Notable earnings/guidance movers: DIS -2.9%; APP +10.9%, BYND +9.5%, U +8.8%, HOOD +5.4%, ALGM +4.2% on upside; SONO -21.1%, CDNA -15%, DM -7.4%, GDEN -5.2% on downside
- Earnings/guidance gainers: PRPL +24.4%, APP +10.9%, BYND +9.5%, U +8.8%, MAXN +6.5%, MGNI +6.2%, HOOD +5.4%, DV +4.9%, ALGM +4.2%, NXT +3.3%, ACVA +2.8%, ORCC +2.4%, SOVO +2%, COOK +1.8%, FLEX +1.7%, TTD +1.7%, LAW +1.4%, CR +1.2%
- Earnings/guidance losers: SONO -21.1%, CDNA -15%, DM -7.4%, GDEN -5.2%, BLFS -5.1%, DIS -2.9%, RPAY -1.9%, CDE -1.3%
Closing Stock Market SummaryToday's trade was mostly mixed. The Dow Jones Industrial Average spent most of the session in negative territory while the Nasdaq and S&P 500 outperformed, supported by gains in the mega cap space.
Price action was somewhat tepid today until a rebound effort took root in the afternoon when the S&P 500 briefly slipped below the 4,100 level. Ultimately, the Nasdaq and S&P 500 closed comfortably above unchanged levels. Mega cap stocks offered integral support to the broader market, leaving the Vanguard Mega Cap Growth ETF (MGK) up 1.1% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat and the market-cap weighted S&P 500 rose 0.5%.
Alphabet (GOOG 112.28, +4.34, +4.0%) was a big driver of the mega cap outperformance, as it rallied amidst the company's presentation at its Developers Conference, which included updates on its AI initiatives.
Initially, market participants reacted favorably to the April Consumer Price Index (CPI), but a closer look fostered uncertainty about the Fed's policy path. Total CPI was up 4.9% year-over-year in April, down from 5.0% in March, which marks the sub-5.0% reading in two-years. Core-CPI, which excludes food and energy, was up 5.5% year-over-year in April, down from 5.6% in March.
Presumably, the April CPI report will sway the Fed to entertain holding the target range for the fed funds rate steady at 5.00-5.25% at its June meeting, but importantly, a 5-handle on core-CPI isn't going to sway the Fed to think it needs to cut rates anytime soon.
That understanding, along with ongoing concerns about the debt ceiling and a possible hard landing for the economy, kept the market in check through most of the session.
In the early going, continued softness in the regional bank space had been another limiting factor. Some of the pressure there dissipated by the close with some regional bank shares coming along for the rally. The SPDR S&P Regional Banking ETF (KRE) had been down as much as 2.2%, but closed with a 1.0% loss. Western Alliance (WAL 27.48, +0.53, +2.0%) squeezed out a slim gain while PacWest (PACW 6.08, -0.03, -0.5%), which saw a loss of 5.4% at its low, closed with a modest 0.5% decline.
Still, the S&P 500 financials sector (-0.6%) closed near the bottom of the pack, along with industrials (-0.3%). The energy sector (-1.2%) saw the biggest decline as oil prices fell due to growth concerns. WTI crude oil futures fell 1.6% to $72.56/bbl.
The communication services sector (+1.7%) was the best performer by a decent margin thanks to the gain in Alphabet. The information technology (+1.2%) and real estate (+1.0%) sectors were also top performers.
Treasuries settled with gains across the curve. The 2-yr note yield fell 10 basis points to 3.90% and the 10-yr note yield fell eight basis points to 3.44%.
- Nasdaq Composite: +17.6% YTD
- S&P 500: +7.8% YTD
- Dow Jones Industrial Average: +1.2% YTD
- S&P Midcap 400: +0.8% YTD
- Russell 2000: -0.1% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 6.3% with refinancing applications jumping 10% and purchase applications rising 5%.
- Total CPI was up 0.4% month-over-month ( consensus +0.4%) and up 4.9% year-over-year, versus up 5.0% in March. Core-CPI, which excludes food and energy, was also up 0.4% month-over-month (consensus +0.3%) and up 5.5% year-over-year, versus up 5.6% in March.
- The index for shelter (+0.4%) was the largest contributor to the increase in total CPI and core-CPI; however, the 0.4% increase was the smallest increase for the shelter index since January 2022.
- The key takeaway from the report as far as the market is concerned is that the moderation in inflation, coupled with the moderation in the shelter index, should at least spur the Fed to entertain keeping its policy rate on hold when it meets again in June.
