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A look at North American equities heading in both directions

On the rise

Laurentian Bank of Canada (LB-T) was higher by 4.5 per cent on Thursday after raising its quarterly dividend as it reported a second-quarter profit of $49.3-million, down from $59.5-million a year ago.

The Montreal-based bank says it will now pay a quarterly dividend of 47 cents per share, up a penny from 46 cents.

The increased payment to shareholders came as Laurentian says it earned $1.11 per diluted share for the quarter ended April 30, down from $1.34 per diluted share in the same quarter last year.

Revenue for the quarter totalled $257.2 million, down from $259.6-million in the second quarter of 2022, while the bank’s provision for credit losses amounted to $16.2-million, up from $13.0-million a year earlier.

On an adjusted basis, Laurentian says it earned $1.16 per diluted share in its most recent quarter, down from an adjusted profit of $1.39 per diluted share a year earlier.

Analysts on average had expected an adjusted profit of $1.12 per share, based on estimates compiled by financial markets data firm Refinitiv.

In a research note,Credit Suisse analyst Joo Ho Kim said: “LB reported a good beat in Q2, with slightly higher PTPP earnings than what we were looking for. Revenue performance was solid, driven by good loan growth (inventory financing in particular, with good performance from mortgages too) and NIMs that came in modestly better than what we expected (up 3 basis points quarter-over-quarter). The bank did take down their higher-cost funding (broker and advisor channel), which did result in total deposits declining 4 per cent quarter-over-quarter, but could also benefit NIMs ahead in our view. Expense results also looked good (down 1 per cent quarter-over-quarter and up 6 per cent year-over-year), though operating leverage remained negative (and efficiency ratio remained elevated as well, as per the bank’s prior guidance). On expenses, LB expects to record a restructuring charge of $6-million next quarter, tied to its capital markets operation ($5-million in annual savings expected; with more focus expected on fixed income and FX). Finally PCLs came in lower than we expected, though we do note an uptick in new formations this quarter (GILs climbed 8 per cent quarter-over-quarter).”

Microsoft Corp. (MSFT-Q) gained 1.3 per cent after CNBC reported it may spend billions of dollars over multiple years on computing infrastructure from start-up CoreWeave, citing people familiar with the matter.

The Windows maker had signed the CoreWeave deal earlier this year in order to ensure that OpenAI, which operates the viral ChatGPT chatbot, will have adequate computing power, according to the report.

Will AI transform investing? Separating hype from reality

Microsoft declined to comment, while CoreWeave did not immediately respond to Reuters’ request for a comment.

CoreWeave, valued at US$2-billion and which counts Nvidia Corp. (NVDA-Q) among its investors, has raised more than $400 million over the last two months.

New York-based CoreWeave specializes in providing cloud computing services based on graphics processing units, the category of chip pioneered by Nvidia that has become central to artificial intelligence services like OpenAI’s ChatGPT.

Nordstrom Inc. (JWN-N) rose 4.7 per cent after posting a surprise first-quarter profit on Wednesday as better inventory control and demand from wealthy shoppers helped the company defy an inflation-driven slump in retail spending.

Canada’s biggest shopping malls scramble for anchor tenants in wake of Nordstrom’s departure

The upmarket department store chain’s decision to stock up on popular national brands at its off-price banner Rack was also paying off, driving a recovery after months of outdated inventories and product shortages.

Affluent Americans are still spending on clothing as return-to-office trends and other social gatherings boost demand for dresses and formal wear, while pandemic-era habits of lounging in comfortable activewear and leisure clothing are also pushing up sales.

“The high-end customer (is) pretty resilient, but they’re also cautious,” CEO Erik Nordstrom said on a post-earnings call, adding that higher spending per trip was helping offset weak traffic.

While quarterly sales at Rack fell 11.9 per cent, Nordstrom said trends improved later in the quarter and have continued into May. The company has also been opening new Rack stores in a bid to attract more budget-conscious shoppers.

“Rack has been struggling for the last few years. It’s still not where it used to be, but it’s getting back on the right track,” Morningstar analyst David Swartz said.

The company’s inventories decreased 7.8 per cent at quarter-end, while gross margin improved 110 basis points, partly due to easing cost pressures.

