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The Magnificent 7 growth slowdown

The Magnificent 7

It’s officially earnings season for the Magnificent 7. We will see earnings for Alphabet and Tesla tomorrow, Amazon on Thursday, and Meta, Apple and Microsoft next week. To say it will be a big deal to the market is an understatement. The market’s three-month recovery has been driven by Big Tech:

From a market cap perspective, the Mag 7 is now 31 per cent of the S&P 500, also near an all-time high:

As Jason Pride at Glenmede points out, earnings growth should be strong this quarter — but not exceptionally strong. Big Tech’s annual earnings growth results have been flat or slowing for the past few quarters, and are expected to slow further in 2025 and 2026. We exclude Nvidia from the graph below, since its earnings growth in 2023 and early 2024 is too off the chart, but it has a similar pattern; we also excluded Tesla, as its earnings are all over the place and a clear outlier:

For the market and these companies, this is potentially a bad sign: over the past two years, investors have often punished Mag 7 stocks for earnings results that were great, rather than astounding. A further growth slowdown does not bode well. Here, for example, is Microsoft’s performance last year; we’ve called out how much the quarterly EPS in each release overshot Wall Street’s estimate. The stock only perked up with an 8 per cent beat, and fell on the rest:

In such an expensive market, it is completely fair to expect a lot from the priciest stocks. And, as Dec Mullarkey at SLC Capital Management astutely points out, part of the earnings growth slowdown is from normalisation to an increasingly high annual base.

Even so, Bank of America predicts the Magnificent 7 is only expected to keep its earnings growth edge over the rest of the S&P 500 for another 18 months:

That deceleration is concerning, especially for this year. But 18 months is still a long runway. And, thankfully, this is a two-sided story: the market expects a slowdown in earnings growth for the Magnificent 7 and a pick-up in earnings growth for the S&P 493. The Magnificent 7 should continue to grow in the low teens and may accelerate again in 2027, while the rest of the market will hopefully catch up. “[There is] a constructive aspect to this market,” said Kevin Gordon at Charles Schwab. “The last time the Magnificent 7 decelerated, the rest decelerated too, setting up the bear market of 2022. As long as breadth continues, we could get the best of both worlds.” 

A broader market, if we get it, will be an unvarnished good, so long as the big companies can continue to hold up the S&P 500 until then. Slowing earnings growth, and the high potential for bad guidance on tariffs and capex, will be a challenge.

BEIJING, July 22 (Reuters) - China needs to cut steel output from the coal-powered blast furnace process by more than 90 million metric tons from 2024's level to achieve its green steel target this year, researchers said in a report published on Tuesday.

WHY IT'S IMPORTANT

The global steel industry is responsible for around 8% of the world's carbon dioxide emissions and China accounts for more than half of global steel output.

If China could meet its target of producing 15% of steel from electric arc furnace facilities this year, it could cut CO2 emissions by more than 160 million tons, nearly equivalent to the European Union steel sector's carbon footprint, analysts at the Helsinki-based Centre for Research on Energy and Clean Air said.

BY THE NUMBERS

China has lagged far behind its global peers in terms of electric arc-furnace steel share. The average share is around 30% globally, 71.8% in the United States, 58.8% in India and 26.2% in Japan, the centre said.

From 2021 to the first half of 2025, China's blast furnace capacity utilisation rose from 85.6% to 88.6%, while electric-arc furnace utilisation fell from 58.9% to 48.6%, it added.

KEY QUOTE

"A credible strategy to curb emission-intensive production and rein in excess capacity would not only tackle the sector's structural issues but also ease global tensions," said Belinda Schaepe, an analyst at the Helsinki-based centre.

CONTEXT

China produced 1.005 billion tons of crude steel in 2024, with around 90% from blast furnace facilities.

China's steel sector has been plagued by overcapacity, which has depressed prices and sparked growing protectionist backlash from global trade partners amid its burgeoning steel exports.

The cleaner electric arc facilities have faced headwinds of high power costs, unstable scrap supply and growing losses.

A dispute over extensions to Calvin Klein and Tommy Hilfiger suit licenses reveals simmering tensions in the relationship.

The marriage of the PVH Corp.’s brand power and G-III Apparel Group’s production prowess has been crumbling since 2022, when PVH moved to take back its Tommy Hilfiger and Calvin Klein licenses over five years.

Now the breakup has become not just litigious, but bitter.

G-III hit PVH with a $250 million breach of contract lawsuit last month after it was denied three-year extensions on its women’s suit licenses for both brands. But because the full complaint was under seal, the legal paperwork only hinted at the scope of the dispute.

Now that a redacted version of the lawsuit has been filed with New York State Court, years of frustration were given an opportunity to boil over in public.

G-III not only argues that there was no basis to deny the license extensions, but takes aim at PVH chief executive officer Stefan Larsson’s plans to remake the company and highlights the attendant impact on the licensed businesses. The suit separately alleges a “sustained and deliberate campaign of unlawful misconduct.”

“We filed this legal action to protect and uphold our contractual rights, as we believe that PVH is taking steps that do not align with our agreements,” a G-III spokesperson said. “We have had a successful partnership for more than two decades and see their recent actions as an unreasonable attempt to jeopardize our business.”