- The weekly EIA crude oil inventories data showed a build of 2.95 million barrels after last week's draw of 1.28 million barrels.
- The April Treasury Budget showed a surplus of $176.2 billion compared to a surplus of $308.2 billion in the same period a year ago. The Treasury Budget data is not seasonally adjusted so the April 2023 figure cannot be compared to the March 2023 figure. The surplus in April was the result of receipts ($638.5 billion) exceeding outlays ($462.3 billion).
- The key takeaway from the report is that individual income and corporate tax receipts combined were $461.5 billion, which was 32.3% less than April 2022.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: April PPI ( consensus 0.3%; prior -0.5%), Core PPI ( consensus 0.3%; prior -0.1%), weekly Initial Claims ( consensus 247,000; prior 242,000), and Continuing Claims (prior 1.805 mln)
- 10:30 ET: Weekly natural gas inventories (prior +54 bcf)
Judge Affirms Jack Dorsey’s Right To Make Objectively ‘Terrible’ Business Decisions
The mobile payment company Block was within its rights to buy Jay-Z’s music streaming service Tidal, even if the deal sucked, a Delaware judge ruled Tuesday.
Block had faced a shareholder suit from a pension fund as a result of the $300 million deal to acquire a majority stake in Tidal, which came as the streaming company was “failing financially” and facing a criminal investigation in Norway related to inflated streaming numbers.
At particular issue was Dorsey’s burgeoning friendship with Jay-Z, and whether Dorsey and Block's board was within its right to make a major acquisition in part because of that friendship even if the business reasoning did not make sense. The judge notes that the idea to buy Tidal had come to Dorsey while he was “summering” with Jay-Z’s family in the Hamptons. Dorsey had, in fact, suggested Block, then called Square, acquire Tidal during a videoconference meeting he took from the Hamptons in 2020. A
“It seemed, by all accounts, a terrible business decision,” the judge stated in his ruling Tuesday.
The plaintiffs said that a "transaction committee" at Block met to discuss the Tidal acquisition for only 35 minutes in September 2020. At a follow-up meeting the next month, the transaction committee discussed Tidal's low subscriber numbers, the fact it "had recorded multimillion-dollar losses in each of its previous ten quarters," Spotify's dominance in the streaming space, and "potential risks,” like the Norwegian criminal probe and U.S. federal lawsuit brought against Tidal by artists who said they were owed royalties.
During the process, the transaction committee also discovered that Dorsey was “the sole Block management member in support of the acquisition.” But the deal moved forward anyway in March 2021.
The court decision details Dorsey and Carter’s friendship in hilarious detail, noting they “share interests in cryptocurrency and philanthropy” and were “spotted vacationing together in Hawaii” just days after Block formally started the process of acquiring Tidal. Dorsey had additionally donated $10 million to Carter’s nonprofit in May 2020, and the pair created and funded an endowment the next year dedicated to “ bitcoin development in India and Africa.”
The judge dryly stated Tuesday that a “commonsense” interpretation of the situation was that Dorsey effectively used Block’s “corporate coffers” to further “bolster his relationship” with one of the greatest rappers alive. But, he added, the law is the law, and under Delaware law, “a board comprised of a majority of disinterested and independent directors is free to make a terrible business decision without any meaningful threat of liability, so long as the directors approve the action in good faith.”
Yes, the judge said, Dorsey might have been “incapable of impartially” considering the acquisition due to his burgeoning relationship with the writer of “Big Pimpin,’” it was harder to say that most of Block’s board had acted in bad faith.
“Plaintiff has alleged sufficient facts to make a reasonable person question the business wisdom of the Tidal acquisition, but plaintiff has failed to plead that the committee defendants acted in bad faith and thus faced a substantial likelihood of liability for that decision,” the judge wrote.
The suit has allowed insight into how at least some $300 million business deals happen—that is, as a result of two friends enjoying a nice talk in the Hamptons.
Tod’s, Roger Vivier, Leather Goods Shine in Q1
The Tod's Group reported a 23.2 percent gain in revenues, also lifted by all its main markets, and China in particular.
MILAN — All product categories, markets and channels boosted the Tod’s Group’s performance in the first quarter of the year.
In the three months ended March 31, revenues rose 23.2 percent to 270.5 million euros, compared with 219.6 million euros in the same period the year before.
