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A roundup of some of the North American equities making moves in both directions

On the rise

Vancouver-based Lululemon Athletica Inc. (LULU-Q) soared in the wake of raising its full-year forecast late Wednesday, after beating revenue and profit estimates on strong demand for its comfortable leggings and sports bras.

See also: Thursday’s analyst upgrades and downgrades

Sportswear makers saw strong demand over the past year as people worked out at home during the COVID-19 pandemic, spurring sales of Lululemon and other athletic wear makers, including Nike Inc and Under Armour Inc.

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However, apparel makers are now facing supply chain hiccups due to the new coronavirus-led lockdowns in Vietnam, as they rely heavily on the southeast Asian country for manufacturing.

“Another wave of COVID-19 and related factory closures in Vietnam, ongoing issues at the ports and reduced air freight capacity are contributing to some disruptions within the supply chain as well as increased costs,” Calvin McDonald, Lululemon’s chief executive officer, said in a post-earnings call.

“It’s fair to say that our business would have been even stronger without these (supply chain) challenges facing the industry.”

The company, however, said it was working on shifting production out of Vietnam wherever possible, increasing the use of air freight and prioritizing production for key fall holiday styles to mitigate its supply chain woes.

The owner of Mirror home-fitness platform said it now expects annual net revenue to be in the range of US$6.19-billion to US$6.26-billion, compared with its prior range of US$5.83-billion to US$5.91-billion.

Lululemon forecast full-year adjusted earnings per share to be between US$7.38 and US$7.48, compared with its prior range of US$6.73 to US$6.86.

Net revenue rose by 61 per cent to US$1.45-billion in the second quarter, beating estimates of US$1.34-billion, according to IBES data from Refinitiv.

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On an adjusted basis, Lululemon earned US$1.65 per share, compared with estimates’ of US$1.19 per share.

Descartes Systems Group Inc. (DSG-T) was higher in the wake of announcing better-than-expected second-quarter financial results.

After the bell on Wednesday, the Waterloo, Ont.-based tech firm reported revenue of US$105-million, up 25 per cent year-over-year and topping the expectations of the Street (US$101-million). Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) jumped 35 per cent to US$45.9-million, also topping forecasts (US$41.9-million).

“We believe Descartes has successfully balanced organic growth and complementary M&A, which has led to 18-per-cent compounded FCF/share growth over the last 10 years. Amidst stronger global demand, Descartes is seeing higher cross-selling and revenue synergies, which have the potential to increase Descartes’ IRR on acquisitions and long-term shareholder returns growth,” RBC Dominion Securities analyst Paul Treiber said in a note.

See also: Thursday’s analyst upgrades and downgrades

Suncor Energy Inc. (SU-T) also higher after saying it is looking to increase its ownership stake in the White Rose offshore oilfield to 40 per cent from 27.5 per cent.

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Suncor says the deal depends on Cenovus Energy Inc. (CVE-T) deciding to move ahead with the expansion of West White Rose, which Cenovus operates off the coast of Newfoundland and Labrador.

The $2.2-billion West White Rose Project was intended to access 200 million barrels of crude oil and extend the life of the White Rose field.

But the future of West White Rose has been in doubt since Cenovus acquired the project’s former operator, Husky Energy Inc., in January.

The White Rose oilfield asset is jointly owned by Suncor and Cenovus, which holds a 72.5 per cent stake. Suncor says it will receive a cash payment from Cenovus in exchange for increasing its stake in the project.

Suncor says Cenovus will make a decision about restarting the West White Rose expansion by mid-2022. It says there will not be a significant capital spend before 2023.

United Airlines Holdings Inc. (UAL-Q) was higher despite warning on Thursday its third-quarter revenue and capacity would take a hit from weaker travel demand due to a rise in COVID-19 cases fueled by the Delta variant.

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United expects revenue to fall 33 per cent compared to the same period in 2019 and capacity to decline at least 28 per cent, more than the 26-per-cent fall forecast earlier.

The airline expects to post an adjusted pre-tax loss in the third quarter while it had previously forecast adjusted pre-tax income of US$82-million.

United said it could incur adjusted pre-tax loss in the fourth quarter as well, if the demand slowdown continued.

Video game retailer GameStop Corp. (GME-N) reversed big early losses and finished flat as the company’s silence on its turnaround plan left its army of small-time investors questioning the meteoric rise in its share price this year.

Although the company posted a 25-per-cent jump in quarterly sales late on Wednesday, executives failed to lay out fresh details about how it will refashion itself into a gaming and entertainment retailer.

Thursday’s drop was also subdued compared with the 30-per-cent move in its shares after each of its previous two earnings reports.

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“When this meme trade ends (if ever) this will likely be a steep, ugly fall,” Jake Dollarhide, chief executive officer at Longbow Asset Management, said in a LinkedIn post.

“Revenues are now half of what they were in 2018 when this was a profitable $14 stock before gaming went totally to the cloud.”

On the decline

Dollarama Inc. (DOL-T) dipped after saying a ban on selling nonessential products in Ontario this spring drove sales down in its second quarter, dampening the usual peak time for purchases of gardening supplies and other seasonal merchandise.

The pandemic-related restrictions were in place from April 8 to June 10 in Ontario, where roughly 40 per cent of Dollarama’s stores are located, and affected the first five and a half weeks of the quarter. Once the ban lifted, Dollarama reported that comparable sales grew, but not enough to offset earlier declines. Dollarama was also impacted by store capacity limits and stay-at-home orders in other provinces.

