Market Snapshot
| Dow | 38589.16 | -57.94 | (-0.15%) | | Nasdaq | 17688.88 | +21.32 | (0.12%) | | SP 500 | 5431.60 | -2.14 | (-0.04%) | | 10-yr Note | +2/32 | 4.22 |
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| | NYSE | Adv 731 | Dec 2030 | Vol 835 mln | | Nasdaq | Adv 1220 | Dec 3015 | Vol 4.9 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Consumer Staples |
| | Weak: Industrials, Materials, Energy, Financials, Consumer Discretionary |
Moving the Market
-- Consolidation activity
-- Ongoing buying in some mega caps providing some offsetting support
-- Steady action in Treasuries
-- Weakness in European markets creating an excuse to do some selling
-- Reacting to weaker-than-expected consumer sentiment data for June
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Closing Summary
14-Jun-24 16:20 ET
Dow -57.94 at 38589.16, Nasdaq +21.32 at 17688.88, S&P -2.14 at 5431.60
[BRIEFING.COM] Today's trade featured a negative bias driven by normal consolidation activity after this week's record closing highs. Decliners led advancers by a 3-to-1 margin at the NYSE and by a 5-to-2 margin at the Nasdaq. The three major indices closed little changed from yesterday, though, thanks to gains in some mega cap stocks.
NVIDIA (NVDA 131.88, +2.27, +1.8%), Alphabet (GOOG 178.37, +1.63, +0.9%), Microsoft (MSFT 442.57, +0.99, +0.2%), Meta Platforms (META 504.16, +0.56, +0.1%), and Broadcom (AVGO 1735.04, +56.05, +3.3%) are winning standouts from the mega cap space.
The top performing stock in the S&P 500 was Adobe (ADBE 525.31, +66.57, +14.5%), which closed sharply higher following pleasing earnings results and guidance.
Gains in the aforementioned names propelled their respective S&P 500 sectors to positive territory today while the eight sectors closed with losses ranging from 0.1% (health care) to 1.0% (industrials). The information technology (+0.5%), and communication services (+0.6%) sectors were the top performers.
The broad selling activity left the equal-weighted S&P 500 with a 0.6% decline. The overall downside bias was catalyzed by political uncertainty around the French election, which stirred speculation about an EU exit move if France's left-wing bloc wins, along with growth concerns following a weak consumer sentiment report for June.
The preliminary reading for the June University of Michigan Index of Consumer Sentiment showed an unexpected drop in consumer sentiment (actual 65.5; expected 73.0; prior 69.1) and a rise in long-run inflation expectations to 3.1% from 3.0%.
The Treasury market didn't react much to the report, though. The 2-yr note yield settled unchanged from yesterday at 4.69% and the 10-yr note yield fell two basis points to 4.22%.
- Nasdaq Composite: +17.8% YTD
- S&P 500:+13.9% YTD
- S&P Midcap 400: +4.1% YTD
- Dow Jones Industrial Average: +2.4% YTD
- Russell 2000: -1.0% YTD
Reviewing today's economic data:
- May Import Prices -0.4%; Prior 0.9%
- May Import Prices ex-oil -0.3%; Prior 0.7%
- May Export Prices -0.6%; Prior was revised to 0.6% from 0.5%
- May Export Prices ex-ag. -0.8%; Prior 0.7%
- January Univ. of Michigan Consumer Sentiment - Prelim 65.6 (Briefing.com consensus 73.0); Prior 69.1
- The key takeaway from the report is that consumers' assessment of their personal finances slipped due to high prices and weakening incomes. That could presage some weakening spending activity.
Looking ahead, there is no US economic data of note on Monday. Tuesday's calendar features the May Retail Sales report and the May Industrial Production and Capacity Utilization report. As a reminder, markets will be closed on Wednesday in observation of Juneteenth.
