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A look at North American equities heading in both directions

On the rise

Shares of Vancouver-based Lululemon Athletica Inc. (LULU-Q) soared 12.7 per cent after it forecast annual sales and profit above Street estimates as the athleisure clothing maker rides on resilient demand and easing inventory glut.

The company also allayed concerns around a deeper margin squeeze on lower air freight expenses and fewer markdowns, after a 300-basis-point hit in the holiday quarter.

Full reaction from the Street: Wednesday's analyst upgrades and downrgades

Lululemon has benefited from wealthier shoppers still snapping up its higher-priced tops, yoga pants and shorts, in contrast to the general trend of inflation-wary customers cutting back on discretionary spending.

A loyal customer base has also allowed the company to sell more of its popular products, such as its Align high-rise yoga pants, which retails between US$98 and US$118, at full price.

Markdowns increased just 40 basis points in the holiday quarter compared to 2019 pre-pandemic levels, and are expected to remain flat in 2023.

“Lululemon is doing a really good job drawing people into the brand,” Raymond James analyst Rick Patel said, adding new product launches such as its tennis and hiking products are helping gain wallet share among consumers.

Meanwhile, Lululemon is also making good progress in clearing its excess inventories. Inventories were up 50 per cent at US$1.4-billion at the end of the fourth quarter, compared to an 85-per-cent swell at the end of the prior quarter.

It expects an about 30-per-cent to 35-per-cent increase in inventory in the current quarter.

Lululemon said it expects fiscal 2023 revenue between US$9.30-billion and US$9.41-billion, above analysts’ average estimate of $9.14 billion, according to Refinitiv IBES data.

The company forecast full-year profit in the range of US$11.50 to US$11.72 per share, compared with analysts’ estimate of US$11.26.

Lululemon also issued upbeat forecasts for the first quarter, and topped expectations for fourth-quarter results.

Dollarama Inc. (DOL-T) rose 2.5 per cent after it beat quarterly revenue expectations on Wednesday helped by strong demand for affordable everyday goods and seasonal products such as home decor items during the holiday season.

Higher prices of food and gas pushed consumers to shop at discount store chains such as Dollarama for daily essentials and cheaper seasonal items during the all-important holiday period.

Same-store sales in the fourth quarter increased by 15.9 per cent, compared to a growth of 5.7 per cent a year earlier. Analysts on average expected growth to be at 9.63 per cent.

The discount store chain said the introduction of additional price points up to $5, strong demand for consumable products, seasonal items and general merchandise, as well as fresh product offerings contributed to same-store sales growth.

The company said it expects annual same-store sales growth of 5 per cent to 6 per cent, compared with analysts’ average estimate of 5.7 per cent, according to Refinitiv IBES data.

Net income attributable to Dollarama rose to $261.3-million, or 91 cents per share, in quarter ended Jan. 29, from $220-million, 74 cents per share a year earlier.

Dollarama’s revenue rose 20.3 per cent to $1.47-billion, beating expectations of $1.39-billion, according to Refinitiv IBES data.

The retailer says it will now pay a quarterly dividend of 7.08 cents per share, up from 5.53 cents per share.

The increased payment to shareholders came as Dollarama says it earned 91 cents per diluted share for the 13-week period ended Jan. 29, up from 74 cents per diluted share a year earlier.

Micron Technology Inc. (MU-Q) gained 7.2 per cent after it forecast third-quarter revenue would tumble nearly 60 per cent from a year earlier, but the steep drop was in line with Wall Street expectations and company executives painted a rosy outlook for 2025 with artificial intelligence boosting sales.

With a glut still nagging the chip industry, Micron expects the deepest revenue drop since 2001. Micron said it would keep investments at about US$7-billion for fiscal year 2023, the lower end of a previously stated range. It will target a 15-per-cent headcount reduction this year, bigger than its previous 10-per-cent target.

Matt Bryson, Wedbush Securities chip analyst, said the cut in capital spending was a positive for investors as it would “pull forward the timing and breadth of a future recovery.”