Nordstrom joins apparel chain Abercrombie & Fitch Co. (ANF-N) in bucking a broader gloom in retail, after companies ranging from Target Corp. (TGT-N) to Home Depot Inc. (HD-N) all issued cautious forecasts for the year.

Total quarterly revenue at Nordstrom fell about 11 per cent to US$3.18-billion, but surpassed analysts’ average estimate of US$3.12-billion, according to Refinitiv IBES data.

Excluding items, it reported a per-share profit of 7 US cents, compared with estimates for a loss of 13 US cents.

Macy Inc. (M-N) turned positive in afternoon trading and finished narrowly higher after it cut full-year sales and profit forecasts, hurt by a slowdown in demand for high-end products and increased discounts due to persistently high inflation.

The company said it would need to discount further in the second quarter to clear out spring and early summer stocks as consumer spending weakens. This was in contrast to Macy’s expectations last quarter to rein in promotions.

Higher rental and food prices have pushed upscale retailers such as Macy’s lower on customers’ list as they now prefer to buy from discount stores and off-price retailers that offer products at cheaper prices.

Last week, peer Kohl’s Corp. (KSS-N), which caters more to lower to middle-income customers, also flagged a weaker consumer spending after posting a bigger-than-expected drop in quarterly sales.

Persistent strength in the labor market has spiked worries of a further hike in interest rates to control inflation, a move that could lead to restrained spending by consumers focusing more on essential purchases.

Major U.S. companies including Target (TGT-N) and Home Depot (HD-N) have also issued cautious outlook as American consumers’ disposable income remains pressured.

Meanwhile, upmarket department store Nordstrom Inc posted a surprise first-quarter profit on Wednesday on better inventory control and demand from wealthy shoppers.

Macy’s expects 2023 sales between US$22.8-billion and US$23.2-billion, compared with its prior forecast of US$23.7-billion to US$24.2-billion.

It sees adjusted full-year profit per share between US$2.70 and US$3.20, compared with US$3.67 to US$4.11 per share it had forecast previously.

In a note, Citi analyst Paul Lejuez said: “M beat on the bottom-line, driven by better GM, while sales fell short of consensus. Despite the 1Q beat, management is significantly revising annual guidance (from $3.67- 4.11 to $2.70-3.20 vs consensus of $3.69) based on the slowdown they experienced in mid-Mar and Apr. While inventory came in inline w/management’s -MSD guidance, the company has too much seasonal merchandise that it expects to clear, which will pressure margins in the coming qtr. Although the mkt typically appreciates “de-risked” annual guidance, in this case the implied 2H guidance of $2.05-2.45 (vs consensus of $2.48) combined with the really weak 2Q guide may not seem like guidance is de-risked, and the 2Q guide be a little too steep to keep the stock from going down.”

Shares of Chewy Inc. (CHWY-N) jumped 21.6 per cent on Thursday after the online pet supplies retailer raised its annual revenue forecast and said it would enter the Canadian market.

The stock is set to claw back most of its year-to-date losses if gains hold through the session.

The company posted a surprise profit for the first quarter as its sales benefited from strong customer loyalty, prompting at least two brokerages to raise their price target.

The median price target of the 31 analysts covering the stock is US$45, which is about 53 per cent higher than the last closing price of US$29.49.

In its earnings call, Chewy said it would expand into Canada in the third quarter, as the retailer looks to capture international growth in the fast-growing pet health care market.

“Canadian marketplace represents upwards of $15 billion in annual pet sales and is ~10% points underpenetrated online vs. the U.S.,” said Roth MKM in a note.

Chewy, co-founded by activist investor Ryan Cohen, was one of the major gainers in the sector after the pandemic triggered a rise in pet ownership. But the demand has normalized from its pandemic-led peak and has also taken a hit from high inflation.

The company now expects its full-year revenue between US$11.15-billion and US$11.35-billion, compared with its prior forecast range of US$11.10-billion to US$11.30-billion.

Analysts on average were expecting revenue of US$11.31-billion for 2023.

“We do not expect our investments in Canada to deviate us from our projected long-term profitability, cost or CapEx targets,” said Chief Executive Officer Sumit Singh.

Excluding items, the company posted net income per share of 20 US cents for the first quarter, compared with analysts’ expectations of a loss of 4 US cents per share.

