After Hours Summary: SNOW +18%, ADSK +6.5%, NTAP +6.4% higher on earnings; SPLK -9.9%, VSCO -7.6%, CRM -7.2%, NVDA -4.8% lower on earnings; TDOC +2.7% higher on WaPo report that AMZN plans to exit telehealth; ELY +4.6% to change its nameAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: SNOW +18%, ADSK +6.5%, NTAP +6.4%, WSM +0.3%
Companies trading higher in after hours in reaction to news: AMWL +5.9% (AMZN to shut down its telehealth offering, according to WaPo), ELY +4.6% (to change name to Topgolf Callaway Brands), PDSB +4.4% (files for $150 mln mixed securities shelf offering), GDRX +3.9% (AMZN to shut down its telehealth offering, according to WaPo), BMRN +3.1% (first gene therapy for adults with severe hemophilia approved in Europe), TDOC +2.7% (AMZN to shut down its telehealth offering, according to WaPo), CRGE +1.4% (stock offering by selling shareholders), ET +1.3% (enters into 20-year LNG Sale and Purchase Agreement with Shell), NXPI +0.4% (sees expanded customer engagements for its S32 platform), OLN +0.1% (to permanently shut down 225,000 ECU tons of alkali capacity), AMZN +0.1% (to shut down its telehealth offering, according to WaPo)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: SPLK -9.9%, VSCO -7.6%, CRM -7.2% (also authorizes new $10 bln share repurchase program), ZUO -5.6% (also to acquire Zephr), NVDA -4.8%, GES -3.6%
Companies trading lower in after hours in reaction to news: RIDE -1% (files for $500 mln mixed securities shelf offering), SKIN -0.7% (stock offering by selling shareholders), GME -0.4% (boosting compensation for some store employees, according to WSJ), EHTH -0.3% (files for $300 mln mixed securities shelf offering), ONEM -0.2% (AMZN to shut down its telehealth offering, according to WaPo), AVLR -0.1% (new partnership with Xero)
Closing Stock Market SummaryToday's trade had a positive bias that left the major indices with modest gains, snapping a three-session losing streak. The market was stuck in a narrow range as participants await Fed Chair Powell's speech at the Jackson Hole symposium on Friday. Rising Treasury yields and oil prices acted as a limiting factor.
Notwithstanding the modest gains, buying interest was relatively broad-based. Advancers lead decliners by a 5-to-3 margin at the NYSE and a 14-to-9 margin at the Nasdaq.
All 11 S&P 500 sectors closed in the green with gains ranging from +0.04% (information technology) to 1.2% (energy).
The mega caps stocks edged ahead of the broader market with the broader market and growth stocks edged ahead of value stocks. The Vanguard Mega Cap Growth ETF (MGK) closed up 0.4% versus a 0.3% gain in the S&P 500. The Russell 3000 Growth Index was up 0.5% and the Russell 3000 Value Index was up 0.3%.
Small cap and mid cap stocks stood out as the Russell 2000 (+0.8%) and S&P Mid Cap 400 (+0.5%) closed ahead of their peers.
On an individual basis, Nordstrom (JWN 18.57, -4.63, -19.96%) and Intuit (INTU 465.77, +16.21, +3.6%) were notable standouts after the companies reported quarterly results. Both names beat top line estimates but the former cut its full-year guidance while the latter issued pleasing full-year guidance.
WTI crude oil futures had a volatile session and settled up 1.1% at $94.83/bbl. This propelled the energy sector (+1.2%) to first place on the day. Natural gas futures rose 0.1% to $9.26/mmbtu.
Separately, President Biden announced a plan to forgive up to $10,000 in federal student loan debt for borrowers earning less than $125,000 per year (or less than $250,000 per year for married couples filing jointly).
Hawkish Fed speak drove Treasury yields higher today. Minneapolis Fed President Neel Kashkari (2023 FOMC voter) said he thinks the Fed needs to remain vigilant with tightening efforts, lest it run a risk of inflation expectations becoming unanchored, according to The Wall Street Journal. The 2-yr note yield rose nine basis points to 3.37% while the 10-yr note yield rose five basis points to 3.11%.
Ahead of Thursday's open Abercrombie & Fitch (ANF), Dollar General (DG), Dollar Tree (DLTR), and Peloton (PTON) all report earnings.