Overall, comparable sales in the quarter fell by 5.1 per cent compared to the prior year. Comparable sales measures sales results at stores open for at least 13 months, and excludes temporarily closed locations.

In a statement, Dollarama president and CEO Neil Rossy said that while the company is facing “a challenging landscape for value retailers,” customer traffic to its stores has been trending upward.

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The Montreal-based retailer reported that total sales increased by 1.6 per cent to $1-billion in the 13 weeks ended Aug. 1.

Desjardins Securities analyst Chris Li said: “DOL reported EPS of C$0.48 vs our estimate of C$0.52 and consensus of C$0.50. The slight miss was mainly due to a larger-than-expected sales and margin impact from the ban on the sale of non-essential products in Ontario, partly offset by lower-than-expected SG&A expenses. Overall, we expect investors to look past the miss because it was mostly transitory and to focus instead on what management has to say about (1) quarter-to-date sales trends, with the expectation that momentum will remain solid, supported by healthy consumer demand and DOL’s strong value proposition; (2) margin outlook in light of rising cost pressures; and (3) thoughts on the launch of higher price points.:

- Susan Krashinsky Robertson

Growing fuel consumption, higher gas prices and the acquisition of the Longo’s grocery chain drove an increase in first-quarter revenue for Sobeys parent Empire Company Ltd. (EMP-A-T), even as grocery sales are falling compared to the height of pandemic-related shopping last year.

Hoewever, in the wake of the premarket earnings release, its shares were down in Thursday trading.

The Stellarton, N.S.-based retailer reported $7.6-billion in revenue for the 13 weeks ended July 31, an increase of 3.7 per cent compared to the same period last year. Empire is expecting same-store sales to continue to fall for the rest of this year, as some COVID-19 restrictions have been lifted and Canadians have begun dining out more often. Same-store sales – an important metric that tracks sales growth excluding the impact of new store openings or acquisitions – were roughly flat in the first quarter, but excluding fuel sales, that number fell by 2.2 per cent.

Empire, which owns grocery chains including Sobeys, Safeway and FreshCo, acquired 51 per cent of Ontario chain Longo’s and its e-commerce service, Grocery Gateway, in March in a $357-million deal. The company has also been expanding its FreshCo discount banner in Western Canada, opening new stores and converting some Safeway locations, and is expanding its Farm Boy chain in Ontario.

- Susan Krashinsky Robertson

Cenovus Energy Inc. (CVE-T) was higher in response to announcing after the bell on Wednesday it has entered into agreements with its partners in the Atlantic region to restructure the company’s working interests in the Terra Nova and White Rose projects.

The deals will raise Cenovus’ working interest in Terra Nova and reduce it in the White Rose field, if a decision is taken to restart West White Rose, the company said.

Its working interest in Terra Nova will be 34 per cent, up from 13 per cent. The company will receive $78-million from the exiting partners towards future Terra Nova asset retirement obligations.

Production at Terra Nova was expected to resume before the end of 2022, with gross production expected to reach about 29,000 barrels per day in 2023.

Cenovus would reduce its stake in White Rose to 60 per cent from 72.5 per cent and to 56.37 per cent from 68.87 per cent in the satellite extensions. The company and its partners continue to evaluate their options on the West White Rose Project, with a decision to be made by mid-2022, it said.

Cenovus, one of Canada’s largest producers, said it continued to progress towards its $10-billion net debt target, which it expected to achieve later this year.

Concurrently, Travel company Transat AT Inc. (TRZ-T) fell after saying it lost $138.1-million in its latest quarter compared with a loss of $45.1-million in the same quarter last year.

On an adjusted basis, the Montreal-based company says it lost $3.06 per diluted share in its latest quarter compared with an adjusted loss of $3.70 per diluted share in the same quarter last year. The Street expected a loss of $2.61.

Revenue in what was the company’s third quarter totalled $12.5 million, up from $9.5 million a year ago.

Transat began a gradual resumption of flying on July 30 after suspending operations on Jan. 29 when Ottawa requested a suspension of travel to Mexico and the Caribbean as well as the adoption of new quarantine measures and testing requirements.

The company has said it plans to offer flights to nearly 50 cities this winter, including destinations in the Caribbean, Mexico, Central and South America, the United States and Europe.

In a research report, Desjardins Securities analyst Benoit Poirier said: “Overall, while results were weak, as expected, we are encouraged by the better-than-expected cash management in the quarter. That said, we prefer to remain on the sidelines while awaiting additional details with regard to the shape of the recovery and management’s ability to successfully execute its strategic plan.”

Ford Motor Co. (F-N) declined after Reuters reported it will stop manufacturing cars in India and shut down its plants in the country, becoming the latest automaker to quit a market still dominated by Asian rivals.

The U.S. automaker made the decision because it was not profitable for it to continue, said one of the sources, adding that the process is expected to take about a year to complete.

Ford is the latest vehicle maker to cease production in India, following U.S. companies such as General Motors and Harley Davidson, which have already left a market that had once promised exponential growth.

Ford has struggled to win over India’s frugal buyers and turn a profit in a market dominated by mainly low-cost cars made by Suzuki Motor Corp and Hyundai Motor.

The U.S. automaker will continue to sell some of its cars in India through imports of fully-built vehicles and knocked-down units, said the second person, adding that it would also provide support to dealers to service existing customers.

Ford did not immediately respond to an email seeking comment. It has previously said it would decide on a capital allocation plan for India in the second half of 2021.

With files from staff and wires

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