On the decline

Shares of Descartes Systems Group Inc. (DSG-T) slipped 2.1 per cent following the release of better-than-expected first-quarter 2024 financial results after the bell on Wednesday.

The Waterloo, Ont.-based technology company reported revenue of US$136.6-million, up 17 per cent year-over-year and above the consensus forecast on the Street of US$133.1-million. Adjusted EBITDA rose 13 per cent to US$57.7-million also topped expectations (US$57.1-million).

The release led several equity analysts on the Street to raise their target prices for Descartes shares

“Descartes delivered a strong start to F2024, with Q1 results featuring a continuation of recent trends that has seen the company benefiting from multiple macro factors driving an increase in logistics and supply chain complexity/uncertainty, and in turn, demand for its solutions which appears to show no notable signs of slowdown,” said Scotia Capital’s Kevin Krishnaratne. “Our target moves higher to US$86 (was US$84) on slightly increased forecast revisions, with our valuation continuing to reflect 25.0 times EV/EBITDA on F25. We maintain our Sector Outperform rating noting potential for further target upside on better-than-expected organic growth trends, in addition to unannounced M&A. We note a strong balance sheet (more than $180-million cash, no debt, access to undrawn $350-million credit facility) and an increasingly favourable environment for M&A given funding challenges for early-stage logistics tech companies that may be well suited for Descartes’ Global Logistics Network.”.

BRP Inc. (DOO-T) was down 1.4 per cent after it saw strong Sea-Doo and off-road vehicle sales drive up total profits by 28 per cent year over year in its latest quarter, beating expectations.

Even with the pandemic in the rearview mirror — COVID-19 propelled demand for powersport vehicles across the globe as consumers sought to roam outdoors — the Ski-Doo maker ramped up revenues by more than a third to $2.43 billion in the three months ended April 30 compared with a year earlier.

On a call with analysts Thursday, BRP chief executive Jose Boisjoli said the company outpaced the North American powersports industry thanks to consumer demand that was dented but not broken by inflation and higher interest rates.

“The consumer would pay eight per cent more (year over year) on a monthly payment. That factors in inflation, interest rates, etc. So yes, it’s higher. But on the other side, now we are offering promotions that’s certainly helping to drive retail,” Boisjoli said.

The higher prices are not a “significant” deterrent for buyers, he said, but does allow BRP to cover higher costs.

“The big tailwind we got this quarter is finally we’re getting ahead of inflation. So all the pricing action we took over the last several years is now more than offsetting the inflation.”

The 20-year CEO also said he still expects to see market share gains — particularly with all-terrain vehicles — fuelled partly by new products, despite a “flat industry this year.”

He reiterated the company’s outlook for the fiscal year, which forecasts a revenue rise of between nine per cent and 12 per cent and normalized earnings per diluted share of between $12.25 and $12.75 — a jump of between 23 per cent and 29 per cent.

On Thursday, the company reported a first-quarter profit of $154.5-million, up from $121.0-million in the same quarter last year.

Profits amounted to $1.92 per diluted share for the quarter ended April 30, up from $1.46 per diluted share a year earlier.

Revenue totalled $2.43-billion, up from $1.81-billion in the same quarter last year, said the company, whose roots date back to 1942 with the founding of Bombardier Inc.

Normalized earnings amounted to a profit of $2.38 per diluted share, up from a normalized profit of $1.66 per diluted share a year ago — and nudging past analyst expectations of $2.34 per share, based on estimates compiled by financial markets data firm Refinitiv.

In a research note, Stifel analyst Martin Landry said: “BRP reported Q1FY24 EPS of $2.38, up 43 per cent year-over-year, in-line with our expectations and better than consensus estimates of $2.32. BRP reiterated its FY24 guidance, which calls for EPS to range between $12.25 to $12.75, up 2-6 per cent year-over-year. North American industry retail sales had a slow start this year with unfavorable weather but appear to have accelerated recently with BRP’s retail sales up more than 25 per cent year-over-year in April and up nearly 50 per cent year-over-year in May. Additional demand indicators also appear healthy with stronger than expected early bookings for snowmobile, and a sustained level of new customers entering the industry. As expected, BRP lowered its guidance for the marine segment given supply chain issues, which may be the only negative in the quarter. However, shipments of the Manitou pontoon appear to have accelerated in April and May. We expect BRP’s shares to react positively to the results.”