Treasuries settle little changed after solid gains this week
14-Jun-24 15:35 ET
Dow -81.00 at 38566.10, Nasdaq +5.98 at 17673.54, S&P -6.05 at 5427.69
[BRIEFING.COM] The market is holding steady near intraday highs ahead of the close.
The 2-yr note yield settled unchanged from yesterday at 4.69% and the 10-yr note yield fell two basis points to 4.22%.
Next week's calendar features earnings results from Lennar (LEN), KB Home (KBH), Kroger (KR), Accenture (ACN), and others.
Stocks trade near session highs
14-Jun-24 15:05 ET
Dow -73.23 at 38573.87, Nasdaq +8.36 at 17675.92, S&P -6.48 at 5427.26
[BRIEFING.COM] Stocks continue to trade in relatively narrow ranges near session highs.
Mega caps continue to support index performance. The Vanguard Mega Cap Growth ETF (MGK) is up 0.3%.
Looking ahead, there is no US economic data of note on Monday. Tuesday's calendar features the May Retail Sales report and the May Industrial Production and Capacity Utilization report. As a reminder, markets will be closed on Wednesday in observation of Juneteenth.
ADBE leads S&P 500, HAS, AVGO outperform
14-Jun-24 14:35 ET
Dow -115.68 at 38531.42, Nasdaq -14.28 at 17653.28, S&P -11.81 at 5421.93
[BRIEFING.COM] The major indices are moving lower from session highs.
Adobe (ADBE 524.78, +66.04, +14.4%) has maintained a top spot in the S&P 500 through the entire session following its pleasing earnings results and guidance. Hasbro (HAS 61.31, +3.31, +5.7%) and Broadcom (AVGO 1741.83, +61.73, +3.7%) are the next best performing stocks after AVGO.
On the flip side, Norwegian Cruise Line Holdings (NCLH 16.57, -1.33, -7.5%) and Carnival (CCL 15.31, -1.21, -7.3%) dot the bottom of the standings.
DOW, BA lag in DJIA; CRM, AXP leads outperforming components
14-Jun-24 14:00 ET
Dow -157.13 at 38489.97, Nasdaq -10.95 at 17656.61, S&P -13.26 at 5420.48
[BRIEFING.COM] Things are little changed at the index level over the last half hour. The Dow Jones Industrial Average is trading 0.4% lower.
24 of the 30 DJIA components are trading down. Dow Inc (DOW 54.80, -1.26, -2.3%) and Boeing (BA 177.34, -3.36, -1.9%) are the worst performing constituents. BA trades down after reports that the FAA is investigating why some Boeing and Airbus (EADSY) jets have counterfeit titanium, according to the NY Times.
Meanwhile, Salesforce (CRM 231.30, +2.27, +1.0%) and American Express (AXP 223.89, +1.70, +0.8%) show the largest gains in the Dow.
Twilio slips to its lowest level this year following an analyst downgrade today (TWLO)
Twilio (TWLO -3%) moves to its lowest level of the year after Morgan Stanley downgraded the stock to "Equal-Weight" from "Overweight" today, citing near-term troubles. Shares of the communication platform as a service (CPaaS), offering real-time communications within software applications, have trended sideways since underwhelming Q4 results triggered a rush of selling in mid-February.
Briefing.com notes that even with the stock quickly gapping toward one-year lows reached in October, further downside risk remains. A possible further breakdown in discretionary spending could materially hinder near-term growth for TWLO, which has steadily seen a deceleration in yr/yr revenue growth every quarter since 2Q21; its Q2 revenue guidance projects further weakening. At the same time, TWLO is unprofitable on a GAAP basis despite continuous efforts via leadership changes, a new go-to-market strategy, and headcount reductions.
- TWLO's software can be found across numerous consumer-facing companies, from Intuit (INTU) to DoorDash (DASH). Its technology tends to be used to send SMS notifications to customers, whether to tell them their food is ready or to verify user identity. However, TWLO's services mostly rely on robust consumer demand. While volumes across the board have been relatively stable, they have not inflected, hindering a few growth dynamics. Unless demand conditions turn more meaningfully, top-line growth could remain a struggle.
