Market Snapshot
briefing.com
| Dow | 34547.19 | +46.46 | (0.13%) | | Nasdaq | 13764.66 | +15.82 | (0.12%) | | SP 500 | 4454.24 | +3.10 | (0.07%) | | 10-yr Note |
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| | NYSE | Adv 1509 | Dec 1335 | Vol 341 mln | | Nasdaq | Adv 1941 | Dec 2287 | Vol 3.4 bln |
Industry Watch
| Strong: Energy, Information Technology, Utilities, Communication Services, Consumer Discretionary |
| | Weak: Real Estate, Industrials, Consumer Staples, Health Care |
Moving the Market
-- Apple (AAPL) trying to bounce back after big losses
-- Support from some other mega caps helping to boost index performance
-- Treasury yields moving off earlier lows, but remain little changed from yesterday's settlement levels
-- Ongoing worries about gas and oil prices limiting action
-- Light volume to this point in the session at the NYSE
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Treasuries settle little changed
08-Sep-23 15:35 ET
Dow +29.38 at 34530.11, Nasdaq -1.22 at 13747.62, S&P +1.62 at 4452.76
[BRIEFING.COM] The market remains near its lows ahead of the close
The 2-yr note yield rose one basis point to 4.97% and the 10-yr note yield settled unchanged at 4.26%.
There is no U.S. economic data of note on Monday.
Consumer credit increase by less than expected
08-Sep-23 15:05 ET
Dow +12.69 at 34513.42, Nasdaq -4.72 at 13744.12, S&P +0.57 at 4451.71
[BRIEFING.COM] The major indices remain in a steady decline.
Consumer credit increased by $10.4 billion in July (Briefing.com consensus $15.8 billion) after a revised increase of $14.0 billion (from $17.9 billion) in June.
Energy complex futures settled with gains. WTI crude oil futures rose 0.6% to $87.47/bbl and natural gas futures rose 1.5% to $2.65/mmbtu.
S&P 500 narrows gains into latter stages of Friday
08-Sep-23 14:30 ET
Dow +46.46 at 34547.19, Nasdaq +15.82 at 13764.66, S&P +3.10 at 4454.24
[BRIEFING.COM] The S&P 500 (+0.07%) has narrowed its Friday gains further in the last half hour, up about three points now.
S&P 500 constituents Kroger (KR 47.45, +1.92, +4.22%), Valero Energy (VLO 141.89, +5.64, +4.14%), and Expedia (EXPE 110.08, +4.32, +4.08%) are atop the index. KR began lower this morning, but trading has taken the stock to three-week highs post earnings, VLO caught a tgt raise out of Wells Fargo.
Meanwhile, Massachusetts-based diagnostics firm Revvity (RVTY 106.19, -4.03, -3.66%) is at the bottom of the standings, underperforming alongside fellow diagnostic peers like TMO, DHR, and IDXX.
Gold shaves a hair off weekly losses on Friday
08-Sep-23 14:00 ET
Dow +73.29 at 34574.02, Nasdaq +37.17 at 13786.01, S&P +7.94 at 4459.08
[BRIEFING.COM] With about two hours remaining on Friday the tech-heavy Nasdaq Composite (+0.27%) is today's best-performing major average.
Gold futures settled less than $1 higher (flat) to $1,942.70/oz, firmly off overnight highs amid an intraday rally in the dollar and a climb off lows in treasury yields; all told, this week's losses totaled -1.24% in the yellow metal.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.99.
Amgen, Microsoft higher in DJIA on Friday
08-Sep-23 13:30 ET
Dow +81.92 at 34582.65, Nasdaq +36.87 at 13785.71, S&P +9.03 at 4460.17
[BRIEFING.COM] The Dow Jones Industrial Average (+0.24%) is in second place on Friday afternoon, having moved mostly sideways over the prior half hour.
A look inside the DJIA shows that Amgen (AMGN 260.21, +5.82, +2.29%), Microsoft (MSFT 335.17, +5.26, +1.59%), and Apple (AAPL 179.65, +2.09, +1.18%) are near the top of today's standings.
Meanwhile, Boeing (BA 211.70, -4.35, -2.01%) is underperforming.
The DJIA is on pace to end -0.73% lower this week.
Elsewhere, at the top of the hour, Baker Hughes (BKR 37.34, +0.14, +0.38%) announced a weekly U.S. rotary rig count of 632, +1 w/w and -127 yr/yr.
Page One
Last Updated: 08-Sep-23 09:02 ET | Archive
On track for a losing week
The S&P 500 futures are down 1 point and are trading in line with fair value. The Nasdaq 100 futures are down 10 points and are trading 0.1% below fair value. The Dow Jones Industrial Average futures are down 22 points and are trading 0.1% below fair value.
