Investors Left With Lots To Chew On

Nike's demand problem, dog stocks' pump and dump, and the IRS's rare apology.

NEWS
Investors Left With Lots To Chew On

The major indexes experienced a relatively muted day, with certain areas of big tech buoying the broader market. Meanwhile, a bounce in bonds helped to boost small-cap stocks, which are still trying to find direction. And Roaring Kitty returned to ignite another meme stock rally. Let’s see what you missed. 👀

Today's issue covers two big brands with demand problems, the latest dog to have its day, and a rare Internal Revenue Service (IRS) apology. 📰

Here's today's heat map:

7 of 11 sectors closed green. Consumer discretionary (+1.20%) led, & consumer staples (-0.43%) lagged. 💚

Internationally, the Bank of Mexico left its key interest rate unchanged at 11%, noting market volatility amid its upcoming elections and stubborn inflation. Meanwhile, the Bank of Japan remains focused on the Yen ahead of its July Policy meeting, as the currency falls to a 38-year low against the U.S. Dollar. 💱

U.S. first-quarter GDP’s final reading came in at 1.40%, up 10 bps from the last estimate. Notably, consumer spending rose at its slowest rate in a year and a half, with a larger trade deficit and slower growth in inventories weighing on the reading. Experts are looking for a second-quarter rate of 2%. 🔺

Manufacturing activity remains mixed, with May durable goods orders inching up just 0.10% and April’s number being revised down by 40 bps. The Kansas City Fed’s manufacturing index also fell moderately in June despite future expectations rising slightly. 🏭

May wholesale inventories rose 0.60% MoM, while retail inventories were flat excluding automobiles. And the U.S. housing outlook remains tepid, with pending home sales falling by 2.10% to an all-time low in May, while transitions dropped 6.60% YoY. 😬

The Supreme Court threw a wrench in Purdue Pharma’s opioid settlement, saying that the bankruptcy judge did not have the authority to lets its members evadae facing future lawsuits. Meanwhile, a jury ruled the NFL violated antitrust laws with its Sunday Ticket Offering, awarding a $14 billion judgment. 🧑‍⚖️

Hims & Hers Health fell 7% after Hunterbook Media published a report discussing alleges issues about the company’s sale of weight loss drugs. International Paper also dipped 7% on news that Suzano is no longer pursuing its acquisition of the company. 📉

Consolidation in the oil and gas space continues, with SM Energy Company attempting to purchase purchase XCL Resources in a $3 billion deal. 🛢️

Luxury furniture retailer RH jumped 9% after CEO Gary Friedman purchased $10 million in shares. He owns more than a quarter of all outstanding stock. 🤑

And Faraday Future Intelligent Electric popped 31% after a meeting with UAE investment firm Master Investment Group sparked speculation of a new equity investment could be coming. 💰

Other active symbols: $GME (+3.68%), $DJT (-6.42%), $BB (+10.86%), $PLTR (+4.65%), $CMG (-5.24%), and $AITX (+7.50%). 🔥

Here are the closing prices: 

S&P 500

5,483

+0.09%

Nasdaq

17,859

+0.30%

Russell 2000

2,038

+1.00%

Dow Jones

39,164

+0.09%

EARNINGS
Big Brands That Can’t Find Demand

Two tried and true brands are having trouble getting consumers to buy their stuff, and it’s becoming a major issue for investors… 🙃

Apparel giant Nike cut its full-year guidance and said it expects revenues to fall 10% YoY in the current quarter. Fiscal 2025 revenues will be down mid-single digits vs. previous expectations of slight growth. ✂️

It harped on macroeconomic headwinds like weak China sales and “uneven” consumer trends around the world. As a result, its no surprise revenues of $12.61 billion missed expectations by about 2%. Meanwhile, adjusted earnings of $1.01 per share topped the $0.83 expected, as the company remains in cost-cutting mode.

Nike has been trying to drive sales through its own website, as direct-to-consumer channels offer better pricing power and margins. However, it’s now walking back that initiative, saying it went too far in moving away from its wholesale partners.

As a result, it’s seen increased competition across most of its product lines and markets, with customers opting for newer designs over Nike’s “classics.”

The mix of external headwinds and operational missteps is eerily similar to Lululemon’s, whose management offered little in terms of solutions. And Nike’s earnings call sounded the same, with management harping on all the issues and not making investors feel like there’s a clear plan to address them.

Executives ultimately said “a comeback at this scale takes time,” but time is not a luxury investors are giving the stock…which has underperformed significantly over the last few years. ⌛

Maybe the Stocktwits community is seeing this as the “kitchen sink” quarter, where Nike gets all the bad news out and sets itself up to beat low expectations going forward. Sentiment is currently in “extremely bullish” territory as prices fall 12% after the bell. 🤷

One stock the Stocktwits community is not giving the benefit of the doubt is ex-Dow 30 name Walgreens Boots Alliance. 👎

The retail pharmacy giant’s adjusted earnings per share of $0.63 missed the $0.68 expected, while revenues of $36.40 billion beat by 1%. However, the company cut its full-year adjusted profit outlook due to a “challenging” environment for pharmacies and U.S. consumers.

Walgreens CEO Tim Wentworth said management assumed the consumer would get somewhat strong in the second-half of the fiscal year, but that was not the case. He noted that consumers continue to have “sticker shock” in stores, especially in the discretionary goods category. 🤯

With an unclear plan for boosting sales, the company is returning to cost-cutting to boost earnings. It plans to cut a significant number of underperforming stores, saying that “seventy-five percent of our stores drive 100% of our profitability.”

Overall, the bigger-picture challenges for the company continue to offset any positives, like strong performance in its health-care division. However, unlike Nike, the stock is not getting any grace from investors. Shares fell to 23-year lows on the news and remain in free fall. 📉

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