Friday Nov.18, 2022

🛍️ Marshalls’ treasure-hunt win

The unmatched thrill of bargain-hunting (Chip Somodevilla/Getty Images)

Hey Snackers,

The latest victim of FTX’s fallout: Coachella. The music fest said nearly $1.5M worth of its NFTs (including 10 lifetime passes) are trapped on the exchange’s now disabled server.

Stocks inched down yesterday after Fed official James Bullard suggested rates might need to go much higher to tame prices. Investors had hoped for a slowdown after inflation cooled last month. In other bummer news: Ticketmaster said it’s canceling T. Swift sales for today.

Hunt

As more shoppers bargain-hunt, TJ Maxx and Marshalls grow while “in-between” retailers suffer

Found a $30 Michael Kors bag… under a shoe rack. TJX — the discount retailer behind TJ Maxx, Marshalls, and HomeGoods — is humming along as consumers scour its aisles for cute deals. This week, TJX beat quarterly sales expectations and boosted its outlook, because there’s no better feeling than finding perfectly fitting Levi’s for $11 after hours of scavenging.

The “exciting treasure-hunt shopping experience” is still resonating, TJX’s CEO said. Same-store sales at Marshalls and TJ Maxx were up 3%. And while the S&P 500 is down nearly 18% for the year, TJX stock is also up 3%.
Dress for less: Yesterday, rival rack-rummaging destination Ross also delivered better-than-expected results, despite declining sales and profit. Shares popped 13% after it issued higher-than-anticipated guidance for the holidays.

It’s the “affordable splurge” vibes for me… and the unaffordable splurge for others. While discount retailers are banking on low prices, luxury retailers are enjoying resilient demand. Bloomingdale’s owner Macy’s raised its annual profit forecast as higher-income shoppers scooped up designer blazers and fancy beauty products. Macy’s isn’t the paragon of luxury, but it does stock more luxe goods than department rivals like Kohl’s. Interestingly:

While Macy’s same-store sales were down for the quarter, its higher-end brands grew. Bloomingdale’s revenue was up 5%. Meanwhile…
Its luxury beauty retailer, Bluemercury, enjoyed 14% sales growth as shoppers splurged on pricey serums and designer foundations.

The middle is an awkward spot… during an economic downturn. Lower- and middle-income consumers are moving downmarket to discount retailers like TJX and Walmart, while wealthier consumers are sticking with luxury brands. Meanwhile, more middle-of-the-road retailers are hurting: this week Kohl’s withdrew its annual forecast after sales fell 7% and Target cut its holiday outlook as demand slackened.

3BR

JPMorgan invests $1B in rental homes as pricey houses kick off an American rent-aissance

Big Banks join the rent-aissance… Fewer people are buying houses, so banks are shifting their focus from home loans to rental properties: this week JPMorgan said it’s teaming up with property giant Haven Realty Capital to build $1B worth of single-family homes for renters. As US homes sales continue sliding, JPM is preparing for a rental surge:

Bettin’ on the ’burbs: JPM and Haven plan to buy 250 “built to rent” homes in the Atlanta area, and then develop entire communities of new suburban rental homes.
Renting, revamped: Last month, JPM started testing a platform that aims to help landlords digitize monthly rental payments — 78% of which are still paid by check.

Renting is the new buying… because many can’t afford to buy right now. Mortgage rates have more than doubled in the past year, making the long-term cost of homeownership prohibitive for many. While banks are earning higher interest, mortgage demand has plunged 40% from a year ago.

It’s bad for buyers… and for banks: JPM issued $15B of mortgage loans last quarter — 46% less than a year ago. JPM laid off mortgage workers this year as slumping revenue dented profits.
Rival Wells Fargo’s mortgage volume has fallen 90% since last year, and it’s also laid off mortgage workers. Rocket Mortgage, Redfin, and Better.com have also cut staff, and some mortgage startups have gone bankrupt.

It pays to be pragmatic… JPM could capitalize on America’s housing-affordability crisis by capturing a new generation of renters. Builders first popularized the build-to-rent model during the Great Recession as a way to keep building even when people weren’t buying. Now builder confidence is at its lowest level since 2012, thanks to soaring rates and construction material costs. By shifting strategy banks could see another build-to-rent boom.

SBF'D

The Crypto Catch-Up…

🧹Messy… Former FTX CEO Sam Bankman-Fried apparently cursed regulators in a DM-based interview with Vox and said his "biggest" mistake was filing for bankruptcy. Meanwhile, FTX's new CEO called the mess "unprecedented" (and he oversaw the Enron bankruptcy).
🌶️ Spicy… An FTX investor is suing Larry David, Tom Brady, and Steph Curry, among others, alleging their paid promotions for the now bankrupt crypto exchange lured "unsophisticated investors" into a "Ponzi scheme."
🤖 Techy… Crypto hardware wallet makers Ledger and Trezor saw booming sales last week after FTX froze customer withdrawals. Hardware wallets let crypto “hodlers” self-custody their coins (no exchange required).