- One of TWLO's central focuses is personalized communications, which it believes Generative AI will accelerate. While AI's current strength revolves around language, perfect for a CPaaS company like TWLO, it has yet to generate significant growth. TWLO mentioned last quarter that it continues embedding AI capabilities into its products, so it could take time. However, thus far, the technology has not accompanied tangible benefits.
- Competition in the CPaaS space could heat up over the near term, prompting TWLO to implement pricing actions that would weigh on margins and push it off track to achieve its profitability target. While management noted last quarter that it is not seeing any changes in the competitive landscape, noting that customers emphasize working with a company that ensures no fraud, it is something to keep an eye on.
There are still positives to focus on, especially given how far TWLO has sold off. Last month, CEO Khozema Shipchandler mentioned that the company is running entirely differently than it was six months ago, operating with more discipline and focus, as it remains committed to improving profitability and cash flow. TWLO reiterated its expectation of achieving non-GAAP operating profitability by 2Q25 last month. The company has also noticed healthy progress surrounding bookings, which may take time to ultimately show up in revenue.
Nevertheless, shares may endure continued selling pressure unless TWLO begins delivering more substantial progress toward its profitability and cash flow goals. It does not help that revenue continues to slow despite continuously lapping more favorable yr/yr numbers. Even though the company is still signing notable deals, revenue may not pick up until consumer spending turns around more aggressively.
MSC Industrial in need of repair work as shares dive to 52-week lows after weak Q3 results (MSM)
Business conditions for MSC Industrial (MSM), a distributor of metalworking and MRO products like cutting tools, measuring instruments, and fasteners, haven't improved since it reported lackluster Q2 results back in late March. As such, the company issued downside preliminary Q3 results, missing EPS and revenue expectations, and lowered its FY24 average daily sales (ADS) and adjusted operating margin guidance.
- Similar to competitors Grainger (GWW) and Applied Industrial Technologies (AIT) -- each of which are trading lower in sympathy with MSM today -- MSM's financial performance carries a little extra weight because of its exposure to the economically sensitive manufacturing industry. This connection makes MSM a good barometer for the health of the industrial economy and based on its weak Q3 results, it's evident that high interest rates, inflation, and geopolitical factors are still weighing on the macro environment.
- MSM CEO Erik Gershwind acknowledged as much, citing ongoing heavy manufacturing softness and a slower than anticipated ramp in its core customers as key causes behind the company's disappointing results.
However, it's not only external macro-related issues that are plaguing MSM.
- Mr. Gershwind also stated that unexpected dilution from its web price realignment, combined with customer mix headwinds, drove gross margin approximately 60 bps below its expectations. During the earnings call this morning, MSM stated that the web pricing realignment was a highly complex project and that during the testing phase some pricing anomalies didn't surface, creating some negative surprises.
- Because of these web pricing setbacks, MSM is holding off on steering new customers to its website until the web improvements are settled. That's a main reason why the company lowered its FY24 ADS guidance to (4.7)%-(5.3)% from its prior outlook of 0-5%.
- While the company still expects some of these improvements to be rolled out this year, most won't be in place until early FY25. The good news, though, is that MSM is already starting to see some improvement in gross margin trends as pricing adjustments are made.
- Although the macro-related pressures are out of MSM's control, there are some actions that the company can take to mitigate the negative impact. For instance, MSM is focusing on the stronger areas of its business, including its high-touch solutions and the public sector, where budgets are starting to loosen, and its OEM fastener business.
The main takeaway is that MSM is battling a mix of macro and company-specific headwinds, setting the stage for a difficult 2H24. However, once its web improvement issues are fixed, and if the Fed begins to lower interest rates, then MSM could be poised for a turnaround in FY25.
