Stocks Churn As Quarter End Nears

Unlimited breadsticks and salad were not enough to keep consumers returning to Olive Garden’s parent company at the rate Wall Street expected. Let’s break down how the company’s brands performed in the current environment and what executives say about the future. 👇

First, Darden Restaurants reported adjusted earnings per share of $2.58 on $2.77 billion in revenues. Those earnings topped expectations by $0.04, while revenue was in line.

Net sales rose 6.4% YoY, while same-store sales rose 4% YoY. Leading the charge was LongHorn Steakhouse, which saw 7.1% same-store sales growth, topping the 4.9% expected. 🔺

However, Olive Garden, which makes up about half of the company’s sales, reported 4.4% growth, missing expectations by 0.6%. And its fine dining segment, including The Capital Grille and Eddie V’s, saw same-store sales decline 1.9% YoY. The company anticipates softer fine-dining sales will continue through the first fiscal quarter. 📉

Executives blamed high comps from last year for this quarter’s softer-than-expected numbers. They anticipate traffic will stabilize on a YoY basis after the fiscal first quarter, as trends settle down from post-pandemic peaks and establish new normal levels. 

Looking ahead, executives forecasted $8.55 to $8.85 adjusted earnings per share for fiscal 2024, straddling the consensus view of $8.79. They also anticipate $11.5 to $11.6 billion in sales and same-store sales growth of 2.5% to 3.5%. 👎

On the costs front, they anticipate 3% to 4% total inflation, which they will offset by raising menu prices by 3.5% to 4%. And they’re looking at $550 to $600 million in capital expenditures (CAPEX) in the coming fiscal year.

While executives downplayed the impact of the macroeconomic uncertainty and sticky inflation, investors are worried about the demand side of the equation. 😟

If most restaurants and food companies continue raising prices to offset rising costs, how will that affect the volume of consumers? We’ve already seen many consumers trading down as inflation bites their wallets, and the Olive Garden same-store sales confirm that to some degree.

We’ll have to wait and see. But for now, $DRI shares are pulling back slightly from the all-time highs set last week. 🔻

Technology consulting firm Accenture is falling again today despite better-than-expected quarterly results. ☹️

Its adjusted third-quarter earnings per share of $3.19 came on $16.56 billion in revenue. Those topped the $3.01 and $16.49 billion expected. However, its outlook is where things fell apart.

Executives lowered their fiscal 2023 revenue growth range from 8%-10% to 8%-9%. They also anticipate current-quarter revenue of $15.75 to $16.35 billion, which trailed the $16.35 billion consensus estimate.

They blamed weakness in the tech, media, and communication industries, where revenue fell 8% YoY in the recent quarter. The company’s largest market, North America, also saw revenue growth slow to a three-year low of 2%. 🔻

Unfortunately, artificial intelligence (AI) won’t give the company a boost anytime soon. Accenture CEO Julie Sweet said she doesn’t expect generative AI to be a significant growth driver next year. Instead, the firm is focused on companies finishing their migrations to the cloud, as there’s so much digital transformation work left to do in the market. 🤖

Clearly, investors are concerned about a continued slowdown in tech spending. However…what’s interesting is the divergence that’s formed between $ACN shares and the tech-heavy Nasdaq 100 ETF $QQQ.

Below is an overlay chart showing a strong positive correlation since early 2020. However, that relationship broke down in February and has since seen Accenture lag the broader tech sector. Part of that could be explained by the largest five or ten tech stocks pulling the Nasdaq 100 higher.

Nonetheless, it’s an interesting relationship to keep an eye on as it begs whether the market is too optimistic about tech as a whole. Or if Accenture and other service providers to the industry are being too cautious. We’ll have to wait and see. 🤷

With the stock market catching its breath before a new earnings season begins, we’ve been trying to highlight other market trends. And right now, one of those is in the precious metals section of the commodities space. 👀

Gold, silver, platinum, and palladium are all considered precious metals for those unfamiliar. These metals are rare, naturally occurring metallic chemical elements of high economic value…hence the name. *cue the Gollum “my precious” meme.*

While these are all important for economic purposes…making their way into technology, consumer goods like jewelry, and elsewhere, they’re not like base metals copper, nickel, aluminum, etc., that primarily serve an industrial need. 💍

In the investment world, they’re often included in people’s portfolios as an “inflation” or “end of the world” hedge. As a real asset, the theory is that these physical goods of high value should go up in value during times of economic uncertainty or high inflation. That theory, while logical, doesn’t always hold up when looking at the data. However, it’s still a core investment pitched to investors, professional and retail alike. 🪙

So why are we talking about precious metals today? Some investors in the community have recently highlighted the slowly declining price action over the last few weeks.

Below is an overlay chart of gold, silver, platinum, and palladium. As we can see, gold has held up the best but is still hitting three-month lows, along with silver and platinum. Meanwhile, palladium made fresh four-year lows this week.  👇

Now this doesn’t necessarily imply that prices will continue lower. But with inflation coming down and a lot of the economic uncertainty being removed from the market recently, it’s not surprising to see these tangible assets start to move lower. 🔻

The current backdrop is causing many investors to rethink where this group could be heading in the short to medium term. As such, this chart will undoubtedly be on investors’ radars as we head into the second half of 2023.

As always, we’ll keep you updated on how this short-term trend develops. But for now, traders in the community are bracing for a test of those March lows. 😬