An employee arranges beauty product gift boxes displayed for sale at a Wal-Mart Stores Inc. location in Los Angeles, California.
Patrick T. Fallon | Bloomberg | Getty Images
Walmart said Tuesday that it is raising its minimum wage for store employees to $14 an hour, representing a roughly 17% jump for the workers who stock shelves and cater to customers.
Starting in early March, store employees will make between $14 and $19 an hour. They currently earn between $12 and $18 an hour, according to Walmart spokeswoman Anne Hatfield.
With the move, the retailer’s U.S. average wage is expected to be more than $17.50, Walmart U.S. CEO John Furner said in an employee-wide memo on Tuesday.
About 340,000 store employees will get a raise because of the move, Hatfield said. That amounts to a pay increase for roughly 21% of Walmart’s 1.6 million employees.
The retail giant, which is the country’s largest private employer, is hiking pay at an interesting moment. Some economists are calling for a recession. Prominent tech companies, media organizations and banks, including Google, Amazon and Goldman Sachs, have laid off thousands of employees and set off alarm bells. And weaker sales trends have prompted retailers, including Macy’s and Lululemon, to recently warn investors about a tougher year ahead.
But so far, retailers have largely avoided job cuts. Instead, they are still grappling with a tight labor market.
Retail, compared with other industries, tends to have higher churn than other industries — which allows employers to manage their headcount by slowing the backfilling of jobs said Gregory Daco, chief economist for EY Parthenon, the global strategy consulting arm of Ernst & Young.
Yet he said retailers may also be planning cautiously. For the past 18 months, they have had to work harder to recruit and retain workers. If they lose too many employees, he said, hiring and training new employees can be costly.
“Any retailer is going to have to think carefully and think twice about laying off a good share of their workforce,” he said.
In Walmart’s employee memo, Furner said the wage hike will be part of many employees’ annual increases. Some of those pay increases will also go toward store employees who work in parts of the country where the labor market is more competitive, the company said.
Walmart is sweetening other perks to attract and retain employees, too. Furner said the company is adding more college degrees and certificates to its Live Better U program, which covers tuition and fees for part- and full-time workers. It is also creating more high-paid roles at its auto care centers and recruiting employees to become truck drivers, a job that can pay up to $110,000 in the first year.
This story is developing. Please check back for updates.
Around two-thirds of Ford’s dealer network in the U.S. has signed up for the company’s electric-vehicle certification program, the price of batteries for electric cars is on the rise for the first time in over 10 years, and United Airlines is looking at Delta’s pilots’ contract as the template. These stories and more in The Morning Shift for Tuesday, December 6, 2022.
1st Gear: Most Ford Dealers are in on EV Certification
Ford says that nearly two-thirds of its U.S. dealer network are on board with the company’s pricy electric-vehicle certification program. The automaker’s CEO, Jim Farley, says 1,920 dealers have signed on.
He added that 1,659 went the “Certified Elite” route. That program requires investing as much as $1.2 million at the dealership. A further 261 dealers went with the cheaper “Certified” status. That program only requires dealers to spend up to $500,000 for EV enhancements. However, that level caps EV sales at 25 per year. From Automotive News:
Ford has about 3,000 dealerships in the U.S. The company said those that didn’t sign up by last week’s deadline will not be allowed to sell EVs beyond 2023 but will have another opportunity to do so in 2025.
Farley has said Ford’s retailer need to evolve to better compete with EV startups like Tesla and others that sell directly to customers.
“The future of the franchise system hangs in the balance here,” Farley said. “The No. 1 EV player in the U.S. bet against the dealers. We wanted to make the opposite choice.”
The announcement comes as opposition to the program grows. Last week, dealers in New York filed a lawsuit challenging the program as illegal, while a separate group of dealers in Illinois filed a protest with the state’s motor vehicle board. Also last week, U.S. Sen. Richard Blumenthal, D-Conn., and Connecticut state lawmakers voiced their displeasure over what they say are excessive costs that potentially violate state franchise laws.
Ford has consistently said it believes the program does not violate any state laws.
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“We want to work with our dealers, but there are certain things our customers want that are nonnegotiable,” Farley said to the crowd at the Automotive News Congress in Detroit.
He added that he does not regret rolling out the program.
“There’s always a better way,” Farley continued. “But I don’t think we made, really, any big mistakes.”
2nd Gear: EV Battery Prices on the Rise
The price of lithium-ion batteries is on the rise for the first time in over 10 years. The increase comes from surging prices raw material costs, and it will ultimately have a negative impact on the automotive industry’s push for EVs to get cheaper. From Financial Times:
Soaring prices of battery metals such as lithium, cobalt and nickel and higher component costs pushed battery pack prices up to $151 per kilowatt hour, a 7 per cent rise compared with a year ago and the first increase since BloombergNEF began its annual survey in 2010.
The company expects prices to rise further to $152 per kWh next year. In 2010, prices were $1,160 per kWh on average.
