A survey of North American equities heading in both directions
On the rise
Shares of Restaurant Brands International Inc. (QSR-T) gained ground on Thursday with the announcement that the operator of Tim Hortons in China has forged a two-year partnership with Alibaba Group’s grocery chain that will see the two launch co-branded products.
E-commerce giant Alibaba’s Freshippo will begin sales next month at its stores, of which it has more than 300, as well as through its official app, it said in a statement. Products will include drinks such as Velvet Cocoa Coffee.
Tims China, whose backers include Tencent Holdings , opened its 500th outlet in China last month and has set its sights on having a “profitable network” of 2,750 stores in the country by 2026.
Even so it would still lag Starbucks, the dominant foreign coffee brand in China with 6,000 stores and which also has a wide-ranging partnership with Alibaba.
Tims China was founded in 2019 by Cartesian Capital Group and Canada’s Restaurant Brands International, which also owns the Burger King and Popeyes brands in addition to Tim Hortons.
Upscale U.S. retail chain Macy’s Inc. (M-N) raised its annual profit forecast on Thursday on resilient demand for high-end clothes and beauty products, while the inflation squeeze on lower-income shoppers forced rival Kohl’s Corp. (KSS-N) to scrap its forecast.
Luxury goods sales have held up for Macy’s as higher-income shoppers, eager to get back to social events after the pandemic, splurge their savings on pricier handbags, perfumes, clothing and gifts heading into the holiday season.
But Kohl’s withdrew its 2022 sales and profit forecasts, as the company, which caters to more lower-income customers and stocks fewer luxury goods, took a hit from weakening demand due to rising prices. “The Kohl’s customer is being hit by inflation a lot more than Macy’s,” said Jane Hali & Associates analyst Jessica Ramirez.
“Shoppers are also now traveling and returning to offices, and Macy’s has a better collection of those products. You’re not going to Kohl’s for dresses,” she said.
Shares of Macy’s rose in Thursday trading, while Kohl’s also made initial gains after suffering steep premarket declines.
Macy’s inventory levels were just 4 per cent higher in third quarter from a year ago, thanks to heavy discounts to clear the excess stocks of casual and athleisure apparel. In contrast, Kohl’s inventories were 34 per cent higher.
Macy’s said its decision to bring in holiday merchandise early this year was also helping it match shopping trends and keep inventories lean.
Macy’s raised its fiscal 2022 adjusted profit forecast to US$4.07 to US$4.27 per share from US$4 to US$4.20. Excluding items, it earned 52 US cents per share in the quarter ended Oct. 29, beating estimates of 19 US cents, according to Refinitiv data.
Cisco Systems Inc. (CSCO-Q) increased its full-year revenue and profit forecast amid easing supply chain hurdles and announced US$600-million in severance and other charges related to a new restructuring, which could impact roughly 5 per cent of its workforce.
Shares of the company rose on Thursday.
The company said the restructuring plan will begin in the second quarter of fiscal year 2023.
“This is not about reducing our workforce - in fact we will have roughly the same number of employees at the end of this fiscal year as we had when we started,” Cisco said, adding it would focus its resources on its enterprise networking and security businesses.
The restructuring comes at a time when most companies including Amazon.com Inc and Facebook’s parent Meta Platforms Inc are making deep cuts to their employee base to navigate a potential downturn in the economy.
Cisco said it would book the charges over the next few quarters, which included some costs related to downsizing its office space as more people work in a hybrid home-and-office model.
The company will talk to its employees on Thursday about the restructuring plan, Chief Executive Chuck Robbins said in a post-earnings call.
Cisco’s revenue was US$13.63-billion in the first quarter, above analysts’ estimates of US$13.3- billion, according to Refinitiv data.
Easing supply chain snags and Cisco’s recent investments in cloud offerings and targeted price hikes have helped the company improve its business and attract customers amid an economic slowdown.
Cisco said it expects an annual revenue growth of 4.5 per cent to 6.5 per cent, and adjusted earnings between US$3.51 and US$3.58. It previously forecast revenue growth of 4 per cent to 6 per cent for the year and earnings of US$3.49 to US$3.56, excluding items.
Excluding items, Cisco earned 86 US cents per share, 2 US cents above expectation.
Shares of Chinese e-commerce giant Alibaba Group Holding Ltd. (BABA-N) turned positive after it posted a smaller-than-expected rise in quarterly revenue on Thursday as COVID-19 curbs and a worsening economic outlook stifled consumer spending.
Retail spending in China has sagged this year alongside the government’s strict zero-COVID policies that have led to frequent snap lockdowns and hurt economic activity.
Alibaba has also had to contend with stiff competition from the likes of Pinduoduo and ByteDance’s Douyin - the Chinese version of Tiktok - which have expanded their e-commerce offerings and taken more market share.
The company has also yet to fully recover from a regulatory crackdown on the tech sector that has curtailed growth opportunities.
Revenue grew 3 per cent to 207.18 billion yuan (US$28.96-billion) in the three months ended Sept. 30, compared with a Refinitiv consensus estimate of 208.62 billion yuan drawn from 25 analysts.
Alibaba, which runs China’s largest online marketplaces Tmall and Taobao and owns a wide range of businesses from logistics to cloud services, reported net loss attributable to shareholders of 20.56 billion yuan in the quarter.
Excluding one-off items, Alibaba earned 12.92 yuan per American Depository Share.
The current quarter has also been gloomy. Last week, the firm did not disclose its “Singles Day” shopping festival sales tally for the first time, saying only that the results were in line with last year, which was its lowest ever growth.
Alibaba’s financial affiliate, Ant Group, is still undergoing a government-mandated revamp and has yet to revive plans for its public market debut after its $37 billion attempt at a dual listing was derailed at the last minute in late 2020.