Looking ahead to Thursday, market participants will receive the Q2 GDP second estimate (Briefing.com consensus -0.9%; prior -0.9%), Q2 GDP Deflator second estimate (Briefing.com consensus 8.7%; prior 8.7%), weekly Initial Claims (Briefing.com consensus 253,000; prior 250,000), and Continuing Claims (prior 1.437 mln) at 8:30 am. ET. Weekly natural gas inventories (prior +18 bcf) are out at 10:30 a.m. ET.
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -1.2%; Prior -2.3%
- July Durable Orders 0.0% (consensus 0.6%); Prior was revised to 2.2% from 1.9%; July Durable Orders, Ex-Transportation 0.3% (consensus 0.1%); Prior 0.3%
- The key takeaway from the report is that business spending continued to increase, evidenced by the 0.4% increase in nondefense capital goods orders excluding aircraft, which followed increases of 0.9% in June and 0.5% in May.
- July Pending Home Sales -1.0% (Briefing.com consensus -3.0%); Prior was revised to -8.9% from -8.6%
Dow Jones Industrial Average: -9.3% YTD
S&P 400: -10.2% YTD
S&P 500: -13.1% YTD
Russell 2000: -13.8% YTD
Nasdaq Composite: -20.5% YTD
Smaller Fashion Brands See a Big Opportunity in Beauty
For labels like Stella McCartney, Off-White and Dries Van Noten, beauty can fuel sales growth, profitability and boost brand equity longer term. But cracking the sector is no easy feat.
KEY INSIGHTS
- Stella McCartney announced this week that the brand is set to launch a skin care line, featuring three "clean" products in refillable packaging.
- The brand joins Dries Van Noten and Off-White in expanding to makeup or skin care this year, as more brands turn to beauty to boost their bottom lines.
- However, while beauty offers ample financial opportunity, today's crowded marketplace means there's never been a more difficult time to get into the sector.
Stella McCartney is breaking into beauty.
This week, it emerged that the LVMH-owned label is set to enter the beauty sphere with a new clean skin care line. The launch, first reported by WWD, will drop early next month on the brand’s website, with three refillable products priced between $45 and $140.
With the line, the brand is set to join a long line of fashion labels that bank on beauty to boost their top and bottom lines, including longtime players Chanel, Dior and YSL and newer entrants like Gucci, Valentino and Hermès. These large heritage businesses have traditionally dominated the makeup and skin care sectors when it came to fashion brands in beauty, while fragrance was the typical route for smaller players, often via a licensing deal with a beauty giant like L’Oréal or Coty. But now, both smaller and younger luxury labels increasingly have ambitions to crack cosmetics and skin care too.
There’s certainly room for optimism in beauty, as growth of the broader industry has exploded in recent years. This year, Dries Van Noten and Off-White both released makeup products alongside their fragrance debuts. They joined the likes of Louboutin and Victoria Beckham, who both forayed into makeup before the pandemic. But it’s never been a harder time to enter the sector.
“It’s just a very crowded market right now, there are a lot of companies launching,” said Ariel Ohana, managing partner at independent investment bank Ohana & Co. “The key competitors those companies are facing now are not necessarily the other big fashion houses, but the indie brands that are launching in the market today.”
Why Brands Bet on Beauty
When done right, beauty can be a lucrative business for fashion houses. At brands like Dior, Chanel and Saint Laurent, it serves as an entry point into the brand, offering a way for aspirational shoppers who can’t afford a bag or shoes to buy into a label. In fact, beauty is the cash cow for these businesses, enabling them to reap the benefits of high gross margins and mass distribution without diluting or damaging their brand equity.
For luxury houses that are smaller in size than a Dior or a Chanel, establishing a robust beauty business can be a quick path to scale, while also serving as an effective customer acquisition tool that allows the next generation of luxury shoppers to start a relationship with a brand. Since Puig-owned Dries Van Noten launched its beauty collection in stores in March, the brand has seen a higher footfall of younger, first-time customers purchasing the line alongside existing, older clients, Ana Trias, Puig’s chief brands officer, told BoF in a May 2022 interview.
“You can reach a very vast audience, given the very low absolute average price of these products,” said Luca Solca, luxury goods analyst at Bernstein. “Brands hope to convert some of these consumers to other product categories … down the road.”
This dynamic becomes even more crucial amid the current market outlook. While the luxury sector has bounced back from the pandemic, the dismal state of the economy means small and medium-sized fashion businesses face more challenges ahead, as both middle class shoppers and high-spending clients become more discerning about purchases.
The fashion labels that stand to benefit most from this dynamic are the largest brands with the strongest DNA — Chanel, Louis Vuitton, Dior, Hermès — while smaller peers will likely find the market more challenging, as shoppers roll back discretionary spending on expensive clothes and high-end shoes.