Micron Technology President and CEO Sanjay Mehrotra told analysts on an earnings call that he was confident about the long-term and said the memory chip industry would see a record calendar year 2025 in terms of market size.

“When you look at the future, it equals AI. And AI equals memory, and Micron is well positioned with our technology and product road maps to address the growing opportunities there,” he said.

A proliferation of generative AI chatbots such as Microsoft Corp-backed OpenAI’s ChatGPT has boosted demand for data centers, mitigating the trend of easing demand for chips. Analysts say the expansion of generative AI could fuel a jump in the need for storage.

The company expects third-quarter revenue of US$3.70-billion plus or minus US$200-million, matching analysts’ average estimate, according to Refinitiv data.

Revenue for the second quarter fell by about 53 per cent to US$3.69-billion and the company lost US$2.3-billion, compared with a profit of US$2.26-billion a year earlier.

Micron expects to incur a loss of US$1.58 per share, excluding items, plus or minus 7 US cents, in the current quarter compared with Wall Street expectation of 90 US cents per share.

UBS Group AG (UBS-N) jumped 4.3 per cent after it rehired Sergio Ermotti as CEO to steer its massive takeover of neighbour Credit Suisse (CS-N) - a surprise move to take advantage of the Swiss banker’s experience rebuilding the bank after the global financial crisis.

The trader turned corporate problem fixer faces the tough challenge of laying off thousands of staff, cutting back Credit Suisse’s investment bank and reassuring the world’s wealthy that UBS remains a safe harbour for their cash.

“We felt we had a better horse,” said UBS chairman Colm Kelleher of the decision to replace current CEO Ralph Hamers after less than three years in charge.

Mr. Kelleher said he brought back Mr. Ermotti because he was best equipped to see through the biggest deal in finance since the global banking crash more than a decade ago.

“This is not a Swiss solution,” he said, seeking to play down any role of Mr. Ermotti’s nationality in getting the job, and instead emphasised his focus was on the large risks of making the merger work for UBS.

“Being Swiss helps,” Mr. Kelleher said. “But the majority of our business is global.”

Mr. Ermotti, who was chief executive of UBS from 2011 to 2020 and is now chairman of Swiss Re, will take the helm from April 5. The 62-year old is credited with executing UBS’s turnaround after a series of scandals and losses nearly caused the bank’s implosion.

See also: Credit Suisse violated 2014 U.S. tax evasion deal, Senate committee finds

Macy’s Inc. (M-N) closed up 0.2 per cent after saying its Chief Executive Officer Jeff Gennette will retire in February, after serving the U.S. department store chain for 40 years and will be succeeded by insider Tony Spring.

Mr. Spring, who is the chairman and CEO of Macy’s unit Bloomingdale’s, has been with the company for 36 years. He was named as a successor to Mr. Gennette after an internal and external search, Macy’s said.

Mr. Gennette, 61, was credited with turning the business around with the Polaris Strategy, a three-year plan which was introduced to accelerate its digital business and ensure a profitable growth at a time when department stores were facing sagging sales due to increasing online competition.

Under his leadership, he was able to navigate an activist investor push to spin off its online unit and decided to retain the business, as he believed the company would be profitable along with the digital platform and national footprint than a separation.

Mr. Gennette, who has been the head of the company since 2017, spear headed it during the COVID-19 pandemic when Macy’s expedited shipments and ordered products earlier, while other retailers in the United States grappled with product shortages to meet the seasonal demand.

On the decline

Goeasy Ltd. (GSY-T) dropped 5 per cent after the federal government unveiled a plan in its 2023 budget to lower the criminal rate of interest that lenders can charge at 35 per cent, in line with the limit that already exists in Quebec.

From flood insurance to alcohol taxes, how the 2023 budget affects Canadians’ wallets

“The Federal government did start consultations with the industry in 2021 but did not make the submissions public and according to management did not provide meaningful followup. This is rare in financial services (even among non-OSFI regulated segments),” said Raymond James analyst Stephen Boland, who downgraded his recommendation for shares of Mississauga-based Goeasy.

With files from staff and wires

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