Goldman Sachs Group Inc. (GS-N) plans more job cuts as the difficult economic environment weighs on dealmaking, and warned trading revenue could fall 25 per cent this quarter, the bank’s president said on Thursday.

“The macro backdrop is extraordinarily challenging,” Goldman’s President and Chief Operating Officer John Waldron told investors at a conference, without specifying the scale of the layoffs.

Goldman Sachs shares were down 2.3 per cent in Thursday trading, underperforming the S&P 500 financial index, which was up about 1.1 per cent.

The firm is expected to cut just under 250 jobs in the coming weeks, a source familiar with the matter told Reuters in May. In January, it cut 3,200 jobs, its biggest headcount reduction since the 2008 financial crisis. Mr. Waldron said the latest job cuts will help the Wall Street titan achieve the US$600-million target it set in February for reducing payroll expenses, and said the bank may surpass that target by the end of the year.

He also said he expects a 25-per-cent fall in market revenue for both equities and fixed income in the current quarter from a year earlier when macro factors, such as interest rate hikes and war in Ukraine, had boosted trading in fixed income and commodities.

Goldman’s global markets unit, which houses its trading desks, saw revenue surge by 32% in the second quarter in 2022, with fixed income, commodities and currency trading revenue surging 55% and equities revenue adding 11 per cent.

“If you think about global banking and markets, the capital markets activity is more sluggish … The markets-oriented businesses, equities and fixed income, the activity levels are more muted,” Waldron said.

The comments echo those of Wall Street rivals. Andy Saperstein, co-president of Morgan Stanley (MS-N), warned on Wednesday that trading results will be “notably down” in the second quarter versus a year earlier, while “investment banking is also very challenged.”

Dollar General Corp. (DG-N) cut its full-year same-store sales and profit forecasts on Thursday as inflation-hit Americans, discouraged by higher prices for everything from home goods to consumables, tightened spending.

The company’s shares slid 19.5 per cent after it also posted weaker-than-expected first-quarter results.

American shoppers, economically strained by sticky food inflation, have turned cautious with purchases of discretionary goods and are buying fewer items on every store visit.

Last week, Dollar Tree (DLTR-Q), another big discount store, trimmed its annual profit forecast, hurt by slowing demand for discretionary items and elevated cost pressures.

The pullback in discretionary spending has led to a decline in traffic at Dollar General’s stores.

Dollar General’s 1.6-per-cent rise in first-quarter same-store sales was below analysts’ average estimate of a 4.07-per-cent rise, according to Refinitiv data. Its selling, general and administrative costs rose 94 basis points in the period.

Its sales were also hurt by higher inventory shrink and damages and CEO Jeff Owen warned that the “near-term pressure” that weighed in the quarter would impact the company’s full-year sales and profit.

The discount store chain expects fiscal 2023 same-store sales to rise between 1 per cent and 2 per cent, compared with its prior outlook of an increase of 3 per cent to 3.5 per cent.

It expects earnings per share to range from being flat to declining 8 per cent year over year, down from a prior forecast of an about 4-per-cent to 6-per-cent rise.

Its net sales are now expected to grow in the range of about 3.5 per cent to 5.0 per cent, compared to its previous expectation of a 5.5-per-cent to 6-per-cent rise

Citi analyst Paul Lejuez said: “DG reported EPS of $2.34, slightly below cons of $2.38. Sales were weaker with comps up 1.6 per cent vs consensus [estimate] up 3.8 per cnet. Mgmt reduced its F23 outlook and is now looking for comps up 1-2 per cent vs prior up 3.0-3.5 per cent and EPS $9.80-10.70 vs prior $11.10-11.30 (cons of $11.20). They trimmed pOpshelf growth expectations and now expects to open 60 fewer new stores in 2023. The reduction in pOpshelf openings is the latest indication that discretionary focused retail concepts are facing pressure. We expect shares to trade lower today given the disappointing 1Q results and F23 outlook reduction.”

Southwest Airlines Co. (LUV-N) was lower by 2.5 per cent in the wake of saying on Thursday it continues to expect a strong adjusted profit for the full year as travelers fly more for leisure, leading to more ticket sales.

The carrier also reiterated its profit forecast for the second quarter, as summer bookings were boosted by the Memorial Day weekend.