Ant, which is 33 per cent owned by Alibaba, logged a profit of 7.72 billion yuan for the quarter ending in June, down 63.2 per cent year-on-year. Alibaba reports its profit from Ant group one quarter in arrears.
The company said in its earnings release it would raise its share repurchase program by an additional US$15-billion and extend it to the end of the 2025 fiscal year.
Under the existing US$25-billion share repurchase program, the company said it had repurchased approximately US$18-billion in shares by November 16.
On the decline
TC Energy Corp. (TRP-T) tracked commodity prices lower after saying late Wednesday the weather issues that prompted it to declare force majeure on Keystone oil pipeline deliveries this week have been resolved.
Calgary-based TC said on Tuesday it was curtailing volumes on the 622,000-barrel-per-day (bpd) pipeline due to severe weather-related impacts. The company did not specify the size or duration of the cut in volumes, but market players estimated it at about 7 per cent.
“The weather-related utility impacts to the Keystone facilities, which resulted in a temporary volume curtailment, have been resolved and the system is currently operating under normal conditions,” TC said in a statement on Wednesday evening.
The pipeline was hit by three separate storms between Nov. 4 and Nov. 11 that caused power failures at two pump stations on the U.S. part of the system and at the Patoka, Illinois, delivery station, causing the pipeline to temporarily shut down, one market source said.
Keystone ships crude from Alberta’s oil sands to the U.S. Midwest and on to the Gulf Coast, and is a key part of Canada’s oil export network.
Starbucks Corp. (SBUX-Q) was narrowly lower as workers at more than 100 U.S. stores were on strike Thursday in their largest labour action since a campaign to unionize the company’s stores began late last year.
The walkouts coincide with Starbucks’ annual Red Cup Day, when the company gives free reusable cups to customers who order a holiday drink. Workers say it’s often one of the busiest days of the year. Starbucks declined to say how many red cups it plans to distribute.
Workers say they’re seeking better pay, more consistent schedules and higher staffing levels in busy stores. Starbucks opposes the unionization effort, saying the company functions best when it works directly with employees. The Seattle coffee giant has more than 9,000 company-owned stores in the U.S.
Stores in 25 states planned to take part in the labor action, according to Starbucks Workers United, the group organizing the effort. Some workers planned to picket all day while others planned shorter walkouts. The union said the goal is to shut the stores down during the walkouts.
At least 257 Starbucks stores have voted to unionize since late last year, according to the National Labor Relations Board. Fifty-seven stores have held votes where workers opted not to unionize.
Starbucks and the union have begun contract talks at 53 stores, with 13 additional sessions scheduled, Starbucks Workers United said. No agreements have been reached so far.
The process has been contentious. Earlier this week, a regional director with the NLRB filed a request for an injunction against Starbucks in federal court, saying the company violated labor law when it fired a union organizer in Ann Arbor, Michigan. The regional director asked the court to direct Starbucks to reinstate the employee and stop interfering in the unionization campaign nationwide.
It was the fourth time the NLRB has asked a federal court to intervene. In August, a federal judge ruled that Starbucks had to reinstate seven union organizers who were fired in Memphis, Tennessee. A similar case in Buffalo has yet to be decided, while a federal judge ruled against the NLRB in a case in Phoenix.
Chip designer and computing firm Nvidia Corp. (NVDA-Q) beat expectations for third-quarter revenue on Wednesday, thanks to strong demand in its data center business on the back of rising cloud adoption.
Data centre revenue in the third quarter rose 31 per cent from a year ago, while gaming revenue was down 51 per cent from a year ago. Nvidia shares were lower.
Cloud companies are increasingly using Nvidia chips in their systems. Microsoft Corp. (MSFT-Q) is working with the company to build a “massive” computer to handle intense artificial intelligence computing work in the cloud.
As of August, Nvidia’s market share of so-called accelerator chips inside the world’s six biggest clouds’ infrastructure grew to 85 per cent, brokerage Jefferies said in a note in October.
While U.S. export restrictions have been a cause for worry, Nvidia’s production of a downgraded iteration of the A100, called A800, which complies with recent export control rules, has been a bright spot as it helped lessen the financial blow.
And Nvidia Chief Financial Officer Colette Kress said while the export restrictions impacted third-quarter revenue, the decline was “largely offset by sales of alternative products into China.”
“The export restriction put on by the U.S. Department of Commerce was a blessing for Nvidia as Chinese customers started to hoard its Datacenter GPUs,” said Summit Insights Group analyst Kinngai Chan, who upgraded the stock to “buy” from “hold”.
While the A800 chip meets the export regulations for China, asked if it also met the spirit of the regulations, Nvidia Chief Executive Jensen Huang said “it meets the clear test in letter and spirit”.
There have been questions by chip industry executives on whether Nvidia had cleared the changes with the Commerce Department. Nvidia previously declined to comment on that issue.
Nvidia’s gaming business, a segment that once drove its revenue, was hit by weak consumer demand, but also a change in the way Ethereum crypto currency is created.
“This may have contributed to increased after-market sales of our GPUs in certain markets, potentially impacting demand for some of our products, particularly in the low-end,” Kress said.
Nvidia’s GPU chips have been popular for mining crypto currencies but a crypto market rout is also hurting demand. CEO Huang said that going forward he does not expect blockchain to be an important part of the business.
The company’s adjusted revenue for the quarter ended Oct. 30 was US$5.93-billion. Analysts on average had expected revenue of US$5.77-billion, according to Refinitiv data.
Nvidia forecast current-quarter revenue at US$6-billion, plus or minus 2 per cent, versus expectation of US$6.09-billion.
With files from staff and wires