Frozen Prices Couldn’t Stop Sellers

Cautious consumers, a retailer rundown, and Dell's margin concerns.

NEWS
Frozen Prices Couldn’t Stop Sellers

It was another down day in the market, with big tech dragging down the major indexes and small-caps getting a bond-driven bounce. Investors got a false sense of reprieve during the morning session when index values for the Dow and S&P 500 indexes froze for over an hour. Let’s see what else you missed. 👀

Today's issue covers what consumers all have in common, a retailer rundown, and Dell’s margin concerns overshadowing its AI strength. 📰

Here's today's heat map:

9 of 11 sectors closed green. Real estate (+1.44%) led, & technology (-2.28%) lagged. 💚

U.S. GDP growth expanded at a 1.30% annualized pace vs. initial estimates of 1.60% during the first quarter. Consumer spending was marked down as automobile and other goods spending fell. Net exports also subtracted from growth for the first time in two years. 🔻

U.S. pending home sales slumped 7.70% in April to their lowest level since April 2020. Active inventory was up 30% YoY, but a historically large imbalance remains, keeping prices elevated even as mortgage rates stay above 7%. 🏘️

New York Federal Reserve President John Williams reiterated that inflation remains too high and that the current “restrictive” policy will be appropriate until more data shows further downside progress. ⏸️

The Internal Revenue Service (IRS) announced plans to make Direct File a permanent option for filing federal tax returns in all fifty U.S. states, sending shares of TurboTax parent Intuit lower by 6%. 📝

Paramount Global shares remained volatile on news that David Ellison’s Skydance has sweetened its offer to acquire the company, amid concerns about Apollo and Sony’s silence following their $26 billion cash bid. 😵‍💫

Live Nation Entertainment was down less than 1% despite Ticketmaster announcing a hack that impacted the sensitive data of 560 million people. Hacking group ShinyHunters is seeking a $500 million ransom. 🤯

C3.ai shares jumped 20% today after its fourth-quarter loss narrowed to $0.11 per share, and revenues of $86.60 million topped analyst expectations. It also raised its revenue growth guidance for its new fiscal year to 23%. 🤖

Apparel company VF Corp. rose 8% after the bell on the news that Lululemon’s chief product officer will become the global brand president of Vans in July. 👩‍💼

Other active symbols: $CRM (-19.74%), $NVDA (-3.77%), $DJT (-7.24%), $AMC (-6.00%), $FFIE (+27.26%), and $JASMY.X (+20.76%). 🔥

Here are the closing prices: 

S&P 500

5,235

-0.60%

Nasdaq

16,737

-1.08%

Russell 2000

2,057

+1.00%

Dow Jones

38,111

-0.86%

EARNINGS
Dell Dips Despite AI Business Delivering

You may have seen people posting charts about how Dell has been outperforming Nvidia year to date. And that was true, at least until today. 🙃

That’s because Dell shares are dipping 18% despite the company delivering what seemed to be a solid quarter. Adjusted earnings per share of $1.27 on revenues of $22.24 billion topped the $1.26 and $21.64 billion expected.

Dell’s Infrastructure Solutions Group revenues, which includes data centers, rose 22% YoY to $9.20 billion. Servers were its fastest-growing unit, with revenues rising 42% YoY amid strong demand for artificial intelligence (AI) servers. 🦾

Dell has emerged as a top vendor for these products, with Nvidia CEO Jensen Huang highlighting the company at a conference earlier this year.

However, growth in its Client Solutions Group, which includes PCs and laptops, saw flat revenues of $12 billion. While that’s not great, the core driver of the concern is that management expects its adjusted gross margin to decline 150 bps in fiscal 2025. ⚠️

One analyst from Gartner suggested that this is likely due to competitive pricing in the market, with its peers trying to grab market share in the current environment.

Given the stock’s incredible run over the last year, expectations were very high coming into this earnings result. Shares are cooling off after the bell, with investors and traders waiting to see if buyers snap up the dip in this AI play. 🤷

EARNINGS
Dollar General And Costco’s Consumer Takes

It was another big day for consumer insights, so let’s see what King Costco had to say about the state of things. 👇

The warehouse club’s adjusted earnings per share of $3.78 topped estimates of $3.70 per share, while revenues rose 9.10% YoY to $57.40 billion. That missed the $58 billion consensus estimate.

Moreover, investors were disappointed that the company had not announced plans to raise its annual membership fee, which has been unchanged since 2017. 🪪

U.S. same-store sales growth met expectations at 6%, but the real show-stopped was digital same-store sales, which rose 20.70% YoY. The company’s executives view digital and other technology efforts as key to driving future growth.