What else we’re Snackin’

Capex: Corporate giants like Meta and Tyson are still upping capital spending (think: buildings, tech) and might set a quarterly record. That’s typically a vote of confidence, but recent layoffs muddy the waters.
Unfarm: The FDA said lab-grown chicken from Upside Foods is safe to eat, in a regulatory first for lab-grown meat. There are 100+ companies in the booming field, and Upside Foods is valued at $1B+.
Drip: Workers at 100+ Starbucks spots went on strike yesterday — on "Red Cup Day," one of Starbs’ busiest days of the year — to protest the chain’s alleged union busting. In the past year, 260 locations have voted to unionize.
Auto: Lyft said it has partnered with driverless-tech company Motional, which also has a deal with Uber, to bring robotaxis to LA (ETA unknown). Commercial self-driving adoption has hit regulatory speed bumps.
OnlyMerch: OnlyFans is collabing with ecomm biz Spring to let creators sell merch directly to fans. TikTok, Meta, and YouTube have launched similar efforts to attract and retain creators.

Friday

Earnings expected from JD.com, Foot Locker, Spectrum Brands, and Twist Bioscience

Authors of this Snacks own: shares of Google, Starbucks, Uber, and Walmart

ID: 2600619

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No, Apple hasn’t cut its Vision Pro production estimates in half

Quite a few news outlets are reporting that Apple thinks it’s only going to sell 400,000 to 450,000 Vision Pros in 2024, compared a “market consensus” of 700,000 to 800,000. They’re all citing a note from Apple analyst Ming-Chi Kuo.

Obviously there’s no question that Apple’s $3,500 face computer will have a limited audience and could be a huge flop, but this also doesn’t seem like accurate news.

The issue is that 1) this 400,000 number isn’t new. Back in July of 2023, the Financial Times reported that Apple planned to make fewer than 400,000 units in 2024, reducing its initial projections of 1M units, citing two people close to Apple and, the Chinese contract manufacturer assembling the device. 2) It's unclear who was estimating 700,000-800,000 Vision Pros in the first place, but it appears that it was Ming-Chi Kuo himself?

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Chipotle continues to go on a tear, hitting a sales record

Hey it might not be the kind of AI stock investors are all hot and bothered over, but don’t sleep on the burrito business.

Chipotle posted much better-than-expected results on Wednesday, with sales rising 14% to a record $2.70B in the first quarter, which is like a billion additions of guac.

Profits jumped 23% to $359M.

Chipotle has quietly cruised higher over the last year. It’s up 63%, compared to the 24.5% gain for the S&P 500 over the 12 months through Wednesday’s close. Not bad for a rice-and-beans based business model.

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Facebook had great earnings, the market hates it

Facebook reported impressive earnings. Record first-quarter revenue thanks to AI! Profit up 117% compared to a year earlier! But at the same time, its capital expenditures are going up and it’s expecting second quarter revenue potentially lower than analyst estimates. So in other words, the future doesn’t look as bright as the present.

All in all the stock is down more than 10%. (Basically the opposite of what happened with Tesla yesterday).

Net net

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Earnings can’t stop, won’t stop

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Why Tesla investors are holding on to hope for a cheap car

Despite terrible earnings numbers last night — declining vehicle sales, disappointing revenue and profit, enormous spending — Tesla stock is up more than 10% as of midday. That’s a welcome move for the car company, that’s been among the worst performers this year in the S&P 500.

Why the about face?

While Reuters reported earlier this month that Tesla is no longer making its long-awaited $25,000 mass-market car — news sent the stock, already suffering from headwinds across the EV industry, down even further— Tesla reported during its earnings that it’s going to make cheaper cars than it currently has.

Before the second half of next year, Tesla said it will release “more affordable models” that “will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up.”

So rather than release the $25,000 Model 2, Tesla is incorporating some of that technology into its existing models. UBS called it the Franken-3Y2.

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Not so Gucci

French luxury fashion conglomerate Kering has seen its shares fall ~10% in the last 24 hours after reporting that sales at its flagship brand Gucci had dropped 21% in its latest quarter.

Kering’s other brands, which include Yves Saint Laurent, Bottega Veneta, and Balenciaga, fared slightly better — but the only real bright spot was the company’s eyewear division, where sales rose 24% (9% on a comparable basis).

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.