Equity futures point to a modestly lower open. Market participants continue to monitor the price action in Apple (AAPL), along with the movement in oil prices ($87.47/bbl, +0.60, +0.7%).
Treasury yields also continue to draw focus. The 2-yr note yield is unchanged at 4.95% and the 10-yr note yield is down one basis points to 4.25%. The U.S. Dollar Index is down 0.1% to 104.99.
Japan reported weaker than expected Q2 GDP growth overnight (actual 4.8% yr/yr; expected 6.0%).
Today's U.S. economic data is limited to:
- 10:00 ET: July Wholesale Inventories (Briefing.com consensus -0.1%; prior -0.5%)
- 15:00 ET: July Consumer Credit (Briefing.com consensus $15.8 bln; prior $17.9 bln)
New York Fed President Williams commented that U.S. monetary policy is in a good place, but more data needs to be analyzed to determine how to proceed with rates, according to Bloomberg.
In corporate news, RH (RH) is down big this morning after reporting earnings and warning of ongoing challenges in the luxury housing market for FY24. Smartsheet (SMAR) and Smith & Wesson Brands (SWBI), meanwhile, show outsized pre-open gains following their earnings reports.
Kroger (KR) is another laggard after its earnings report.
Zumiez zooming lower as consumer spending slowdown hits business worse than its peers (ZUMZ)
Zumiez (ZUMZ), an apparel retailer that primarily caters to the same younger crowd that Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEO) does, is selling off sharply despite topping Q2 EPS and revenue expectations. The issue, though, is that unlike ANF and AEO, the company provided downside guidance for the quarter ahead, while noting that business is still trending below year-ago levels as consumer demand remains under pressure.
- A clear point of weakness for ZUMZ was the North America market, which experienced a sales decrease of nearly 16% to $159.7 mln. This weakness caused ZUMZ's comparable sales to decline by 13% in Q2, badly underperforming ANF's impressive +13% performance. For further context, AEO's flagship American Eagle brand posted a comp decline of just 2%.
- It doesn't seem like ZUMZ's troubles are tied to bloated inventory levels. In fact, inventory was down by 3.5% in North America this quarter. Therefore, it appears that ZUMZ isn't doing quite as good of a job as staying on top of recent trends within the casual wear market.
- Relatedly, ZUMZ was more promotional than ANF or AEO as illustrated by a 70 bps drop in product margins. Overall, gross margin slipped by 240 bps yr/yr to 31.7% as lower sales drove deleverage in the company's fixed costs. In comparison, AEO's gross margin expanded by 680 bps yr/yr to 37.7%.
- On the positive side, ZUMZ's Q3-to-date is reflecting some improvement relative to Q2 as the back-to-school shopping season provides a lift. Specifically, Q3-to-date sales were down 7.7% through Labor Day, compared to an 11.6% decrease in Q2 and 17.1% decline in Q1. ZUMZ is encouraged that the bounce from the back-to-school shopping season offers a good indication that sales will also improve during the peak holiday shopping season.
- This bump in sales, though, wasn't strong enough to allow ZUMZ to provide upside guidance for Q3. Accordingly, shares are selling off as the company falls behind ANF and AEO.
The main takeaway is that ZUMZ's results and outlook were not as strong as key competitors ANF and AEO, indicating that the macro-related headwinds are taking a bigger toll on the company. Although sales trends have improved for ZUMZ, the company is still lagging behind and expects a challenging Q3, providing the impetus for today's sell-off.
Kroger's consistent performance in JulQ checks out with investors; disinflation accelerates (KR)
National grocer Kroger (KR +4%) pulls itself up today after falling toward one-year lows earlier this week after delivering consistent results in Q2 (Jul), exceeding bottom-line estimates by single digits for the fifth-straight quarter, registering sales mostly in-line with consensus, and reiterating its FY24 (Jan) earnings and identical sales without fuel forecasts. The company also reached an agreement on opioid claims, agreeing to pay up to $1.2 bln. This settlement does not affect adjusted EPS since this metric excludes one-time charges. However, it will take a $1.54 per share bite out of GAAP EPS.
- Unsurprisingly, given the remarks from competitors Walmart (WMT), Costco (COST), and others, the macroeconomic environment weighed on budget-conscious households during Q2, causing identical store sales of +1% to land toward the low end of Kroger's internal expectations.
- Meanwhile, albeit good news for shoppers, food-at-home inflation decelerated faster than Kroger expected in Q2, ending down around 350 bps compared to the start of the quarter, partially causing revs to slide by 2.3% yr/yr to $33.85 bln. At the same time, Kroger dealt with higher shrink. Management expects these headwinds to persist for the remainder of the year.