And with the stock’s valuation sitting at lofty levels, some analysts are concerned that any sign of a slowdown could bring shares lower. However, others suggest that the value-driven shopper will remain a major tailwind for the company and its peers for years to come.

Meanwhile, Dollar General’s lower-income consumers have shown growing caution on spending. Management said that’s likely to negatively impact margins, particularly as spending remains focused on lower-margin groceries and other necessities. And they don’t expect that caution among their core consumer to dissipate anytime soon.

Those comments offset otherwise strong results for its fiscal first quarter. Its adjusted earnings per share of $1.65 on $9.91 billion in revenues topped the $1.58 and $9.89 billion expected by analysts.

Dollar General shares were down about 8% on the day, while Costco’s are down marginally after the bell. 🔻

Regardless of income level, consumers remain cautious and continue to spend on things they view as necessities rather than discretionary goods. ⚠️

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EARNINGS
Burlington Leads Another Big Day For Retailers

It was another very busy day of retail earnings, so we will try to sum each up in two sentences. Here we go…

Discount retailer Burlington shares soared 18% after handily beating earnings and revenue estimates, with total sales up 11% YoY and same-store sales up 2%. Burlington raised its margin and earnings guidance for the current fiscal year while slightly lowering its revenue guidance. 🛍️

Foot Locker took another crack at a turnaround, rising 15% after its CEO said its results show consumers are willing to pay full price. Adjusted earnings per share beat by $0.04, while revenues of $1.88 billion met expectations. 👟

Electronics retailer Best Buy popped 13% as its cost-cutting efforts offset sluggish sales. Revenues missed expectations, but the company’s raised full-year earnings outlook had investors looking on the bright side. 📺

Struggling retailer Kohl’s stumbled 23% after reporting a $0.24 per share loss when Wall Street expected $0.04 in earnings. Besides its own execution issues, higher interest rates, inflation, and an uncertain macro outlook caused the company to slash its full-year earnings guidance. 🏬

Mall retailer Gap rose 22% after showing sales growth at all four of its brands, causing it to raise its net sales guidance from flat to up “sightly.” Adjusted earnings per share also topped expectations, with its cost-cutting efforts paying off. 👕

Cosmetics retailer Ulta Beauty rose 8% after outlining a plan to boost sales following its first-quarter slowdown. After “kitchen sinking” their results last time, expectations were already pretty low, allowing management to talk up potential progress in the year's second half. 💄

Build-A-Bear Workshop sunk 14% after missing first-quarter earnings and revenue estimates. Despite the slowdown, management is pushing ahead with its aggressive expansion plan of adding 50 locations this year. 🧸

Sandal-seller Birkenstock jumped to new all-time highs after beating quarterly estimates and raising its full-year guidance as it heads into peak selling season. 🩴

Nordstrom fell 6% after missing Wall Street’s earnings expectations, with consumers preferring to shop at its office-price chain Rack instead of its full-priced brands. Even so, that brand has lagged behind peers like TJ Maxx and Ross Stores, which have thrived in the current environment. ✂️

Bullets From The Day

 Streaming giant Twitch is ditching its Safety Advisory Council. The Amazon-owned company is axing the group of industry experts, streamers, and moderators who consulted it on trust and safety issues. However, it is not completely removing the concept; it is simply revamping the team with “new council members to offer fresh, diverse perspectives” via an ambassador program that already has over 180 streamers. CNBC has more.

📦 Amazon Prime Air delivery drones get FAA approval to fly further. The Federal Aviation Administration (FAA) has granted Amazon permission to operate package delivery drones beyond visual line of sight (BVLOS), marking a huge milestone as it pushed towards its goal of delivering products to customers in 30 minutes. The company will immediately scale its operations in College Station, Texas, with its MK27 drone, which can carry packages of up to five pounds using onboard detect-and-avoid capabilities signed off by the FAA. More from The Verge.

🏦 Supreme Court decision means banks could have to pay homeowners’ interest on their escrow accounts. The court unanimously threw out an appeals court ruling in favor of Bank of America, which refused to pay interest on mortgage escrow accounts despite fourteen states having laws in place to require it. The appeals court decision argued that the federal law governing national banks does not permit such state-by-state regulation, but the Supreme Court ruled that the appeals court did not perform the necessary analysis to determine if a state law must give way to a federal statute. As a result, homeowners will have a second shot at this case. Yahoo Finance has more.

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