Big Tech Leads Bulls’ Charge

After Home Depot’s lackluster results, all eyes are on other retailers for hints about consumers’ health. Today we got more clues from Target and TJX Companies, so let’s take a look.

First up is big-box retailer Target, which managed to hit its financial targets despite a sales slowdown. 🎯

Adjusted earnings per share (EPS) of $2.05 on revenue of $25.32 billion topped the expected $1.76 and $25.29 billion. Comparable store sales were flat YoY, with shoppers spending less as the quarter went on. Consumers also shopped differently, with digital sales falling 3.4% YoY, as overall shopper traffic edged out a 1% YoY gain.

Discretionary categories posted mid-single-digit to low-double-digit sales declines. Beauty led the consumer staples’ strength, growing by a mid-teens percentage YoY. Food and beverage were next with high single-digit growth. And household essentials rose low single-digits, driven by health and pet items. 🛒

Another positive was that inventory fell 16% YoY, signaling that its heavy discounting may be coming to an end. That and lower freight costs helped push Target’s gross margin up to 26.3%.

With that said, executives stuck with their cautious full-year outlook. They expect comparable sales from a low-single-digit decline to a low-single-digit increase and full-year EPS of $7.75 to $8.75. Although customers are buying fewer discretionary goods, the retailer is luring them in with groceries and everyday essentials to buoy results. ⚠️

$TGT shares were up nearly 3% today as the news was better than investors anticipated. 👍

Meanwhile, off-price department store TJX Companies offered a mixed forecast. 🏬

The parent company of TJ Maxx, Marshalls, Home Goods, and other off-pice stores should be a big beneficiary of the current environment. And it was, to a certain extent.

It reported first-quarter earnings per share of $0.76 on revenues of $11.8 billion. That revenue number aligned with expectations, while earnings beat by $0.04. Same-store sales jumped 3%, topping the 2.7% consensus view.

However, the company’s conservative guidance caught some investors off guard. Both its current-quarter and fiscal-year earnings forecast were below expectations. Despite being the right business for the current economic environment, executives remain hesitant to bet on a pickup in consumer spending. 🤔

The mixed messaging initially sent shares of $TJX up 4%, though they closed up 1% on the day. 🔺

Overall, the cautious messaging from retailers continues. While many have gotten their inventory and costs back under control, they’re not anticipating a significant upswing in consumer spending this year. Instead, the base case seems to be moderate declines or flat sales for the foreseeable future. However, the overall economy remains the critical wildcard out of their control. 🤪

We’ll see what Walmart has to add to the conversation when it reports tomorrow before the bell.  👀

Home country bias is a big issue among investors, where investors overexpose themselves to domestic equities in their investment portfolio. This plays out across the spectrum, with active short-term traders and long-term buy-and-hold investors both exhibiting this behavior. 🌎

Luckily for U.S. investors, that bias has worked out pretty well…especially since the financial crisis. However, now and again, foreign stocks make enough noise to get people’s attention. 📢

It’s unclear whether now is one of those times more broadly, but investors are beginning to notice Japan’s recent outperformance as its primary index hits nearly 33-year highs. 👀

For those unfamiliar with the country’s stock market, it has two major indexes.

Its Tokyo Stock Price Index (TOPIX) is said to provide the broadest measure of the stocks listed on the Tokyo Stock Exchange. That’s because it is a free-float market-capitalization-weighted index, while the Nikkei 225 is a price-weighted index focused on the largest 225 Japanese stocks. 🔍

We clarify because sometimes their performance differs significantly. Nonetheless, the important part of today’s conversation is that both indexes are hitting new heights.

The TOPIX is back to August 1990 levels. 😮

And the Nikkei 225, although still shy of the highs it made a few months ago, is still sitting at levels not seen since mid-1990. 📈

The chart below has ETFs tracking the U.S. stock market ($VTI), developed markets excluding North America ($VEA), and emerging markets ($VWO). 👇

While exposure to China has hurt emerging market stocks, exposure to Japan has helped developed markets outperform the U.S. so far this year, especially since the March bottom.

As we said, this will likely be another blip on investors’ radars this year. Until there’s significant broad-based outperformance from foreign stocks, they’re unlikely to garner much attention.

That said, some retail investors and traders are taking advantage of these overseas trends through ETFs, U.S.-listed ADRs, and other vehicles. Time will tell if their bets on Japan will continue to pay off. As always, we’ll keep you updated as this trend progresses. 👍

Several tech stocks reported today, so let’s see how they did. 👇

First, we’ll start with Take-Two Interactive, which inspired this section’s title. 📝

The American video game company missed earnings expectations by $0.09, but its revenue of $1.39 billion topped estimates of $1.34 billion. Higher inflation has led consumers to be more selective about spending, primarily benefiting bargain titles and blockbuster games.

And executives expect that to continue. As a result, they now see fiscal 2024 net bookings of $5.45 to $5.55 billion, which was well below the $6.11 consensus view. 📉

With that said, they’re optimistic about fiscal 2025, expecting net bookings of $8 billion and over $1 billion in adjusted unrestricted operating cash flow. They also hinted at further growth in fiscal 2026, which investors took to mean that Grand Theft Auto VI isn’t too far away. Its predecessor is known as “the most financially successful media title of all time,” so progress here is a big win.

Whether the optimism is warranted or not remains to be seen. But as of now, $TTWO shares are trading up 8% after hours to new year-to-date highs. 📈

Next up is digital communications company Cisco, which is falling despite topping guidance. 🤔

It reported adjusted earnings per share of $1.00 and revenues of $14.6 billion. Both numbers topped the consensus views of $0.97 and $14.4 billion. Fiscal fourth-quarter guidance also topped expectations, but full-year guidance is where things turned for the worst.

Executives increased their annual profit guidance but did not raise the ceiling on revenue growth for the year as expected. Instead, they anticipate full-year revenue growth of 10% to 10.5%, up from their previous 9% to 10.5% forecast. 👎

Ultimately, investors and analysts remain concerned that delays in its backlogged orders are masking meaningful declines in new orders. Orders declined 23% YoY in the most recent quarter. However, executives say the QoQ numbers are more relevant since the pandemic-era comparables were essentially outliers. 

Nonetheless, investors are selling after hours. $CSCO shares are down about 5%. 🔻

Lastly, it’s worth mentioning ServiceNow. $NOW shares soared 5% as the company partnered with Nvidia on generative AI. The cloud computing company will develop customized large language models (LLMs) for data using Nvidia’s software, services, and infrastructure. 🤖

This followed news that ServiceNow would invest $1 billion in its venture-capital arm by 2026 to back enterprise-software startups in AI and automation. Additionally, the company announced its first-ever share repurchase program of $1.5 billion, with the CEO predicting a “$20 billion-plus company in the not-too-distant future.” 

Time will tell if he’s right. For now, investors are celebrating the short-term gains caused by the optimism. 🥳