- Nevertheless, adjusted EPS of $0.96 still topped analyst forecasts, as Kroger realized benefits from its continuous productivity enhancements, such as expanding shelf-ready packaging, and a robust "Our Brands" performance, i.e., private labels. Kroger noted that it remains on track to post its sixth straight year of $1.0 bln in cost savings. As a result, Kroger was confident in reaffirming its FY24 EPS projection of $4.45-4.60.
- Fuel faced challenges in Q2, given the tumbling gas price environment. Average retail fuel prices were $3.65 versus $4.62 in the year-ago period, causing fuel margins to contract to $0.45 from $0.62. Still, management commented that fuel margins remain "very healthy" compared to historical norms.
- Looking ahead, as disinflation occurs at a greater rate than initially predicted and customers continue feeling the harms of current economic conditions, Kroger anticipates the remainder of the year to pose meaningful challenges. As a result, although it reiterated its FY24 comp outlook of +1-2%, it now expects to achieve the lower bound of this range.
Inflation continues to weigh on lower-income shoppers, a trend hitting numerous retailers lately, no matter their product assortment. Even though food is relatively inelastic, budget-conscious customers can no longer buy the same size packs, often prioritizing the lowest shelf price. Spending patterns can also ebb and flow with payroll periods. Conversely, although higher-income households continue to engage similarly to past years, avoiding sacrificing quality and pack sizes, a stubborn inflationary backdrop could eventually nudge more shoppers toward the behavior Kroger sees amongst its low-income cohort.
Still, the good news is that disinflation is taking hold, a good sign for Kroger's longer-term health as volume improvements typically accompany it. Meanwhile, Kroger is still amid a shift toward at-home consumption sparked by the pandemic. Lastly, although investors did not like the price tag of Albertsons (ACI), especially since it triggered Kroger to pause its repurchase program, the merger, which is on track for an early 2024 close, will further cement Kroger's leadership position in the grocery retail space.
Guidewire Software soars to 52-week highs as strength in cloud offerings fuels upbeat report (GWRE)
Bolstered by its strong Q4 results, improving profitability, and the building momentum behind its cloud platform, Guidewire Software (GWRE) is surging to new 52-week highs. The company, which provides cloud software for the property and casualty (P&C) insurance industry, is bucking the trend of slowing IT enterprise spending as the P&C industry migrates away from antiquated systems to a more modern and unified platform. GWRE has clearly emerged as the leader in this field, gaining traction with many of the largest insurance companies in the country.
- The primary demand metric that really tells the story for GWRE is annual recurring revenue (ARR). In Q4, ARR increased by 15% yr/yr to $763 mln, exceeding the company's expectations due to stronger than anticipated sales activity.
- GWRE's transition towards a cloud-based software provider also is moving full steam ahead as Cloud ARR grew by 28% yr/yr and comprised 59% of its total ARR. In turn, subscription revenue jumped by 36% to $352 mln. For some context, GRWR's subscription revenue totaled just $30 mln in 2018.
- This strength in cloud software is helping to mitigate the impact from sales declines in GWRE's lower margin services and license revenue categories, which fell by 8% and 6% yr/yr, respectively.
- GWRE is seeing momentum for its cloud platform across all key geographies and customer sizes, but its success in landing new deals with tier one insurers really stands out. During the quarter, the company closed 11 tier one deals, including a significant win at Progressive Insurance.
- While GWRE did issue downside revenue guidance for Q1, the company explained that since it experienced such strong sales activity in Q4, it didn't have any deals slip into Q1. Therefore, GWRE is expecting normal seasonality for Q1.
- Most importantly, GWRE's outlook for ARR is bullish with the company forecasting ARR to increase by 12% in FY24 with growth accelerating in FY25 to 16-17%. The expectation for rising growth is related to the anticipated ramp ups within its cloud contracts.
- The other main story is GWRE's improving profitability, which is tied to its cloud transformation. With Cloud ARR representing an increasing portion of total ARR, GWRE's margins are expanding. In Q4, gross margin increased by 300 bps yr/yr to 55%, helping to push operating income higher to $44.7 mln from just $5.3 mln in the year-earlier period. Looking ahead, GWRE sees further bottom-line improvements, targeting non-GAAP operating income of $62-$72 mln, representing a yr/yr increase of 458% at the midpoint.
The main takeaway is that GWRE is rising above a challenging IT spending environment as P&C insurance companies continue to prioritize the modernization of their out-of-date systems. As the clear leader in this market, GWRE looks set to capitalize on this trend for the foreseeable future.