The forecast comes a day after American Airlines Group Inc. (AAL-Q) raised its second-quarter profit outlook on lower jet fuel costs and high travel demand.

Leisure travel demand and yields continue to be strong in the quarter, Southwest said in a regulatory filing.

Dallas, Texas-based Southwest however expects revenue per seat flown one mile to fall 8 per cent to 10 per cent in the quarter through June, compared to the previous forecast of a fall of 8 per cent to 11 per cent.

The airline said it has not made any material revisions to its 2023 fleet or capacity plans compared with previous guidance, reflecting its expectation to receive about 70 Boeing 737-8 aircraft deliveries.

Shares of Inc. (AI-N) dropped after the AI software maker’s quarterly revenue forecast missed estimates, dampening some of Wall Street’s recent euphoria around AI-linked stocks.

Investing in AI: How to avoid the hype

Most other small-cap artificial intelligence (AI) stocks fell after the disappointing outlook. AI analytics firm (BBAI-N), conversation intelligence firm SoundHound AI (SOUN-Q) and Thailand’s security firm Guardforce AI (GFAI-Q) were down., one of the top beneficiaries of the AI boom sparked by the viral success of ChatGPT, has seen its market value more than triple in 2023.

A jaw-dropping forecast last week by Nvidia (NVDA-Q), the world’s most valuable listed semiconductor company, fueled’s rally further, sending its shares to a near one-and-a-half-year high on Tuesday.

The midpoint of’s full-year revenue forecast was US$307.50-million, below Wall Street expectations of US$317.1-million, according to Refinitiv data.

The Redwood City, California-based company is experiencing a slow down in revenue as a result of its turnaround to a consumption-based pricing model, from a subscription business.

The company, however, said it had received bookings from diverse industries, benefitting from the strong AI software demand and remained on track to post a profit by the end of April 2024.

“We’ve been consistently bullish on the company’s long-term potential to capture enterprise demand for AI-powered solutions... (but) we’ve just been cautious on timing, particularly due to the fluid state of the financials as the company shifts toward consumption pricing and positive EBIT exiting FY24,” Canaccord Genuity wrote in a note.

At least four brokerages raised their price targets on the company, lifting the median Wall Street target to US$24, more than double from three months ago, Refintiv data showed. Average Wall Street rating was “hold.”

“We would like to see some of (the) underlying growth drivers to translate to higher levels of revenue growth to get more constructive on the stock,” said Piper Sandler analyst Arvind Ramnani. attracted the third-highest inflows from retail clients in the past week, according to J.P.Morgan, indicating its continued popularity.

The stock’s stellar year-to-date gains has also attracted short sellers, with about 29.7 per cent of its free float shorted, according to Ortex data.

Salesforce Inc. (CRM-N) fell 4.7 per cent on Thursday after reporting quarterly revenue that increased at its slowest pace since 2010, with companies cutting back spending on cloud-based software offerings.

The stock has risen nearly 69 per cent this year, as of last close, making it the fourth-highest gainer in the S&P 500 index.

Salesforce on Wednesday posted its smallest rise in quarterly revenue in 13 years and predicted a further slowdown ahead, blaming an uncertain U.S. economy and weaker demand from financial services and tech companies.

Belt-tightening measures by businesses dealing with elevated levels of inflation and high interest rates have impacted tech spending this year, hitting growth at major cloud services players such as Inc.

“Backlog is getting weaker, and while management points to macro, the subscription nature of the business means that these numbers won’t see any dramatic turnarounds,” brokerage Bernstein said.

Still, analysts were mostly positive on Salesforce, encouraged by the possible benefits from the company’s push towards AI and signs that profitability was improving at the company after a nudge from several activist investors.

Salesforce posted a net income of US$199-million, compared with US$28-million a year earlier, with operating margin rising to 5.0 per cent from 0.3 per cent.

At least 25 brokerages raised their price target on the stock to boost the median view to US$240, which is 7 per cent higher than its last closing price, according to Refinitiv data.

“Salesforce is well positioned to develop, deliver, and monetize AI given its existing data offerings (Tableau) and its ability to integrate AI into companies existing tech stacks,” D.A. Davidson analysts said.

With files from staff and wires

Follow David Leeder on Twitter: @daveleederOpens in a new window

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