June Begins With A Jump

Days after Dollar Tree raised a warning flag about the lower-income consumer, Dollar General is doing the same. ⚠️

In its first fiscal quarter Dollar General reported adjusted earnings per share of $2.34 vs. $2.38 expected. And revenues of $9.34 billion vs. $9.46 billion expected. Same-store sales also rose just 1.6%, less than half the 3.8% increase Wall Street anticipated. 🛒

High inflation and concern over the economy are causing consumers to spend more on necessities. While that means more middle-income consumers are likely to trade down to retailers like dollar stores, the product mix and level of overall spending are putting pressure on earnings. Consumables remain the strongest category but were insufficient to offset weakness in higher-margin seasonal, home, and apparel categories. 🥫

CEO Jeff Owen said the macroeconomic environment “has been more challenging than expected, particularly for our core consumer.” Further, the company believes the headwinds are having a “significant impact on customers’ spending levels and behaviors.”

As a result, the company cut its fiscal 2023 full-year outlook. Its net sales growth forecast was revised from 5.5%-6% to 3.5%-5%, trailing analyst estimates of 5.7%. Same-store sales are expected to rise 1%-2%, down from 3%-3.5% and below the 3.4% consensus view. And its earnings per share forecast was revised lower from +4% to +6% to 0% to -8%, well below the +4.3% expectations. 🔻

Dollar General is the industry’s fastest-growing retailer by store count and remains bullish, planning to open 990 stores in 2023. Though, it’s cutting back on Popshelf stores, which sell discretionary items to higher-income consumers. It’s also making other operational improvements to help preserve margins. 

However, it also needs to address workplace safety concerns at its stores. Shareholders approved an independent audit into worker safety after it was revealed 49 people died, and another 172 were injured at its stores over the last decade. That vote passed despite the board of directors recommending shareholders vote against the resolution proposed by Domini Impact Investments and worker advocacy groups. 🦺

Overall, investors remain concerned about the industry’s health in the external environment. Combine that with company-specific troubles at Dollar General, and it’s a bit of a mess right now. 

As a result, $DG shares fell 20% to their lowest level in over three years. 👎

It has been a tough earnings season for clothing retailers so far. However, today we heard from Lululemon, who reported that it’s been able to make lemonade out of lemons. Let’s see what it had to say. 👇

The retailer’s first-quarter adjusted earnings per share of $2.28 beat the $1.98 expected. Revenues of $2 billion also topped the expected $1.93 billion. Sales growth was 24% YoY, with China’s revenue rising 79% YoY as the country reopened its economy. 

Executives pointed to China’s rebound and lower air freight as the primary drivers of the beat. Given this quarter’s strength, it was able to ratchet up its full-year revenue and earnings guidance slightly. However, its second-quarter guidance largely aligned with expectations, signaling that much of the full-year uptick simply reflected this quarter’s strength.

Although many caution signals are coming out of the consumer environment, Lululemon has two key factors working in its favor. The first is its core customer is higher income and has been able to weather inflation pressures more easily. And two, despite discretionary spending pulling back, data suggests that some consumers have shifted their view on activewear, loungewear, and footwear from a discretionary purchase to a necessity over the last few years. 👍

Investors also view Lululemon Studio, the company’s at-home fitness business, as a potential driver of future growth. It acquired Mirror for $500 million in June 2020 and has since written down most of that investment to zero. The good thing is that once you get to zero, there’s only potential upside. Well, sort of. However, executives still need to prove they can successfully shift that business away from its hardware focus and build a subscription fitness product. 🏋️‍♂️

$LULU shares were down roughly 15% for the month heading into this report. The upside surprise has allowed it to recapture much of that decline after hours. 🔺

On the other end of the spectrum are retailers that haven’t yet developed a moat. For example, after reporting a first-quarter revenue miss and earnings beat, Macy’s slashed its full-year earnings and outlook. And Dollar Tree and Dollar General are sounding the alarm about the lower-income consumer. ⚠️

Overall, it remains a cautious time for shoppers across income levels. Clearly, some brands are handling this environment better than others. So far, Lululemon has been able to make lemonade out of the global economy’s lemons. We’ll have to wait and see how long that can last. 🤷

It was another busy day of tech earnings. We’re gonna hit you with the headlines to summarize the action. 🔍

Identity and access management company Okta fell 20%. Although its first-quarter results beat expectations and it hiked its full-year outlook, a slowdown in spending and weaker revenue growth remain investors’ key concerns. 🔻

Pure Storage soared 19% after the tech company reported better-than-expected Q1 results and announced Q2 revenue guidance that topped estimates. 💾

Computer application company Veeva Systems experienced an un-be-Veeva-ble 20% run after beating Q1 expectations and raising its full-year earnings guidance. 😮

CyberSecurity company SentinelOne is plunging 30% after missing revenue expectations and cutting its full-year guidance. Executives cited a slowdown in business spending, with macro pressure impacting deal sizes, sales cycles, and pipeline conversion rates. 🛡️

Electric vehicle infrastructure company ChargePoint fell 5% after lowering its revenue growth forecast to below analyst estimates. ⚡

Work management software company Asana rose 6% after reporting a narrower-than-expected loss and beating on revenue. Its revenue outlook also met expectations. 🧑‍💼

PC manufacturer Dell released earnings early, showing the largest sales decline on record. It still topped expectations but did not provide a second-quarter forecast or update annual guidance due to the current uncertainty around the PC market. 🖥️

Software company MongoDB jumped 22% after its current-quarter results and fiscal 2024 forecast topped analyst expectations. 🔺

Semiconductor giant Broadcom fell 2% after reporting its slowest revenue growth in years. The company’s shares have been propelled to all-time highs on the recent artificial intelligence (AI) hype, as investors hope that it can drive future growth. 🤖