RH finds itself in the hot seat today as its reiterated FY25 guidance begins to look shaky (RH)
Luxury home furnishings retailer RH (RH -16%) sits in the hot seat today after delivering its third consecutive earnings miss in Q1 (Apr) and projecting underwhelming Q2 (Jul) revenue growth. While demand trends turned positive during Q1, RH is operating in what it describes as the most formidable housing market in 30 years. Interest rates exceeding 7% during the quarter softened demand. CEO Gary Friedman cautioned that the fluid monetary policy will continue to weigh on the housing market through the second half of 2024 and potentially into 2025.
While an affluent customer base is better cushioned from the hardship of cumulative inflation and elevated interest rates, RH's recent quarterly numbers underpin a trade-down effect reaching even higher-income households. The company's lower-priced peers, such as Williams-Sonoma (WSM) and Wayfair (W), further illuminated this trend, registering relatively more uplifting quarterly numbers.
- Alongside a weak housing market, which kept total revenue growth in reverse in Q1, falling 1.7% yr/yr to $726.96 mln, has been RH's aggressive investing, which has only exacerbated short-term woes. The company registered another bottom-line miss in Q1 and its second net loss in three quarters at $(0.40) per share. Adjusted operating margins landed at the midpoint of RH's forecast at 6.5%, an 840 bp contraction yr/yr.
- Mr. Friedman is enthusiastic about RH's investments, including its new RH Outdoor Sourcebook, a collection of luxury outdoor furniture, and RH Modern Sourcebook, which went out to homes earlier this month. Mr. Friedman is confident that the launch of these Sourcebooks will result in significant market share gains in the outdoor category and accelerate demand trends beginning in Q2 and persisting throughout the rest of FY24 (Jan).
- Another area of attention has been Waterworks, RH's luxury bath and kitchen brand it acquired eight years ago. The company wants to produce a Waterworks Sourcebook with test mailing plans in 2025. RH believes the banner can become a $1.0 bln global brand, five times its current value.
- RH is also expanding into new markets at home and abroad. During Q1, RH opened two international galleries in Brussels and Madrid. The company has plans to open five North American Design Galleries this year. Meanwhile, RH continues to target moving beyond the home furnishings market and into the North American housing market with the launch of RH Residences, fully furnished luxury homes and apartments.
- However, market conditions remain unfavorable, resulting in a relatively shaky outlook. RH projected Q2 revenue growth of +3-4%, missing analyst forecasts. Still, because of its Sourcebooks, the company anticipates a more robust back half of the year to compensate for immediate-term headwinds, reiterating its FY25 revenue growth prediction of +8-10%.
Investors might have been willing to shrug off another earnings miss in Q1 if Q2 guidance did not miss the mark. Placing too much weight on 2H24 is not instilling much confidence among investors today, especially given that RH continues to see challenging market conditions for the remainder of the year. As such, its reiterated guidance rests on the launch of new Sourcebooks, which may not be sturdy enough of a foundation to overcome stubborn economic headwinds.
Adobe surges following impressive MayQ results, solid guidance for 2H (ADBE)
Adobe (ADBE +15%) is surging following its Q2 (May) earnings report last night. This digital document giant broke its string of six consecutive double digit EPS beats, but it was still nice EPS upside. Revenue rose 10.2% yr/yr to a record $5.31 bln, which also was better than expected with strength across all three clouds.
- Last quarter, the guidance was a problem, but this time, Adobe guided Q3 (Aug) EPS above expectations although revs were a bit light. Adobe also raised FY24 EPS guidance by an amount greater than the Q2 upside, which implies raised EPS guidance for 2HFY24. We think the guidance is reassuring investors and likely primarily responsible for the big move today.
- Its Digital Media segment performed well with revs +11% yr/yr (+12% CC) to $3.91 bln, which was above prior guidance of $3.87-3.90 bln. DM is by far Adobe's larger segment. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 9% yr/yr (+9% CC) to $1.33 bln, which was at the high end of its $1.31-1.33 bln prior guidance.