Regarding the lawsuit, a PVH spokesperson said: “G-III’s claims are baseless. We are responding via the legal process and look forward to addressing these matters in court. Through our continued execution of the PVH+ Plan, we are building our brands for the long term. Our strong, go-forward licensing partnerships play an important role in helping us drive sustainable, brand-accretive growth and unlock the power of our iconic brands.”

PVH generated $300 million in earnings before interest and taxes from its overall licensing business last year — and the G-III license takeback impacts 20 percent of PVH’s expected licensing revenues for 2025.

While the suit hints at the state of the broader relationship between PVH and G-III, it directly focuses in on a narrower slice of the business. It also offers just one side of the story.

But it’s juicy in a fashion insider kind of way.

Generally, the suit bemoans the loss of the partnership that was established with former PVH CEO Manny Chirico and cumulatively produced $16 billion in North American wholesale sales.

“After Mr. Chirico retired following a long and successful run as PVH’s CEO, a new management team took the reins at PVH in 2021. Relations between defendants and G-III have worsened ever since, as defendants have made a series of strategic and entirely avoidable blunders,” the suit claimed. “In April 2022, PVH launched a new strategy for the Calvin Klein and Tommy Hilfiger brands, called the PVH+ Plan. When introducing the plan to investors, PVH stated that ‘our licensed partners play a vital role in allowing us to bring the full lifestyle of Calvin Klein to our consumers…we are working closely with our licensing partners to bring them along on our journey.’”

Turns out, the journey wasn’t as long for G-III as it expected and PVH said later that year that it would be repatriating its G-III licenses over five years.

Behind the scenes, even the communication strategy to reveal the change caused friction.

According to the suit, the PVH news release on the license amendments was different than the drafts that were shared with G-III and touted the company’s plan to “transition…core product categories back to PVH.” The release, along with an interview Larsson gave to WWD and subsequent trade articles, “shocked the market — in particular department stores and other retailers that had counted on G-III as a long-term partner in regard to Calvin Klein and Tommy Hilfiger products,” the suit alleged.

Despite the obvious tension at the start, both companies appeared to be going their own way.

Morris Goldfarb, who’s been CEO of G-III for more than 50 years, put all of his long experience in to fill the hole that would be left when PVH ultimately walked away with about half of his business. G-III relaunched its Donna Karan brand, looked to rev up the Karl Lagerfeld subsidiary, signed a 25-year license for Halston, inked a deal with Champion and more.

Meanwhile, Larsson, who before PVH worked at H&M, Old Navy and Ralph Lauren Corp., sharpened his strategic focus on Tommy Hilfiger and Calvin Klein. His PVH+ Plan looked to pump up the brands with high profile media moments, like Calvin Klein’s campaign with Bad Bunny featuring the brand’s new Icon Cotton Stretch underwear with an “infinity waistband” that has no stitching.

The idea is to get people talking by putting a white-hot spotlight on those hero products and then presenting a very focused brand, an effort that was meant to be helped along by taking direct control over the U.S. wholesale business G-III previously managed. When PVH has lined everything up with its new approach — like with Bad Bunny — the results are good. But at least some analysts are getting antsy and are keen to see those kinds of PVH+ gains hit more of the company’s overall business.

G-III’s suit zeros in on a relatively nuanced bit of contractual back and forth.

When the company put in its bid to renew the suit licenses, PVH replied that both businesses had seen a “negative compound annual growth rate (i.e., a decline)” that would have been even worse if PVH had not allowed G-III to sell more goods through off-price than initially allowed under the contract.

But the suit argues that: “to the extent that sales of these apparel lines have been declining, the declines are a direct — and frankly foreseeable and preventable — consequence of defendants’ own ill-considered and poorly executed strategies and actions — issues that, by the way, G-III has consistently sought to bring to PVH’s attention, but to no avail — as well as macro trends in the apparel industry, none of which are, needless to say, under G-III’s control.”

G-III also claimed that both the Calvin Klein and Tommy Hilfiger suit businesses hit their “bargained-for performance.”

“Defendants are unreasonably seeking to impose a new and extracontractual condition on G-III’s right to extend the licenses, over and above the contractually agreed-upon performance requirements,” the suit said. “The real reason for defendants’ unreasonable refusal to approve an extension of the licenses is that, under the stewardship of its new management team, PVH has been on a punitive and meritless campaign against G-III, attempting at every turn to harm G-III’s business and reputation and to blame G-III for the failures of defendants’ own ill-advised strategies. This latest maneuver is just more of the same.”

The suit also contended that, “in another major and head-scratching blow to G-III and its department store clients, PVH promoted a new strategy for Calvin Klein and Tommy Hilfiger that sought to focus sales of the brands in a more limited number of stores, including by reducing door counts by more than 90 percent — from 450 to only 25 ‘doors’ — at one retailer, closing all ‘doors’ at another retailer, and asking G-III to reduce the number of Calvin Klein and Tommy Hilfiger skus. Further, PVH did not and does not have a successful track record on women’s wholesale, so the retail market was nervous about how PVH would be able to execute in the women’s wholesale space.”

PVH has been looking to build back its North American wholesale business methodically so that it meshes with its broader, global vision for Calvin Klein and Tommy Hilfiger.