Beauty, however, is a relatively recession proof category. The prestige beauty sector remained buoyant over the pandemic, and is continuing to show strong growth, with sales in the first quarter of 2022 up 19 percent year-on-year in the US, according to market research firm NPD. Amid tough times, beauty can be a beneficial business for smaller fashion brands to fall back on.
“Beauty is a more stable business compared to fashion,” said Wizz Selvey, founder of brand and retail strategy firm Wizz & Co. “The business model of beauty means a large proportion of sales are usually from products that are continuity lines, so less seasonal than fashion.”
From an M&A perspective, fashion brands that successfully crack the beauty market can demonstrate their ability to transcend categories, which is proof of strong brand equity, said Ariel Ohana, managing partner at independent investment bank Ohana & Co. That, in turn, she said, boosts a company’s attractiveness to investors.
“If you can demonstrate that your brand is not specific to a vertical, but it really can go across several verticals, then your brand is just so much stronger,” he said. “This just drives higher valuations and it drives higher marketability, meaning: this is an easier brand to sell tomorrow.”
Tom Ford is a good example: the company, which began as a ready-to-wear business, generates hundreds of millions of dollars a year selling fragrance and cosmetics via a licensing deal with Estée Lauder. Lipstick alone is said to drive $500 million in annual sales. Now, the brand is reportedly in talks with a beauty conglomerate about a deal that could fetch the label a $3 billion valuation.
Barriers in Beauty
However, that’s not to say that it’s easy for a fashion brand to crack beauty in today’s market.
With new players constantly entering the space, the sector is increasingly complex to navigate, especially for a brand whose expertise lies in clothing and accessories. In terms of infrastructure, small and medium-sized fashion brands face a huge scale disadvantage. Even Burberry, a £2.8 billion ($3.3 billion) megabrand, struggled to develop its beauty business internally, outsourcing management to Coty in 2017 just four years after bringing it in-house.
This is probably why recently, smaller fashion players have leveraged the expertise and spending power of bigger groups when entering beauty. Stella McCartney has its parent company LVMH, Dries Van Noten has its parent company Puig, and Off-White has its operating company, Farfetch-owned New Guards Group, whose new beauty arm is headed up by industry veteran Cassandra Grey, founder of beauty retailer Violet Grey.
Fashion brands do have an edge over other beauty start-ups in that they already have an engaged customer base, but that’s simply not enough to stand out. In today’s market, fashion labels can’t just launch a line and hope that brand name alone is going to sell a product.
“You have a lot of competition, and you have to bring either innovation or integrity to the market in terms of what you’re doing, that’s not just trying to leverage what you have already,” said Ohana. “In today’s environment, where there’s just so much happening in beauty, it’s not going to work.”
LVMH knows this — and views Stella McCartney as having an advantage. McCartney’s reputation as a sustainable fashion pioneer has the potential to give her credibility with beauty consumers seeking “clean” options. Stella McCartney’s beauty brand will reflect the fashion brand’s core values, Stephane Delva, director of new beauty projects at LVMH, said in a statement to BoF: her formulas are vegan and cruelty-free, her products are refillable and her packaging is recycled.
“Stella has pioneered the conscious fashion industry like no other,” Delva said. “There was an opportunity to build on her experience and expertise to change the skin care market too.”
Audemars Piguet Taps Former Tiffany CEO Alessandro Bogliolo
He joined as director in August and is slated to take over from Jasmine Audemars as chairman of the board in November.
PARIS — Family-owned Swiss watchmaker Audemars Piguet has announced the arrival of Alessandro Bogliolo as director on Tuesday.
The Italian executive is expected to become chairman of the board of directors on Nov. 11.
Incumbent chairwoman Jasmine Audemars, a great-granddaughter of cofounder Jules Louis Audemars and one of the few female leaders in the industry, announced her intention to step down this year, after 30 years in the role. She took over from her father Jacques-Louis Audemars in 1992.
Jasmine Audemars stated that she “looked forward to keeping in touch, even if it’s from slightly more afar” as she will retain her position as chairwoman of the Audemars Piguet Foundation, which supports worldwide forest conservation.
New York-based Bogliolo, 57, is a veteran luxury industry executive who previously held the position of chief executive officer and executive board member of Tiffany & Co. from 2017 to January 2021, when he stepped down in the wake of LVMH Moët Hennessy Louis Vuitton’s dramatic $15.8 billion acquisition of the American jeweler.
