.00 per share.
- While Mr. Bronfman's proposal did allow Class B shareholders to sell at a slightly higher price, they would not have been able to sell as much. In the ongoing M&A saga Paramount has been involved in for months, cutting ties with Mr. Bronfman is not the worst-case outcome. The Skydance deal provides Paramount with a much-needed cash injection while also adding a new leadership team that could re-energize the company.
The main takeaway is that today's sell-the-news reaction to Mr. Bronfman pulling out of the battle to acquire Paramount may be overblown. Still, even though the uncertainty surrounding who will take over Paramount has cleared, the company has a formidable uphill climb. Cable is struggling, and streaming comes with significant operating costs. Paramount has plenty on its plate under new leadership, which is expected to step in sometime during 1H25 when the Skydance transaction closes.
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