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A look at North American equities making moves in both directions

On the rise

George Weston Ltd. (WN-T) saw gains after it reported a third-quarter profit available to common shareholders from continuing operations of $889 million, up from $238-million a year earlier.

The company, which owns large interests in Loblaw Companies Ltd. (L-T) and Choice Properties Real Estate Investment Trust (CHP.UN-T), says the profit amounted to $6.14 per diluted share for the quarter ended Oct. 8.

Loblaw, Metro sales and profit grow as Canadian grocers face inflation scrutiny

The result compared with a profit available to common shareholders from continuing operations of $1.58 per diluted share in the same quarter a year earlier.

Revenue for the 16-week period totalled $17.52-billion, up from $16.19-billion in the same quarter last year.

On an adjusted basis, George Weston says it earned $3.12 per diluted share from continuing operations, up from an adjusted profit of $2.43 per diluted share in the third quarter of 2021.

George Weston chairman and chief executive Galen G. Weston says Loblaw and Choice Properties demonstrated their ability to deliver consistent financial and operating results with strong third-quarter performance.

Best Buy Co Inc. (BBY-N) on Tuesday forecast a smaller drop in annual sales than it had previously estimated as steep discounts help soften the blow to electronics demand from inflation-hit customers ahead of the holiday season.

The retailer’s shares rose after it also said it had resumed its share buyback program and would spend about US$1-billion for repurchases this year.

Surging prices have driven down demand for non-essential products this year, forcing Best Buy and other retailers to opt for discounts and promotions to clear excess stock of products such as televisions, laptops and other electronics.

Best Buy said it expects full-year comparable sales to fall about 10 per cent, compared with a previous forecast of a decrease of about 11 per cent.

The company expects Americans to leave their end-of-year holiday gift shopping as late as possible as they seek the best deals, and the retailer said it was timing discounts accordingly to better manage inventory levels.

“We have strategically and effectively managed our inventory flow based on a shopping pattern that we believe looks more similar to historical holiday periods,” Best Buy Chief Executive Officer Corie Barry said.

Shopping activity would be concentrated on Black Friday week, Cyber Monday and the two weeks leading up to Dec. 25, a departure from prior years when holiday shopping had been spread across three months, according to Ms. Barry.

The company’s comparable sales decreased 10.4 per cent in the third quarter ended Oct. 29, compared with analysts’ estimates of a 12.9-per-cent fall, according to IBES data from Refinitiv.

On an adjusted basis, Best Buy earned US$1.38 per share, beating analysts’ estimates of US$1.03 per share, according to IBES data from Refinitiv.

Abercrombie & Fitch Co. (ANF-N) on Tuesday posted a surprise third-quarter profit and forecast a smaller-than-expected drop in current-quarter sales as it remains “cautiously optimistic” for the holiday season.

The Ohio-based retailer’s shares saw large gains after the company also reported better-than-expected third-quarter sales even as inflation dampened discretionary consumer spending.

The company’s attempt to revamp its inventory to get rid of casual and athleisure apparel that have fallen out of fashion and bring in new styles have helped its Abercrombie label post a 10-per-cent jump in third-quarter sales.

Abercrombie and Gap Inc,’s (GPS-N) Banana Republic have performed well as wealthier shoppers opt for dressier clothing over casuals for post-pandemic outings even as soaring prices encourage consumers on lower incomes to rein in spending.

Last week, U.S. retail chain Macy’s Inc. (M-N) signaled strong demand for high-end apparel and accessories ahead of the holiday season as well-to-do customers continue to splurge.

Abercrombie expects fourth-quarter net sales to fall about 2 per cent to 4 per cent in fiscal 2022, compared with analysts’ average estimate of a 6.3-per-cent drop, according to Refinitiv IBES data.

American Eagle Outfitters (AEO-N), on the other hand, expects bigger-than-expected fall in fourth-quarter sales, but sees gross margin in the range of 32 per cent to 33 per cent, at the higher end of its previous forecast as the company benefits from attempts to right size inventory.

Excluding items, Abercrombie reported a profit of 1 US cent per share in the third quarter, compared with estimates of a loss of 16 cents.

The company’s net sales fell 2.8 per cent to US$880.1-million, but beat estimates of US$831.1-million.

Baidu Inc. (BIDU-Q) was higher with its third-quarter revenue beating Wall Street estimates on Tuesday, as China’s search engine giant benefited from a recovery in online advertising sales and growth in its cloud and artificial intelligence (AI) business.

Baidu, which generates most of its revenue from ads on its search engine, has seen a recovery since the second quarter, before which strict zero-COVID policies in China had led to frequent lockdowns that undermined economic activity.

Baidu’s revenue rose 2 per cent to 32.54 billion yuan (US$4.56-billion) in the three months to Sept. 30, beating the 31.79 billion yuan average estimate of 20 analysts, according to Refinitiv data.

Baidu Core’s non-online marketing revenue, an area including cloud and other AI businesses, grew by 25 per cent year on year to 6.5 billion yuan.

