| | | Market Snapshot
| Dow | 40861.71 | +124.75 | (0.31%) | | Nasdaq | 17395.51 | +369.65 | (2.17%) | | SP 500 | 5554.13 | +58.61 | (1.07%) | | 10-yr Note | 0/32 | 3.65 |
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| | NYSE | Adv 1573 | Dec 1106 | Vol 933 mln | | Nasdaq | Adv 2235 | Dec 1931 | Vol 6.1 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Utilities, Materials |
| | Weak: Consumer Staples, Energy, Financials, Health Care, Real Estate, Industrials |
Moving the Market
-- Digesting the CPI report, which reflected sticky prices in August
-- Gains in chipmakers providing support
-- Mega caps recovering from early losses
-- S&P 500 holding above Friday's low (5,402) on initial retreat acting as support
-- Choppy action in Treasuries following CPI
| Closing Summary
11-Sep-24 16:30 ET
Dow +124.75 at 40861.71, Nasdaq +369.65 at 17395.51, S&P +58.61 at 5554.13
[BRIEFING.COM] Today's trade started on a downbeat note after this morning's release of the August Consumer Price Index (CPI). The report stoked selling interest due to the understanding that core-CPI, which excludes food and energy, remained above the Fed's 2.0% target at 3.2% year-over-year.
The S&P 500 was down as much as 1.6%, the Nasdaq Composite was down as much as 1.4%, the Russell 2000 was down as much as 1.9%, and the Dow Jones Industrial Average was down as much as 1.8%.
Stocks staged a turnaround, though, that left the major indices near session highs. The S&P 500 logged a 1.1% gain and the Nasdaq Composite rose 2.2%, propelled by strength in the semiconductor space and mega cap stocks. The Dow Jones Industrial Average and Russell 2000 logged slimmer gains.
This week's gains range from 1.3% to 4.2% in the three major indices.
The recovery kicked into gear when the S&P 500 held above last Friday's low (5,402) on the initial retreat. The positive price action was helped by strength in NVIDIA (NVDA 116.91, +8.81, +8.2%), along with other semiconductor and mega cap shares.
The Vanguard Mega Cap Growth ETF (MGK) was up 2.1% and the PHLX Semiconductor Index (SOX) was up 4.9%.
Many stocks participated in the afternoon rally, leaving the equal-weighted S&P 500 0.1% higher and six S&P 500 sectors with gains.
The information technology sector (+3.3%) was the best performer by a decent margin thanks to aforementioned gains. The consumer discretionary sector also showed strength, rising 1.3%.
The energy sector logged the biggest decline, down 0.9%, followed by the consumer staples sector (-0.9%).
Treasuries exhibited choppy action following the CPI report. The 2-yr note yield went from 3.55% to 3.69% and settled four basis points higher on the day at 3.65%. The 10-yr note yield went from 3.61% to 3.69% and settled one basis point higher on the day at 3.65%.
- S&P 500: +16.4% YTD
- Nasdaq Composite: +15.7% YTD
- Dow Jones Industrial Average: +8.4% YTD
- S&P Midcap 400: +6.4% YTD
- Russell 2000: +3.8% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 1.4%; Prior 1.6%
- August CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.2%, August Core CPI 0.3% (Briefing.com consensus 0.2%); Prior 0.2%
- The key takeaway from the report is the understanding that core inflation is sticking stubbornly above the Fed's inflation goal of 2.0% which, to be fair, is oriented around the PCE Price Index. Still, the elevated core reading on a monthly and annual basis will be a focal point for the Fed and a likely reason to keep a September rate cut capped at 25 basis points.
Looking ahead, Thursday's economic lineup features:
- 8:30 ET: August PPI (Briefing.com consensus 0.2%; prior 0.1%), Core PPI (Briefing.com consensus 0.2%; prior 0.1%), weekly Initial Claims (Briefing.com consensus 229,000; prior 227,000), and Continuing Claims (prior 1.838 mln)
- 10:30 ET: Weekly natural gas inventories (prior +13 bcf)
- 14:00 ET: August Treasury Budget (prior -$243.7 bln)
Treasuries settle slightly lower after CPI data
11-Sep-24 15:35 ET
Dow +65.37 at 40802.33, Nasdaq +305.26 at 17331.12, S&P +43.50 at 5539.02
[BRIEFING.COM] The major indices continue to climb ahead of the close.