Prior to this, he served as CEO of Italian fashion label Diesel, held management position at Roman jeweler Bulgari for 16 years, and started his career as a consultant at Bain & Co. He is currently a board director of troubled home goods retailer Bed Bath & Beyond.
Bogliolo’s appointment comes after Audemars chief executive officer François-Henry Bennahmias confirmed last June to Swiss newspaper Le Temps that he would exit his position in 2023. His replacement has not yet been named.
LVMH Injects More Cash Into Le Parisien Media Group
The luxury conglomerate injected another 65 million euros into its media group, which also owns business daily Les Echos.
PARIS — LVMH Moët Hennessy Louis Vuitton has once again filled the coffers of Le Parisien press group to offset its losses.
The luxury conglomerate — which owns Louis Vuitton, Christian Dior and Fendi, among other brands — injected 65 million euros into Ufipar, the holding company that owns the French daily newspaper. A spokesperson for LVMH confirmed to WWD the “technical operation” took place in late July. The legal announcement was posted on Aug. 18.
It marks the second time LVMH has put a significant payment into the holding company to offset the losses of the media group, which also owns news daily Les Echos, financial website Investir and radio station Radio Classique. LVMH injected 83 million euros in December 2019.
Le Parisien has seen 12 months of increased subscriptions, though it has not achieved profitability. Business daily Les Echos achieved financial breakeven in 2021, the first time since 2008. The group also sold off its printing and distribution arm in late 2021.
Les Echos-Le Parisien group has been diversifying through acquisitions, including the classical TV channel Mezzo and 50 percent of Medici.tv, an OTT platform for opera.
The latest investment from LVMH comes as the group is in talks to acquire polling institute OpinionWay, which specializes in marketing studies and opinion polls including political and election tracking. That move would see OpinionWay expand its research to web data collection and AI to track consumer behavior and trend forecasting, and allow LVMH additional business insights.
Les Echos is also the sponsor of Paris’ VivaTech conference, which is backed by LVMH.
LVMH showed a strong first half of 2022 in results reported in July, with a revenue of 36.7 billion euros, up 28 percent year-over-year from 2021.
Germany Econ Ministry reportedly sees future problems with coal supplies for power plants and oil supply for eastern areas in the fall and winter - press
- "Due to very reduced domestic shipping, accumulated coal stocks could quickly fall"
- Issues exacerbated by low water levels on Rhine River
- Likely will not fill additional storage sites in southern Germany by winter
Revlon Shareholders Lose Fight for Bankruptcy Committee
The interests of minority shareholders are adequately protected without an official committee, bankruptcy judge says
A bankruptcy judge declined a request by Revlon Inc. minority shareholders to form an official committee to represent equity holders’ interests in the cosmetics company, which has rallied in the stock market despite its chapter 11 filing.
Judge David Jones of the U.S. Bankruptcy Court in New York ruled that minority shareholders’ interests are adequately represented in the chapter 11 case, filed in June. The shareholders’ interests align with those of unsecured creditors, who are already represented by an official committee in the bankruptcy case, the judge said.
Revlon’s stock, which has surged in recent weeks from around $2 when it filed for bankruptcy, was trading around $6.80 on Wednesday after the judge’s ruling.
The appointment of an official equity committee would allow the shareholder group to bill its legal and other advisory fees to Revlon. The judge said the expense of adding another set of advisers to the list of lawyers and other professionals charging fees isn’t justified.
“The unsecured creditors committee has exceptional counsel, and there is no basis to believe that unsecured creditors’ interests do not align with the minority shareholders’ interests,” Judge Jones said at Wednesday’s court hearing.
Shareholders are generally wiped out in bankruptcy cases, except for the rare instances where debt claims can be repaid with surplus of value left over. Revlon, 85% owned by billionaire Ronald Perelman, filed for bankruptcy after struggling with a heavy debt load, tough competition and an acute cash crunch.
Minority shareholders have pointed to Revlon’s surging stock price, fueled by a burst of interest from individual investors, as evidence its shares have value. Judge Jones said the chances are good that if Revlon’s unsecured creditors are paid in full, equity holders will also recover some value.
“It is exceedingly unlikely that the unsecured creditors committee’s strategy of securing full payment for unsecured creditors will result in nothing for equity holders,” he said.
Judge Jones said the minority shareholders can return to him if circumstances change to renew the request for official committee status.
