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A look at North American equities heading in both directions

On the rise

Shares of Ford Motor Co. (F-N) were higher by 6.2 per cent after it said late Thursday it has agreed with Tesla Inc. (TSLA-Q) to allow its electric vehicle owners to gain access to more than 12,000 Tesla Superchargers in North America in early 2024.

The tie-up between the rivals makes Ford the first major automaker to embrace Tesla’s proprietary charging standard, giving the automaker access to the biggest network of high-speed Superchargers in the United States.

Access to charging stations is considered one of the main hurdles so far to broader acceptance of electric vehicles, analysts have said.

Tesla said last November it would open its proprietary charging design to other automakers and charging network operators.

A Tesla-developed adapter will provide Ford EVs fitted with the Combined Charging System (CCS) port access to Tesla’s V3 Superchargers. Ford will equip future EVs with Tesla’s own charging standard, removing the need for an adapter for direct access to Tesla Superchargers, starting in 2025.

“The idea is that we don’t want the Tesla supercharger network to be like a walled garden. We want it to be something that is supportive of electrification and sustainable transport in general,” Tesla CEO Elon Musk said during an online Twitter Spaces conversation with Ford CEO Jim Farley.

“We love the locations, we love the reliability, your routing software, the ease of use of the connector, the reliability of it,” Mr. Farley said.

“Tesla storms through the train station like 300 kilometers per hour Shinkansen,” Mr. Farley said, referring to Japanese bullet trains. “We’re learning a lot.”

Tesla had 17,711 Superchargers, accounting for about 60 per cent of total U.S. fast chargers, which can add hundreds of miles of driving range in an hour or less.

Mr. Farley on Thursday announced the partnership during the Twitter Spaces conversation. Twitter is owned by Musk.

The event comes just a day after Twitter crashed repeatedly during a highly anticipated live audio chat between Mr. Musk and Florida Governor Ron DeSantis, setting back Mr. Musk’s efforts to promote the social media firm he bought for US$44-billion last year.

Marvell Technology Inc. (MRVL-Q) on Thursday forecast its artificial intelligence (AI) revenue would double for the year, becoming the second U.S. chip company in as many days to bet on the breakthrough technology.

Shares of Marvell jumped 32.9 per cent as the chipmaker also surpassed Wall Street targets for first-quarter revenue, a day after bigger peer Nvidia (NVDA-Q) announced a quarterly revenue target more than 50 per cent above market estimates.

Investing in AI: how to avoid the hype

“Generative AI is rapidly driving new applications and changing investment priorities for cloud customers,” Marvell CEO Matt Murphy said in a post-earnings conference call.

OpenAI-owned chatbot ChatGPT’s rapid success has prompted tech giants such as Alphabet Inc and Microsoft Corp to make the most of generative AI - which can engage in human-like conversation and craft everything from jokes to poetry.

That has in turn boosted demand for the chips that power AI technology, benefiting companies such as Marvell.

Marvell’s AI revenue will at least double again next year and “and continue to grow rapidly in the coming years,” Mr. Murphy said, with second-quarter cloud revenue expected to grow 10 per cent sequentially.

The California-based firm also forecast second-quarter revenue of US$1.33-billion, above analysts’ estimates of US$1.31-billion, according to Refinitiv data.

Excluding items, it reported revenue of US$1.32-billion for the quarter ended April 29, beating expectations of US$1.30-billion.

Gap Inc. (GPS-N) reported a surprise profit in the first quarter, and its shares jumped over 12 per cent as the apparel retailer cited restructuring efforts and easing supply chain costs.

U.S. companies are starting to see some relief from sky-high costs of freight and manufacturing after years of supply-chain snags.

Gap’s quarterly merchandise margin increased by 610 basis points on an adjusted basis due to lower air freight expenses and improved promotional activity.

The company has seen two consecutive quarters of lower inventory as it works to clear excess apparel purchased last year. Inventory volumes declined 27 per cent from a year earlier, according to Chief Financial Officer Katrina O’Connell.

Gap, like many retailers, sped up its ordering as consumer demand surged during the COVID-19 pandemic, only to be left with piles of unsold inventory as spending normalized.

“It was an okay quarter that was better than expected or feared,” said CFRA Research analyst Zachary Warring.

Since September, the retailer has eliminated about 2,300 corporate positions in two rounds of layoffs, joining a set of big U.S. companies that are downsizing in earnest as high inflation eats into consumer wallets.

Interim CEO Bob Martin in a post earnings call said job cuts should contribute to nearly US$550-million in estimated annualized savings on a cumulative basis.

The company will have closed about 350 underperforming Gap and Banana Republic stores by the end of the year and plans to open fewer stores this year than projected, O’Connell said.

Still, sales for all Gap’s four brands declined in the quarter as the retailer struggled to update inventory and match consumer trends.

“I feel like they’ve picked a lot of the low-hanging fruit in terms of closing stores and cutting costs,” said Mari Shor, a senior equity analyst at Columbia Threadneedle Investments.

“Now you really need Athleta and Old Navy, which are the growth drivers, to return to growth, but I have pretty little confidence in that happening in the near term.”

Gap reported first-quarter adjusted profit of 1 US cent, compared with estimates for a loss of 16 US cents, according to Refinitiv IBES data.

The company’s net sales fell 6 per cent to US$3.28-billion. Analysts were expecting US$3.29-billion.

Gap maintained its annual sales forecast and expects second-quarter sales to fall in the mid- to high-single digit range. Analysts on average expect second-quarter sales to decline 4.95 per cent.