The 10-yr note yield ultimately settled one basis point higher at 3.65% and the 2-yr note yield settled four basis points higher at 3.65%.
Looking ahead, Thursday's economic lineup features:
- 8:30 ET: August PPI (Briefing.com consensus 0.2%; prior 0.1%), Core PPI (Briefing.com consensus 0.2%; prior 0.1%), weekly Initial Claims (Briefing.com consensus 229,000; prior 227,000), and Continuing Claims (prior 1.838 mln)
- 10:30 ET: Weekly natural gas inventories (prior +13 bcf)
- 14:00 ET: August Treasury Budget (prior -$243.7 bln)
Many stocks climb in recovery effort
11-Sep-24 15:05 ET
Dow -12.03 at 40724.93, Nasdaq +243.56 at 17269.42, S&P +28.50 at 5524.02
[BRIEFING.COM] The S&P 500 (+0.5%) and Nasdaq Composite (+1.4%) trade at or near session highs.
Many stocks have participated in today's recovery from initial losses. The Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.3% decline now after being down as much as 2.0% earlier.
The Dow Jones Industrial Average is still fractionally lower also.
First Solar leads S&P 500 on debate read-through, Conagra slips as markets rotate back into tech
11-Sep-24 14:30 ET
Dow -133.89 at 40603.07, Nasdaq +189.86 at 17215.72, S&P +13.43 at 5508.95
[BRIEFING.COM] The S&P 500 (+0.24%) is once more in second place among the major averages, up near session highs while consolidating gains from the prior half hour.
Elsewhere, S&P 500 constituents First Solar (FSLR 234.63, +26.41, +12.68%), AES Corp. (AES 17.58, +1.14, +6.93%), and Norwegian Cruise Line (NCLH 18.64, +0.87, +4.90%) pepper the top of the standings. FSLR and fellow solar stocks show a liking to last night's presidential debate, AES is getting a boost from Jefferies launching coverage at a Buy, and NCLH caught a tgt bump at Mizuho alongside modest strength in cons. discretionary (+0.18%) stocks.
Meanwhile, Illinois-based food processing firm Conagra (CAG 31.29, -1.50, -4.57%) is one of today's worst laggards, underperforming as the market rotates back into tech stocks today; S&P 500 consumer staples (-1.25%) lead today's losses.
Gold treads water as investors digest CPI data
11-Sep-24 14:00 ET
Dow -74.31 at 40662.65, Nasdaq +197.23 at 17223.09, S&P +11.94 at 5507.46
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.16%) notched fresh session highs in the last half hour, now up about 197 points.
Gold futures settled less than $1 lower to $2,542.40/oz, held down a bit by this morning's CPI data which served to quell sentiment of a outsized rate cut at the Fed's next opportunity.
Meanwhile, the U.S. Dollar Index is up now less than +0.1% to $101.69.
Canadian Nat'l Rail moves lower after clipping its FY24 EPS outlook following work stoppage (CNI)
Canadian Nat'l Rail (CNI) is in reverse today after lowering its EPS growth outlook for the year after finally restoring operations following several months of labor uncertainty and a resulting total shutdown of its Canadian rail network. CNI and its Canada-based counterpart, Canadian Pacific Kansas City (CP), were dealing with a labor dispute that could have led to significant disruptions across North America. Late last month, both railroad companies' Canadian networks were shut down after implementing a worker lockout. The shutdown was short-lived after the Canadian government swooped in almost immediately, ordering binding arbitration to end the dispute.
Today, CNI announced that its operations fully recovered, albeit not without damage to its near term outlook. CNI reduced its FY24 EPS growth outlook to low single digits from its previous target of mid to high single digits, which was already down from its initial outlook of approximately 10%. It is also well below CP's recently updated FY24 adjusted EPS growth forecast of a double-digit percentage.