The shareholders also failed to show that there is a “substantial likelihood of a meaningful recovery” for equity holders in the case. While the shareholders pointed to the substantial value of Revlon shares as evidence of potential value for equity holders in the case, the company’s debt prices point in the opposite direction, Judge Jones added.
Revlon’s 6.25% unsecured notes due in 2024 last traded at eight cents on the dollar on July 19, according to MarketAxess.
Aveva/Schneider: the UK market’s incredible, disappearing tech sector
Interest from the French group has boosted the British software company after its disappointing recent performance
Another day, another underperforming UK business poised to succumb to a foreign takeover. France’s Schneider Electric has confirmed its interest in buying Aveva. The horror of protectionists will only be partially assuaged by the industrial software group’s low profile and the fact that the French would-be bidder owns 60 per cent already.
Aveva shares rose by more than 30 per cent, valuing the group at £9bn. Recent performance has been disappointing. If Aveva is bought, the event may be mourned more by patriotic pundits with deadlines than investors with cash on the line.
Aveva is one of the UK’s few big remaining listed technology businesses. But only a tiny fraction of sales originate in the country. That reflects a focus on the world’s energy industry.
The UK listing is a legacy of the company’s founding in Cambridge, where it produced computer-aided-design software. Schneider arrived on the scene in 2018, merging in its own industrial software assets in return for a controlling stake. Since then, the group’s pursuit of a “software as a service” subscription model has rankled with investors.
That ambition has proved to be a double-edged sword. Near-term earnings have fallen as smaller recurring subscriptions replace chunky one-off licence sales. Lost Russian sales and margin-eroding cost inflation have compounded Aveva’s difficulties.
The latest hiccup came in July, when the group warned that annual recurring revenue growth over the previous year was just 11 per cent, well below 15 per cent previously expected.
That helped wipe off almost half the value of Aveva shares over the past year. The stock has underperformed the wider FTSE 350 Software index by almost 40 per cent.
Wednesday’s rise in shares left them at a valuation of 22 times forward earnings. That represents a modest premium to the UK sector but still about a third below the company’s average over the past five years. Amid a global technology rout and looming recession, shareholders may not be able to do very much better than that.
Another brick in the Wall Street as Blackstone eyes Pink Floyd catalogue
Deal through Hipgnosis fund could value songs at as much as $500mn
US private equity group Blackstone is vying to buy Pink Floyd’s back-catalogue, a major bet on music rights that could value the band’s songs at almost half a billion dollars.
The buyout group would strike the deal through Hipgnosis Song Management, the company founded by Elton John’s former manager Merck Mercuriadis that Blackstone now owns a majority stake in, according to corporate filings.
A Pink Floyd deal would burnish Blackstone’s credentials as a main player in the music rights business. The band is one of the best-selling groups of all time and its catalogue is sought after, with Sony Music, Warner Music, KKR-backed BMG and Oaktree-funded Primary Wave also bidding, five people with knowledge of the matter said.
Blackstone set up Hipgnosis Songs Capital, a billion-dollar fund, after buying HSM last year. HSC has so far bought $341mn of back catalogues from Leonard Cohen, Justin Timberlake, Nile Rodgers, Nelly Furtado and country singer Kenny Chesney.
The Pink Floyd deal could be worth more than all HSC’s current holdings combined, underscoring its seriousness about the industry despite rising interest rates making such deals less attractive.
Artists such as Bruce Springsteen and Bob Dylan have sold their songbooks to music companies for hundreds of millions of dollars in recent years, while private equity firms piled into the market in search of steady returns during the long period of low interest rates.
The catalogue of the UK band spans hits such as “Money”, “Comfortably Numb” and “Another Brick in the Wall”. A deal could be agreed within a few weeks, the people added.
Pink Floyd is selling both the copyrights to its songs and its recordings, or master copies, making its catalogue one of the most valuable to come to the market. It is seeking £400mn or more for these copyrights.
A weaker sterling over the past few months has meant that the price tag of the deal has become cheaper in dollar terms for the American bidders since the process began.
The Blackstone-backed Hipgnosis fund this month issued $221mn of asset-backed securities — bonds that use the music copyrights as collateral. This was used to refinance the debt it took on to initially fund the $341mn of music purchases.
The debt will cost the Hipgnosis fund more than 6 per cent a year, compared with just under 4 per cent that KKR-backed Chord Music Partners will have to pay on a similar debt deal arranged in January.
The KKR-backed deal is tied to about 62,000 songs by artists including The Weeknd and Lorde.
Blackstone and Hipgnosis declined to comment.