On the decline

Canadian Western Bank (CWB-T) was down 5.9 per cent despite raising its quarterly dividend as it reported its second-quarter profit fell compared with a year ago and said it was targeting lower annual loan growth than previously expected.

The Edmonton-based bank says it will now pay a quarterly dividend of 33 cents per share, up a penny from 32 cents per share.

The increased payment came as CWB says its common shareholders’ net income totalled $70.0-million or 73 cents per diluted share for the quarter ended April 30, down from $74.2 million or 82 cents per diluted share in the same quarter a year earlier.

A breakdown of the big banks’ second-quarter earnings so far

Revenue totalled $264.4-million, up from $258.8-million a year earlier, while its provisions for credit losses totalled $10.3-million, down from $11.2-million in the same quarter last year.

On an adjusted basis, CWB says it earned 74 cents per share, down from an adjusted profit of 84 cents per share a year ago.

The average analyst estimate had been for an adjusted profit of 77 cents per share, according to estimates compiled by financial markets data firm Refinitiv.

In a research note, Credit Suisse analyst Joo Ho Kim said: “· While CWB’s Q2 results were impacted by higher taxes on the headline basis, the results still missed our PTPP earnings estimate by a wide margin. Part of that was due to weaker-than-expected net interest margins, which stepped down 6bps Q/Q (we were looking for flattish margins). While some of that decline was attributable to items that looked one-time in nature (3bps from non-recurrence of the prior quarter’s interest income recovery), it was also impacted by lower loan related fees and pricing adjustments on the deposit side (3bps here). Not dissimilar to its larger peers, credit also remained benign across CWB’s portfolio this quarter (with the bank maintaining its 18-23bps guidance). The bank downgraded a number of its F2023 guidance this quarter including loan growth in the mid-single-digit range (was high-single), which partly drove PTPP earnings growth guidance to low to mid-single-digit (was double-digit), and efficiency ratio of 51 per cent (was less than 50 per cent). The bank also expects to raise less branch-raised deposits than previously thought (low-single digit now vs. double-digit previously). Putting them together, the bank now expects F2023 core EPS to be in the range of $3.50-3.60 (we are currently at the higher end of that range at $3.57).”

Burlington, Ont.-based waste treatment firm Anaergia Inc. (ANRG-T) dropped 8.2 per cent after it said that one of its units, Rialto Bioenergy Facility, initiated voluntary Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court for the Southern District of California.

It expects RBF, which is 51-per-cent owned by wholly owned subsidiary Anaergia Services LLC, to continue to operate its multi-feedstock bioenergy facility in Rialto, California during the restructuring proceedings.

“The Company expects the restructuring to have a positive impact on its 2023 cash flows, as during the restructuring process Anaergia would cease supporting RBF with further loans or equity contributions,” the company said.

In a research note, Scotia analyst Justin Strong, who lowered his target for the company’s shares, said: “The project has been plagued by delays in ramping to full commercial operation due to delayed implementation of laws requiring organic waste diversion from landfills by the city of Los Angeles.

“Management remains constructive on the project. Anaergia estimates that with appropriate feedstock for the RBF facility, made feasible by debt service and other payment relief offered under a Chapter 11 reorganization to allow ramp up, the asset will preserve long-term value. While the project’s long-term prospects for ANRG remain strong and 2023 guidance is unchanged we have taken the opportunity to further risk the multiple by which we value the company’s Build-Own-Operate segment.”

Tilray Brands Inc. (TLRY-T) plummeted 20.4 per cent after announcing the pricing of its offering of US$150-million in convertible notes.

The senior notes will be due in June 2027 at an interest rate of 5.2 per cent per annum.

The Leamington, Ont.-based cannabis company also granted a 30-day option to Jefferies and Bank of America, the underwriters of the notes, to purchase up to an additional US$22.5-million.

Cosmetics retailer Ulta Beauty Inc. (ULTA-Q) cut its annual operating margin forecast on Thursday, signaling pressure from higher inventory shrink and supply chain costs.

Shares of the company fell 13.3 per cent in Friday trading.

Ulta Beauty had hiked prices in the later half of 2022 to protect its margin, but the benefits were outweighed by rising store expenses and wage pressures.

Besides, elevated product prices and mounting worries of recession have forced budget-conscious consumers to limit their spending on discretionary items, including cosmetics and fragrances.

“Inflation concerns remain high and consumers are spending more selectively,” said David Kimbell, chief executive of the company in a post earnings call.

Financial Chief Scott Settersten on the same call said the company entered 2023 expecting growth in beauty category to moderate and promotional environment to increase.

The company now forecasts annual operating margin between 14.5 per cent and 14.8 per cent compared with its prior projection of 14.7 per cent to 15.0 per cent, but lifted its annual sales forecast.

Like Target Corp. (TGT-N) and Foot Locker Inc. (FL-N), Ulta also flagged increasing concerns from theft and organized crime that resulted in retailers seeing an inventory shrink or loss.

Ulta Beauty, along with its own line of products ranging from lipsticks to moisturizers, sells high-end beauty brands including Bobbi Brown and Hourglass, and celebrity-led cosmetic lines from Ariana Grande and Kylie Jenner, among others.

The company’s expenses are trending higher than originally expected, Morningstar Research analyst David Swartz said, adding the guidance is too low as it is close to the previous range.

Its revenue rose 12.3 per cent to US$2.63-billion in the first quarter ended April 29, beating analysts’ average estimate of US$2.62-billion, according to Refinitiv data.

With files from staff and wires

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