Diego Della Valle, chairman and chief executive officer of the group, touted “the excellent performance” of the company, highlighting the “outstanding” results at Tod’s and Roger Vivier, “with excellent feedback in all product categories, confirming our customers’ ever-increasing appreciation for the very high quality of our products, their craftsmanship and their Italian lifestyle.”
Della Valle underscored the growth in all geographic areas and in particular the contribution of the Chinese market, following the lifting of COVID-19 restrictions.
“We remain focused on our main goal to increase the equity value of both our group and our individual brands, through our continuous commitment to strengthen their positioning with the needed investments in marketing, communication and managerial skills, albeit in a logic of cost control and improvement of operational and managerial efficiency,” Della Valle said. “We continue to invest in our supply chain, to ensure the highest possible quality for our products. We will continue to grow selectively our distribution network, while remaining focused on both improving organic growth and developing the omnichannel distribution. The macroeconomic environment remains unpredictable, but considering the good sales trends we experienced in April and the excellent orders backlog for the winter collections, I’m confident about the group’s future results.”
Sales of the Tod’s brand climbed 24.4 percent to 130.2 million euros and Roger Vivier was up 30.9 percent to 68.6 million euros. The contribution of China, where both brands are present with their own network of points of sale in the most important luxury malls, was significant.
In the period, Hogan was up 10.1 percent to 56.8 million euros and sales of Fay jumped 30.6 percent to 14.2 million euros. The latter’s performance was helped by the timing in wholesale deliveries, said chief financial officer Emilio Macellari during a call with analysts, as the brand is predominantly a wholesale business.
Sales of shoes rose 19.3 percent to 206.8 million euros.
Revenues of leather goods and accessories climbed 36.5 percent to 43.2 million euros.
“Leather goods outperformed everywhere,” Macellari said. The category’s performance was “particularly good and encouraging. We have been working for years toward this. The results are homogeneous more or less around the world.”
Apparel climbed 37.2 percent to 19.8 million euros.
Sales in Italy gained 17.8 percent to 59.9 million euros. “This performance in Italy is not to be taken for granted and we are particularly happy with it,” Macellari said.
Revenues in Europe were up 18.3 percent to 57.3 million euros.
The company touted the strength of local demand and the important contribution of tourist purchases, especially from American, infra-European and Middle Eastern clients, in Italy and Europe, where tourists accounted for around 40 percent of sales, Macellari said.
In the Americas, sales rose 6.6 percent to 16.7 million euros.
The sales trend was positive, despite the shift abroad of a large part of the purchases of the American clients.
“We consider the U.S. a market of high importance and it is under-penetrated,” said Macellari, noting that the goal is to further develop this market.
In Greater China, revenues rose 29.2 percent to 88.6 million euros.
The region is maintaining double-digit growth rates both in Mainland China and, even more, in Hong Kong and Macau.
The performance of China was above that of 2021, said Macellari, and better than 2019.
Questions on China recurred throughout the call and Macellari said the company had seen “a visible acceleration” from mid- or end of January onward and “it is still going on.”
Macellari said he did not expect Chinese customers to travel outside Asia before the end of the summer.
He said South Korea was “suffering a bit” in terms of local customers, but that tourists were helping “with a better performance.”
Sales in the Rest of the World area showed a 32.8 percent gain to 48 million euros, driven by the excellent results of Japan, Singapore and the Middle East.
Macellari said the consensus of a 9 percent gain in revenues in the year to 1.1 billion euros should be “relatively easy” to achieve, and that an improvement of 150 basis points in margins can also be achieved despite the extra expenses and communication activities.
Retail sales rose 23.6 percent to 193 million euros, representing more than 70 percent of sales.
As of March 31, the group comprised 333 directly operated stores and 89 franchised units, compared to 318 directly operated and 86 franchised stores at the end of March last year.
Wholesale sales were up 22 percent to 77.5 million euros.
The e-commerce channel is doing well, which is reaping the results of the important investments made by the group in the digital world, said Macellari, adding that around 50 percent of online sales are derived from the direct channel and 50 percent from third parties.
Macellari said no price increases are planned for the fall season, after a 10 percent increase for the spring collections.
Asked about Tod’s collaboration with Lamborghini on a co-branded collection of leather goods, apparel, footwear and other accessories revealed in February, Macellari said this was a “very interesting and valuable brand,” which will help achieve higher visibility and boost Tod’s brand awareness, increasing its perception of luxury,” while adding that he did “not consider the partnership will bring an incredibly high volume of sales.”