Buy Now, Pain Later

The Fed is keeping its pedal to the metal against inflation. As a result, eyes are on the labor market to see if it deteriorates due to tighter financial conditions.

Today kicked off the three big days of employment data we typically get at the beginning of each month. 📆

The ADP Employment report was unavailable for the last two months as they updated their methodology, and today it’s back. August’s private payroll growth came in at 132,000, well below the 300,000 estimated and a notable deceleration from July’s 268,000 print. 📉

One interpretation of the report suggests the economy’s conflicting signals lead to a more conservative pace of hiring, though August’s numbers tend to be very volatile. Service industries saw the most growth, while financial activities, education and health services, and professional and business services saw declines. 

And from an inflation perspective, annual pay was up 7.6% YoY. Additionally, the median pay increase for job switchers was 16.1%, as firms need to entice talent in a labor market where job openings outnumber workers by 2:1. 😮

Overall, this is not great news for the Fed. Wage increases tend to be a sticky form of inflation, and the numbers continue to run hot. We’ll have to see if tomorrow and Friday’s data confirm the ADP numbers from today. 👀

The Bed Bath & Beyond saga continued today after the company issued its planned investor update and filed form S-3 with the Securities & Exchange Commission (SEC) for a “shelf offering.” 📰

First, let’s start with the company’s update. The struggling retail outlined additional measures to turn around its operations, including:

1. Closing 150 of its weaker namesake stores
2. Shrinking headcount by 20% across its corporate and supply chain workforce
3. Eliminating the jobs of Chief Operating Officer and Chief Store Officer
4. Securing over $500 million in new financing
5. Walking back its push into private-label brands, opting to partner with national brands on exclusive products and adding more direct-to-consumer brands

If this looks like a massive overhaul, it is. The company’s same-store sales in Q1 were down 23%, its suppliers threatened to stop making deliveries, and its financial picture remains shaky. 😨

In other words, they need to do something…and fast.

In addition to its investor update, the company filed a “shelf offering” with the SEC, allowing it to periodically sell securities to raise more cash. It did not disclose a specific amount it intends to sell but said any money raised is for “general corporate purposes.” 💰

Much like its customers, the market isn’t buying the company’s turnaround story yet. Shares were down 21% and are about 70% below their high from just two weeks ago. 🔻

Many traders are abandoning the meme stock due to its lost upward momentum. Meanwhile, longer-term investors may be realizing that this turnaround story may take a bit longer than anticipated. Others are sticking with it, hoping that its turnaround will be successful, not JCPenney 2.0. 🤷‍♂️

We’ll have to wait and see who is correct, but for now, let the volatility continue. 🍿

Technology growth stocks have had a rough 18 months, and fintech firms were not exempt.

Swedish Buy Now, Pay Later firm Klarna was last in the news two months ago after raising funds at an 85% valuation haircut. ✂️

Today it’s back on our radar because its U.S. and international expansion is not going well. While the company made significant investments in growth, its revenues haven’t kept pace. In addition to its rising operating costs, credit losses rose more than 50% YoY to 2.9 billion Swedish krona as inflation and a weaker global economy impact consumers.

As a result, its pre-tax losses for the year’s first half ballooned to 6.2 billion Swedish krona, more than 3x the same period in 2021. 🔻

Much like other tech companies, it had to delay listing plans and must now stretch its runway until the IPO window reopens. Meanwhile, its publicly-listed competitors have also struggled as investors shy away from consumer-focused services. 🙅‍♂️

Recently, Affirm missed earnings and cut guidance for a key metric, gross merchandise volume, citing many of the same macroeconomic headwinds we’ve heard from many other companies this earnings season. 📉

For now, Klarna will have to return to its profitability roots to survive in the competitive BNPL space. We’ll have to see if its efforts are successful or if it runs out of funds before the market turns around. 👀