- When concerns of a work stoppage started to brew in late May, companies began shifting volume away from CNI. During its Q2 earnings call in late July, CNI remarked that volume destined for the U.S. through its rail network shifted to U.S. ports, causing lighter volumes at its Rupert port. Meanwhile, even though CNI enjoyed heavy grain flows in its Vancouver corridor, it moved record volumes inefficiently, illuminated by velocity issues, which have since returned to normal.
- At the same time, the ongoing economic recovery is advancing slower than CNI initially anticipated. Due to current commodity prices, the company adjusted its outlook for lumber, now expecting a 2025 recovery instead of a gradual rebound this year. Additionally, overall industrial production remains mildly positive but tepid, partly due to persistent inflation and elevated interest rates.
- The headwinds in the global economy are eroding CNI's 2024-2026 guidance, projecting a compounded annual adjusted EPS growth rate in the high single digits, down from the company's +10-15% guidance reaffirmed less than two months ago. The reduction underscores just how much slower the pace of an economic recovery is compared to how it was trending in late July.
CNI is still confident that an economic rebound will eventually unfold, even if it takes slightly longer than it thought. It helps that the labor issue has been cleared up, removing a nasty overhang. However, while one cloud has cleared, economic conditions present several additional headwinds. Last week, LTL trucking companies Old Dominion (ODFL) and XPO, Inc. (XPO) issued gloomy Q3 updates, underpinning softness across the U.S. Canadian-based TFI International (TFII) noted in late July that the challenges associated with the U.S. and Canada market will lead to a problematic back half of 2024. These economic variables keep uncertainty relatively high, creating further obstacles for CNI to clear.
Designer Brands getting booted today after missing Q2 estimates and lowering guidance (DBI)
Footwear and accessories retailer Designer Brands (DBI) is not in style today as shares sink to multi-year lows after the company reported soft Q2 results that missed expectations and cut its FY25 EPS and revenue guidance. The owner of the DSW brand experienced sustained pressure in the seasonal and dress categories, resulting in total sales and comparable sales declining by 2.6% and 1.4%, respectively. While DBI's pivot to increasing its athleisure and athletic footwear assortment has helped mitigate the weakness in the dress category, the shift has also created a headwind for gross margin, which contracted by 170 bps yr/yr in Q2.
- In addition to lower initial markups (IMU) for athletic footwear, DBI ramped up promotional activity in order to clear out some seasonal inventory, putting more pressure on margins and earnings. The company believes that it can be less reliant on promotions this fall season following a solid back-to-school shopping season, but IMU is still expected to be a negative factor as it continues to grow its athletic inventory.
- On that note, DBI's top eight brands, each of which are in the athletic and athleisure categories, generated strong growth of more than 30% in Q2 and now account for 39% of total sales compared to 30% a year earlier. Although the momentum for this category has continued into Q3, prompting DBI to forecast positive comps in the back half of the year, the improvements from its reinvigorated assortment strategy have been more muted than it anticipated due to sluggish discretionary spending trends.
- The slower-than-expected sales recovery and gross margin headwinds not only resulted in a Q2 top and bottom-line miss, but they also caused DBI to lower its FY25 EPS and revenue guidance. Specifically, the company now sees EPS of $0.50-$0.60, down from its prior outlook of $0.70-$0.80, on flat to low-single digit revenue growth versus its previous guidance of low-single-digit growth.
- Looking beyond just this current quarter, DBI is banking on new marketing initiatives and an enhanced eCommerce platform to support its shift to a more athletic product assortment. There's some reason for optimism here since the digital platform posted mid-single-digit growth for the third consecutive quarter.
Overall, it was another rough quarter for DBI as a mixture of industry-wide and company-specific items combined to weigh on its results and outlook. While the company's strategy to expand its assortment of athletic footwear and apparel is paying dividends, as illustrated by the +15% comp for the adult athletic category, the benefits haven't been enough to overcome the softness in dress and seasonal, and the margin erosion.