The company has been focusing on self-driving technologies over the past five years, as it looks to diversify its revenue sources.

It started to charge fees for its robotaxi service Apollo Go on open roads from last year. Apollo Go operated more than 474,000 rides over the quarter and has accumulated a total of 1.4 million rides by end of the quarter.

The company’s operating income rose to 5.32 billion yuan from 2.31 billion yuan a year earlier.

Excluding items, it earned 16.87 yuan per American Depository Share (ADS).

On the decline

Calfrac Well Services Ltd. (CFW-T) closed down after it announced a conversion incentive program designed to encourage the early conversion of up to all of the $47.4-million principal amount of outstanding 10 per cent, 1.5 lien senior secured convertible notes.

The company also said it expects fourth-quarter revenue from continuing operations to range between $460-million and $480-million. The expectation is for revenue to come in at $418-million, according to S&P Capital IQ.

Adjusted EBITDA from continuing operations is expected to range between $80-million and $90-million, and adjusted EBITDA margin from continuing operations to range between 17 per cent and 19 per cent.

By comparison, Calfrac said it generated revenue from continuing operations of $438.3-million and adjusted EBITDA from continuing operations of $91.3-million (adjusted EBITDA margin of 21 per cent) in the third quarter.

Calfrac said it generated revenue from continuing operations of $229.7-million and adjusted EBITDA from continuing operations of $8-million (adjusted EBITDA margin of 3 per cent) in the fourth quarter of 2021.

In a research note released before the bell, ATB Capital Markets analyst Waqar Syed said: “We see several stock positives and one near-term negative in the announcement. On the positive side, we highlight: (1) Q4/22 EBITDA guidance that is 4-17 per cent above current consensus; (2) debt reduction of $47.4-million, with the total debt to LTM [last 12-month] EBITDA ratio dropping to 1.6 times (at September 30, CFW’s total debt outstanding was $400-million); and (3) one of the key negatives for CFW has been its lack of trading liquidity, and this transaction has the potential to substantially increase liquidity. On the other hand, in the very near term, there will be risk of new stock coming into the market, which could pressure the stock.”

Shares of Zoom Video Communications Inc. (ZM-Q) have tumbled about 90 per cent from their pandemic peak in October 2020 as the former investor darling struggles to adjust to a post-COVID world.

The stock was down 10% on Tuesday after the company cut its annual sales forecast and posted its slowest quarterly growth, prompting at least six brokerages to cut their price targets.

The company, which became a household name during lockdowns due to the popularity of its video-conferencing tools, is trying to reinvent itself by focusing on businesses, with products such as cloud-calling service Zoom Phone and conference-hosting offering Zoom Rooms.

Analysts, however, say any turnaround in the business is still a few quarters away as growth in its mainstay online unit slows and competition from Microsoft Corp’s Teams and Cisco’s Webex and Salesforce’s Slack gets intense.

“Zoom has a fundamental flaw - it has needed to spend heavily to keep hold of market share. Spending to cling onto, rather than grow, market share is never a good place to be and was a sign of trouble ahead,” Hargreaves Lansdown equity analyst Sophie Lund-Yates said.

The company’s operating expenses surged 56 per cent in the third quarter as it spent more on product development and marketing. Its adjusted operating margin shrank to 34.6 per cent from 39.1 per cent a year earlier.

Some brokerages believe acquisitions could help revive growth at Zoom, but Chief Executive Eric Yuan said on a post-earnings call that he continued to see heightened deal scrutiny for new business.

“The game is not over for them but without acquisitions this is a multi-year path to returning to higher growth,” Needham & Co analyst Ryan Koontz said.

Dollar Tree Inc. (DLTR-Q) said on Tuesday that its full-year profit would be at the lower end of its forecast, with the discount store retailer’s margins under pressure from decades-high inflation.

Shares of the company, which has cut prices at its Family Dollar stores to sustain demand, fell almost 8 per cent.

Dollar Tree has been hit by slowing demand for everything from toys and party supplies to homeware, which are typically more profitable than food and other perishables.

Industry bellwethers Walmart Inc. (WMT-N) and Target Corp. (TGT-N) issued gloomy holiday sales forecasts last week, with Target pointing to a sharp fall in demand for discretionary goods.

Dollar Tree is also grappling with higher freight costs and price cuts at its Family Dollar banner that were rolled out in the second quarter.

The price cuts, however, helped Family Dollar post its strongest quarterly same-store sales jump since 2020.

Dollar Tree now expects annual profit at the lower half of its previously estimated range of US$7.10 per share to US$7.40 per share.

The company raised its forecast for fiscal 2022 net sales to between US$28.14-billion and US$28.28-billion, compared with its previous outlook of US$27.85-billion to US$28.10-billion.

Dollar Tree’s total same-store sales rose 6.5 per cent in the third quarter, beating estimates of a 4.7-per-cent jump, according to Refinitiv IBES data.

The company reported a quarterly profit of US$1.20 per share, beating estimates of US$1.18.

With files from Brenda Bouw, staff and wires

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