DocuSign heads lower despite upside Q2 results; macro headwinds remain an issue (DOCU)
DocuSign (DOCU -5%) is trading lower following its Q2 (Jul) report last night despite nice upside results. The e-signature/contract creation giant beat handily on EPS and revenue. It also guided Q3 (Oct) revenue above analyst expectations and raised full year revenue guidance. However, some cautious comments on its macro view and tighter deal scrutiny are keeping the stock in check today.
- While DOCU is pleased with its results, it concedes that, like many others, it is seeing continued macro pressures tempering expansion rates. DOCU says the biggest pressure point is how CFOs are scrutinizing investments across the board. DOCU is trying to work with them in order to provide the best value that it can.
- Dollar net retention was 102% in Q2. Looking ahead, DOCU expects Q3 dollar net retention rate to trend downward as customers continue scrutinizing budgets and optimizing spend. However, given the large breadth and depth of its installed base, DOCU believes that as the macro environment stabilizes or improves, the comapny will be well-positioned to capture expansion opportunities.
- In terms of the key operating metrics, billings is a closely watched number and DocuSign performed well in this regard. Billings in Q2 grew 10% yr/yr to $711.2 mln, well above the $646-656 mln prior guidance. Its Q2 billings outperformance was driven by a higher rate of on-time renewals. DOCU was encouraged that it was able to maintain the higher level of sales execution it saw in Q1. However, given the macro environment and headwinds in some expansion metrics, DOCU continues to expect billings growth deceleration in the back half of the year.
- Also impressive was non-GAAP operating margin, which jumped to 25% from 18% a year ago. This was at the high end of prior guidance of the 24-25% prior guidance. However, DOCU expects to ramp investment in the back half of this year.
- DOCU's international revenue growth outpaced its domestic growth with 17% yr/yr growth to $180 mln in Q2, representing 26% of total revenue. DOCU is excited by the greenfield space that exists internationally. It's a largely untapped market and a key pillar of DOCU's future growth. DOCU just opened an office in Munich, Germany, so it is making investments internationally.
What seems to be holding the stock back today, despite the upside results, is the fact that the EPS upside was not as robust this time. DOCU broke its string of three consecutive double-digit EPS beats. Another issue may be non-GAAP operating margin, which was good at the high end of guidance. However, the Q1 number blew away the guidance, so maybe a little disappointment there. Finally, maybe the biggest impediment was its continued cautious comments on the macro situation, including tighter deal scrutiny by CFOs. We think that needs to change before the stock will start to get back on track.
Smartsheet saw signs of macro stabilization in JulQ, helping fuel a solid beat-and-raise (SMAR)
Smartsheet (SMAR +11%) was sharp as a tack in Q2 (Jul), extending its streak of delivering top and bottom-line upside while raising its FY24 (Jan) guidance for the second time. SMAR also posted these highlights against an unfavorable macroeconomic backdrop, keeping investors on their toes over the past several months. For example, workplace management counterpart Asana (ASAN) touched on tireless headwinds taking a toll on new customer acquisition earlier this week, particularly at the lower end of the market. Although shares have still not returned to levels prior to a pronounced sell-off following lackluster Q1 (Apr) results in June, today's positive response is a healthy step in the right direction.
- Macro stabilization, notably affecting enterprises, was perhaps the most relieving remark from SMAR in Q2. The company attributed its optimism of stabilization to its refined selling efforts and extended plan building with enterprises who grow these plans to the end, manifesting in higher sales productivity.
- With enterprises comprising half of SMAR's annualized recurring revenue (ARR), sales remained buoyant, growing 28.2% yr/yr to $235.6 mln. Meanwhile, non-GAAP operating margins remained positive after a challenging 2022, expanding to 8% from negative 9% in the year-ago period. As a result, adjusted EPS continued to improve, climbing to $0.16 from $(0.10) last year.
- SMAR still endured demand challenges in the quarter, as its customer base remained cautious about the economy, reflected in conservative budgeting. This adversely impacted SMAR's higher velocity transactions and sales cycle durations.
- Nevertheless, coming off an upbeat quarter was the confidence SMAR needed to hike its FY24 guidance once again, projecting earnings of $0.53-0.57 per share and revs of $950-953 mln, up from $0.37-0.44 and $943-948 mln, respectively. SMAR also reiterated its FY24 billings growth of +20%.
By coming off a post-Q1 sell-off, expectations were not exceptionally high heading into SMAR's Q2 numbers. The market already anticipated lingering economic challenges and a cloudy near-term outlook. Therefore, with SMAR observing signs of stabilization and incorporating some of this into its full-year guidance, investors are warming up toward SMAR. At the same time, interest in AI is at towering levels. SMAR customers are seeing dramatic cost reductions from the company's visualization and dashboard widget generation, providing a long runway of future upside.
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