That’s bad news for the automotive industry. FT reports the industry has viewed $100 per kWH battery pack as the number where EVs become competitive with ICE vehicles from a price perspective.
However, lithium prices have increased 10-fold since the start of 2021 and nickel is up 75 per cent, while cobalt prices have been more than double their 2020 average this year.
As a result, BloombergNEF forecasts that the $100 per kWh level will be reached by 2026, two years later than previously expected. This will “negatively impact the ability for automakers to produce and sell mass-market EVs in areas without subsidies”, it said.
It added that the higher costs could also be problematic for the economics of battery energy storage projects that are vital to stabilising the grid as intermittent renewable power grows.
The rise in battery pack prices would have been even higher if car companies and cell manufacturers in the Chinese market had not switched to cheaper lithium iron phosphate (LFP) batteries, which do not use cobalt and nickel but have a shorter range.
Right now, there’s a lot of uncertainty about whether or not battery material prices will actually ease. Skyrocketing demand and manufacturing issues are only exacerbating the problem for battery makers and consumers.
3rd Gear: United Looking to Delta’s Contract as a Blueprint
United Airlines’ CEO Scott Kirby says a possible deal between Delta and its pilots union could be used as a template for similar agreements. From Reuters:
“It’s a rich contract but I think the really good news is it means we’ll all get deals done essentially on the same terms and can move forward,” Kirby told Reuters on the sidelines of an event in Washington late Monday. Delta struck a tentative deal Friday to give pilots a 34% cumulative pay increase in a new four-year contract.
Kirby says the Delta agreement will push pilot wages up across carriers and be passed onto consumers in the form of higher airplane ticket prices.
“The biggest news for an investor perspective is cost convergence in the industry means that what is different now is all the low cost carriers are going to have come up to these much higher pay rates,” Kirby said. “This is going to wind up like oil prices — it’s going to be a pass through.”
Delta’s contract reportedly also offers a lump-sum one-time payment, reduced healthcare insurance premiums, better 401(k) parameters as well as improved paid time off.
Kirby added that demand is still very strong for flight tickets, which he says are cheaper today than they have been over the past 15 years.
Its union estimates the proposed deal represents more than $7.2 billion of cumulative value increases over the next four years.
American Airlines and United have promised “industry-leading” contracts to their pilots.
Reuters reports that last month American Airlines pilots turned down a proposed 19 percent pay hike over the next two years that would cost the company about $2 billion. United pilots had previously turned down an offer that would give them about a 14.5 percent wage cumulative increase.
4th Gear: Works Strike at Pennsylvania Auto Parts Supplier
About 270 workers at an Autoneum AG plant in Bloomsburg, Pennsylvania have gone on strike at the global automotive insulation supplier, and soon ripples could be felt throughout the rest of the automotive industry.
Workers walked off the job last Thursday after negotiations between the company and the union stalled after the latest contract offer was rejected by the workers. From Automotive News:
Autoneum, based in Winterthur, Switzerland, focuses on internal and external sound and heat insulation systems. The supplier works with almost every major automaker, including General Motors, Ford Motor Co. and Stellantis, according to its website.
For the Bloomsburg plant, its exact list of customers is unclear. However, the plant received awards from Toyota in 2011, Ford in 2014 and GM in 2021. Autoneum did not respond to calls from Automotive News’ seeking comment on the strike.
Brian Heverly, president of Local 1700 Workers United, told FOX 56 that the rank-and-file turned down Autoneum’s third and final contract offer.
Among worker complaints is the supplier’s insistence that workers pay 5 percent more of their healthcare costs outside of usual yearly increases.
Local 1700 Vice President Dave Schaffer, an employee at the plant 44 years, told FOX 56 that the workers didn’t want to strike, but felt compelled to given the circumstances.
The last strike at this plant was reportedly back in 1968, a year known for nothing else but that strike.
A spokesperson for General Motors told the outlet that the automaker is aware of what’s going on, but they don’t see the strike having an immediate impact on GM operations.
5th Gear: GM’s BrightDrop Starts Production in Canada
General Motors has started production of its BrightDrop electric delivery vehicle at its CAMI Assembly plant in Ontario. That makes it the first EV factory in Canada as a whole.
Last month, GM said the startup will be worth about $1 billion in revenue in 2023. The company is expected to hit $5 billion in revenue by the middle of the 2020s, and it could be as high as $10 billion by 2030.
“Starting volume production is really important; this is a very important product for GM,” Sam Abuelsamid, principal research analyst leading Guidehouse Insights, told The Detroit News. “This finally starts to get them back into a more competitive offering in the van segment and with electrification, so … it has the potential to be a really strong business for GM.”
GM launched production this week of the larger Zevo 600 electric delivery vans at CAMI. The delivery vans were being manufactured at small scale at a Michigan supplier plant until the CAMI facility was ready for production. Production of the Zevo 400, a smaller model than the Zevo 600, will start in late 2023. BrightDrop expects to make 30,000 next year and scale to 50,000 by 2025.