GameStop powers down after badly missing sales estimates and launching another stock offering (GME)
Meme stock GameStop (GME) is powering down after posting another dismal earnings report and announcing plans to sell up to 20 mln shares through an offering -- something that the company and traders of GME stock are quite accustomed to. Following a 29% dive last quarter, revenue plunged by 31% in Q2 to $798.3 mln, badly missing expectations, indicating that the company is still reeling from the shift to digital-based games from physical consoles and discs.
- Despite GME's deep struggles, shares have jumped higher by 34% on a year-to-date basis, fueled by the reemergence of meme trader Keith Gill (Roaring Kitty) back in June 2023. From a fundamental perspective, there's not much there to justify those gains, but GME does have one significant factor working in its favor: namely, the wild swings higher in its stock have enabled GME to cash in by selling stock at elevated prices, providing it with a war chest of capital.
- Preceding today's 20.0 mln share offering announcement, GME launched a 75.0 mln share offering on June 7 and a 45.0 mln at-the-market program in mid-May.
- Thanks to these capital raising efforts, GME's cash and cash equivalents balanced totaled nearly $4.2 bln as of August 3, 2024, providing the company with plenty of leeway as it continues its turnaround plan.
- The hefty cash balance also generated nearly $40 mln in interest income, which was a key driver behind GME's Q2 EPS beat.
- GME's turnaround plan centers on building a stronger omnichannel model, diversifying its product offerings to include more value-added items like collectibles, cutting costs, and reducing its store footprint. However, GME hasn't had much success in sparking demand through its omnichannel and product diversification efforts. In Q2, Collectibles revenue sank by 18% yr/yr to $139.4 mln, while Hardware & Accessories saw sales dive by 24% to $451.2 mln.
- In terms of cutting costs and closing stores, GME has been more effective. Adjusted SG&A expense decreased by 14% in Q2 to $280.4 mln and over the past two years the company has shuttered over 800 underperforming stores.
- The company has no intention of slowing this process down, either, disclosing in its SEC filing that it anticipates closing a larger number of stores than it has closed over the past few years once it completes its store portfolio optimization review.
The main takeaway is that GME's turnaround is still failing to gain traction and since the company opts to forgo holding earnings conference calls, it's difficult to put a timeline on when that turnaround may begin to pay bigger dividends. With that said, fundamentals haven't been the primary driver for the stock, so it wouldn't be overly surprising if GME quickly recovered from today's selloff.
Dave & Buster's looks to bust free from downward trend following big EPS beat in Q2 (PLAY)
Dave & Buster's (PLAY +1%) looks to bust free from its extended downward trend today after delivering a sizeable beat on its bottom line in Q2 (Jul). While revenue growth missed the mark in the quarter, dragged down by lackluster same-store sales, which fell short of street estimates, the restaurant and entertainment chain registered several uplifting developments, possibly pointing to a long-awaited comeback.
Since April, PLAY shares tumbled by over 50% ahead of Q2 numbers. PLAY encountered softening foot traffic due to its price hikes across food, beverage, and games, which coincided with sticky inflationary pressures. However, management believed that as it enhanced its locations, remodeled interiors and revamped menu items and game offerings, consumers would respond positively to higher prices.
- While PLAY's Q2 comps of -6.3% were disappointing, they do not fully portray the early success of PLAY's initiatives. Instead, it is essential to look at forward bookings for FY25 (Jan), which management noted were significantly higher than where they were last year. Meanwhile, PLAY's adjusted EPS of $1.12 marked a notable improvement from the year-ago period, supported by expanding adjusted EBITDA margins due to updated pricing.
- Furthermore, PLAY just rolled out the next phase of its new menu in August, which focuses on beverages and special events. Its previous new menu items have already been well received by guests, illuminated by improving food and beverage performance and satisfaction scores.