- In its DM segment, Adobe exited the quarter with $16.25 bln of Digital Media ARR, up 13% CC. Document Cloud revenue of jumped 19% CC to $782 mln while adding $165 mln of net new Document Cloud ARR, which was a record for a Q2. Document Cloud growth drivers included demand for Acrobat subscriptions across all customer segments and geographies; new user acquisition from increasing Reader MAU; a great start monetizing AI Assistant; strong usage and engagement from Acrobat Web etc.
- Within DM, Creative revenue was $3.13 bln, up 10% yr/y or +11% CC. It also added $322 mln of net new Creative ARR in the quarter. Q2 Creative growth drivers include new subscriptions, with particular strength in digital acquisition on adobe.com thanks to multiple product releases during the quarter. Adobe is seeing accelerating interest and usage for its new Express mobile and Express for Business offerings. The company is pleased with the performance of the Creative business in 1H, fueled by strong commercial subscriptions in both Q1 and Q2.
- Digital Experience growth drivers in Q2 included subscription revenue strength from transformational accounts; market leadership with AEP and native applications, with subscription revenue growing 60% yr/yr etc. Adobe also saw subscription revenue strength across the Data Insights & Audiences and Customer Journey categories as well as accelerated adoption of its AEM and Workfront offerings.
Overall, there was a lot of negativity priced into Adobe shares coming into this report. We think the guidance last quarter spooked investors. Adobe shares have significantly underperformed other tech names in recent months. We think the bullish EPS guidance for Q3, coupled with a pretty large FY24 EPS increase is fueling today's move, especially given the negativity priced in. Also, while we do not have a consensus for ARR, that metric was a hot topic on last night's call. As such, we think analysts are impressed with the ARR results and guidance. That seems to be pushing the stock as well.
Dave & Buster's not having much fun today after missing Q1 EPS and sales estimates (PLAY)
Dining and entertainment company Dave & Buster's (PLAY) isn't having much fun today as shares plunge to their lowest levels of the year after missing Q1 EPS and revenue estimates. While consumers have shifted their spending habits towards experiences and entertainment, PLAY's weak results suggest that the company isn't benefiting from that trend. Adding insult to injury, the company took an $11 mln hit in Q1 due to incremental labor and marketing costs related to the rollout of its new menu, new service model, and the deployment of new systems.
Fortunately, PLAY doesn't expect those costs to repeat in Q2, but the company has plenty of other challenges on its plate.
- Most notably, this includes reinvigorating the company's sales growth. In Q1, comparable sales decreased by 5.6%, falling short of expectations, as the choppiness that PLAY described during the last earnings call persisted. On the positive side, the company stated that it's seen improving top and bottom-line trends in May and early June after scaling some of its more impactful growth initiatives.
- PLAY's growth initiatives include optimizing its marketing investments, which it believes represents its largest revenue and adjusted EBITDA opportunity, improving its menu and realizing more pricing opportunities, optimizing game prices, and opening and remodeling more stores.
- The company is further along in achieving these goals for some initiatives as compared to others. For instance, in game price optimization, PLAY completed its first increase in chip prices in over twenty years following a significant overhaul of its game system. After implementing this initial rollout, PLAY says that it saw an improvement in sales trends, spend, and amusement guest satisfaction.
- Additionally, PLAY is on track to open ten more stores in 2024 with an additional 16 units opening each year in 2025 and beyond. Over the long-term, the company continues to believe it has the potential for 550 stores. For some context, as of the end of this period, PLAY had 224 company-owned stores.
Despite the disappointing Q1 results, PLAY remains steadfast in its plan to generate $1.0 bln in adjusted EBITDA in "the coming years." Entering transactions like the sales leaseback involving two stores it executed in Q1 should help. PLAY anticipates generating $45.0 mln in proceeds upon closing that transaction, which it can reinvest into its growth initiatives. From a demand standpoint, though, PLAY has its work cut out for it and until it can show some meaningful improvement in its comps, the stock will likely have trouble establishing a sustained rally.
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