The US debt ceiling crisis may have been resolved but the feeling on the market was one of relief rather than outright celebration. This reflects the assumption among most investors that a deal would be done ahead of the deadline anyway.
Now a default on US debt has been averted, attention is likely to turn to the other challenges facing the US amid signs of weakening consumer sentiment and amid the risk of a recession.
Lingering excitement after Nvidia’s (NVDA) blockbuster AI-driven results helped lift chipmaker Intel (INTC:NASDAQ), with hints emerging it may manufacture some of Nvidia’s chips. US energy firm Constellation Energy (CEG:NASDAQ) made solid progress on news it is set to buy a stake in a Texas nuclear plant for $1.75 billion. After the transaction, Constellation will be one of three owners of the 2,645 megawatt Texas Project Electric Generating Station.
Elsewhere, there was less positive news from the semiconductor industry as Micron (MU:NASDAQ) faced a ban in China.
LULULEMON
If China’s reopening recovery is stuttering nobody seems to have told its millions of yoga fanatics. They’ve been bending over backwards to update their workout wear, and exercise kit retailer Lululemon Athletica (LULU:NASDAQ) is cashing in.
The Canadian business reported fiscal first quarter results that beat analyst forecasts as lower transportation costs and growth in China bolstered results, sparking a 14.5% share price rally in response.
Lululemon unveiled EPS (earnings per share) of $2.28 on $2 billion revenue, versus the $1.96 and $$1.92 billion predicted by analysts polled by Investing.com. Comparable sales increased 14%, with comparable store sales up 13% and direct to consumer net revenue up 16%. Gross margin increased 360 basis points to 57.5%.
For Q2, the company sees diluted EPS in the range of $2.47 to $2.52 and revenue in the range of $2.14 billion to $2.17 billion, in line with estimates of $2.49 and $2.16 billion respectively. Full year EPS was forecast in the range of $11.74 to $11.94 on revenue of $9.44 billion to $9.51 billion.
MACY'S, COSTCO, DOLLAR GENERAL
Despite the relief over progress in the debt ceiling talks, it seems clear the US economy is slowing and consumer spending, which makes up a large part of demand, is no longer as robust as thought.
Results this week from major retailers Macy’s (M:NYSE), Costco (COST:NYSE) and Dollar General (DG:NYSE) leave no doubt shoppers are reining in spending and prioritizing essentials over ‘nice to haves’.
Macy’s cut its full-year profit and sales forecasts after customers ‘pulled back more than we anticipated’, according to chief executive Jeff Genette.
Costco, also popular with middle-to-higher-income customers, warned its shoppers were trading down, while Dollar General, whose core customer base is lower-income, cut its outlook after admitting the economy was ‘more challenging than we had previously anticipated’ and was having ‘a significant impact on customers’ spending levels and behaviours’.
Dollar Tree (DLTR:NYSE), which also serves the lower-income bracket, cut its outlook last week, sending its stock price plunging, after it reported customers cutting back on discretionary spending in favour of necessities.
ADVANCE AUTO PARTS
The aftermarket parts industry has traditionally showed resilience, since motorists need to fork out for replacement parts to keep their cars on the road, but the sector isn’t immune from cost pressures.
One of this week’s big casualties was Advance Auto Parts (AAP:NYSE), whose shares skidded 35% lower to $72.9 following car-crash first quarter results (31 May) from the brakes-to-batteries retailer, which also angered income investors on the register by slashing its quarterly dividend. The North Carolina-headquartered headlights-to-spark plugs purveyor pinned its worse-than-expected quarterly earnings and downbeat outlook on higher-than-expected costs, inflationary pressures, supply chain challenges and an unfavourable product mix.
Earnings per share of just 72 cents fell dramatically short of the $2.57 per share Wall Street was looking for, while sales of $3.42 billion were shy of expectations of $3.43 billion. Finance director Jeff Shepherd explained: ‘Given the shortfall experienced this quarter, along with our revised outlook for the balance of the year, we are reducing our full-year 2023 guidance. In addition, our board of directors made the decision to reduce our quarterly cash dividend to provide enhanced financial flexibility.
We are committed to improving our operational performance and driving increased profitability.’ Advance Auto Parts said it now expects to deliver full-year earnings per share in the $6 to $6.50 range, down from previous guidance of $10.20 to $11.20. Its share price collapse represented the largest daily decline since the company it went public back in 2001, with the price plunging to its lowest level since February 2013.