- Loyalty membership continues to expand, with 25% more active members yr/yr. PLAY noted that loyalty guests visit locations 2.5x more often on average and spend 15% more per visit compared to non-loyalty members. Given these numbers, PLAY is deploying a similar loyalty program for Main Event, which it acquired in 2022. Management commented that it is laying the foundation to launch a loyalty program at Main Event in early 2025. It is also evaluating partnerships that it expects will boost traffic and sales trends later this year.
- PLAY anticipates its array of store models, menu item refreshes, and pricing to lead to growth in comps, revs, and margins over the coming quarters. However, because of the dynamic economic environment, PLAY emphasized being methodical regarding pricing.
With forward bookings for the back half of the year trending considerably higher yr/yr, PLAY's ongoing strategic actions are finally beginning to bear fruit. At the same time, the company is penetrating the international market, expecting to open 4-5 stores outside the U.S. over the next 12 months, with the first to open before year's end.
However, with plenty on its plate, heightened uncertainty remains, especially given the volatile economic backdrop. We mentioned last quarter that after PLAY enjoyed a similar gap higher, the company could encounter difficulty sustaining a rally until its comps show meaningful improvement. While overall trends in Q2 were a promising sign that perhaps comps will begin to improve over the coming quarters, it may still be better to wait and see.
Academy Sports + Outdoors sporting solid gains as it puts rough quarter in rearview mirror (ASO)
As anticipated, Q2 was another difficult quarter for Academy Sports + Outdoors (ASO) as a combination of macroeconomic, weather-related, and company-specific headwinds caused the retailer to fall short of sales and comp expectations while downwardly revising most of its FY25 guidance. Similar to the past several quarters, reduced spending power from ASO's primary customer base -- households with incomes between $50,000-$150,000 -- weighed on demand, especially for big-ticket product categories like trampolines, pools, marine, and fitness.
- Making matters worse, the Texas-based company contended with several major weather events during the quarter, including tornados in Houston and Dallas, as well as Hurricane Beryl hitting in July.
- Meanwhile, in Georgia, ASO had troubles converting a distribution center to its new warehouse management system, resulting in out-of-stock situations across part of its store footprint. The primary issue was that the ramp up in productivity from the new system didn't keep pace with the accelerated throughput ASO needed to keep shelves fully stocked during the busier summer months. This situation cost the company approximately $32 mln in sales during Q2.
- As a result of the above headwinds, comps came in at -6.9%, missing expectations and representing a downturn from Q1's -5.7% comp. A decline in store traffic resulting in a 7.4% drop in transactions was the main driver behind the Q2 comp shortfall.
- There were some pockets of strength, though, during the quarter. For instance, the footwear category saw a 1% increase on a yr/yr basis, with solid results from brands such as NIKE (NKE), New Balance, and ASICS. Team sports, such as baseball, football, and pickleball also posted modest growth, but the declines in big-ticket items were too much to overcome.
- Looking ahead, ASO doesn't expect the macro-related headwinds to ease, prompting the company to lower its FY25 EPS guidance to $5.75-$6.50 from $6.05-$7.05, its sales outlook to $5.895-$6.075 bln from $6.07-$6.35 bln, and its comp forecast to -6% to -3% from -4% to +1%. The one silver lining is that ASO maintained its gross margin guidance of 34.3-34.7% as it continues to effectively manage inventory, which was flat on a yr/yr basis and down 5% in terms of units per store.
- Amid this difficult environment, ASO is still executing on its growth strategy which centers on both store and eCommerce expansion. The company said that it remains on track to open 15-17 new stores this fiscal year. On the omnichannel front, the eCommerce business posted its third consecutive quarter of positive growth and penetration increased by 30 bps yr/yr to 9.7%. ASO also rolled out a new loyalty program called "My Academy" and the early returns have been positive as daily sign-ups are over 3x the level it previously saw from customers opening a new Academy credit card.
Expectations were quite muted heading into the Q2 report. Although ASO's results and outlook were indeed soft, investors are hoping that the worst is now behind the company as its distribution center issues get resolved and as its new loyalty program provides a much-needed sales boost.
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