[…]
GM formed BrightDrop in 2021. The business is focused on providing emissions-free products for delivery companies. Its products include the Zevo electric delivery vans, Trace eCarts for easier package delivery and the BrightDrop Core software platform.
The automaker invested more than $800 million to convert CAMI for high-volume EV production. The plant was revamped in just seven months — the quickest retooling of a GM plant ever.
[…]
BrightDrop also on Monday announced it’s entering the Canadian market with the addition of DHL Express Canada logistics company as a customer. DHL will add its first Zevo vans to its fleet early next year. The company is also piloting BrightDrop’s Trace eCarts and software platform in Toronto.
BrightDrop has also received requests for electric delivery vans from FedEx Corp., Walmart Inc., Hertz Global Holdings Inc. and Verizon Communications Inc.
All in all, BrightDrop has 25,000 production reservations and expressions of interest for its EV delivery vans. So far, the company has delivered 150 Zevo vans to FedEx out of the 2,500 the shipping company has ordered.
Reverse: Washington
Neutral: Boeing 747, Over and Out
On The Radio: Darlene Love – “Christmas (Baby Please Come Home)“
Darlene Love – Christmas (Baby Please Come Home) (Official Audio)
This is the best Christmas song, and I will not hear otherwise.
About 10 days ahead of Black Friday — one of the most anticipated shopping days for merchandisers — big-box retailer Walmart reported better-than-expected revenue and earnings.
And good news for consumers: The company plans to set prices for Thanksgiving staples at the same level as 2021.
For the fiscal third quarter, Walmart generated more than $152 billion in total revenue, eclipsing the nearly $148 billion Wall Street analysts expected. The company also reported adjusted earnings per share of $1.50 for the quarter, compared to the $1.32 analysts expected.
Walmart saw growth in its grocery sales this quarter as it rolled out various deals to draw in budget-conscious consumers.
“Through our Deals for Days events in the U.S. and a Thanksgiving meal that will cost the same as last year, we’re here to help make this an affordable and special time for families around the world,” Walmart CEO Doug McMillon said in a press release.
Shoppers will be able to take advantage of savings for holiday meal items through Dec. 26, according to Walmart’s website.
In addition to increased grocery sales, Walmart also got a boost from a strong back-to-school shopping season in the U.S. and global sales events in countries such as India and China, McMillon said on a call with investors.
Back in the second quarter, Walmart’s earnings also surpassed Wall Street analysts’ expectations as inflation-pinched shoppers sought out affordable necessities like groceries over discretionary merchandise such as clothing.
What this means for investors
Walmart shares jumped on Tuesday, following the company’s earnings call.
If you had invested $1,000 into Walmart a year ago, you’d see a slight return on your investment and have about $1,024 as of Nov. 15, according to CNBC’s calculations. These computations were performed after the markets opened and are based on a share price of $149.
If you had invested $1,000 into Walmart five years ago, your investment would be worth around $1,755 as of Nov. 15, according to CNBC’s calculations.
And if you had invested $1,000 into Walmart a decade ago, your investment would have more than doubled in value and be worth about $2,377 as of Nov. 15, according to CNBC’s calculations.
Walmart is expected to continue to perform well over the holiday season since the company’s focus on low prices is expected to continue to attract price-conscious consumers, Deutsche Bank analyst Krisztina Katai predicted ahead of the earnings report.
However, Walmart’s performance could be hurt by various factors, such as shifts in consumer buying habits or further increases in labor costs, Katai adds.
Investors should always do their homework
With that in mind, it’s always important to remember that a stock’s past performance shouldn’t be used as an indicator of how well it will perform in the future.
Given the unpredictability of the stock market, a passive investing strategy tends to make sense for most investors, rather than investing in individual stocks.
Investing in a market index, like the S&P 500, can be a great way to get started. Since the S&P 500 tracks the stock performance of large American publicly traded companies, investing in an S&P 500 index fund or exchange traded fund (ETF) can be a great way to gain exposure to a number of well-known companies.
As of Nov. 15, the S&P 500 declined by about 15% compared to 12 months ago, according to CNBC’s calculations. However, the index has increased by about 55% since 2017, and grown by about 196% since 2012.
Want to earn more and work less? Registerfor the freeCNBC Make It: Your Money virtual event on Dec. 13 at 12 p.m. ET to learn from money masters like Kevin O’Leary how you can increase your earning power.
Don’t miss: Apple just announced its new iPhone 14—here’s how much you’d have if you invested $1,000 a decade ago
Check out the companies making the biggest moves midday.
Walmart — Shares of retailer Walmart jumped more than 7% after reporting quarterly earnings that beat Wall Street’s expectations and raising its forward guidance. The company reported adjusted earnings per share of $1.50 on $152.81 billion in revenue, where analysts expected adjusted earnings per share of $1.32 and $147.75 billion in revenue, per Refinitiv.
Retail stocks — Retail stocks rose following Walmart and Home Depot‘s stronger-than-expected financial reports for the third quarter. Home Depot rose 1%, while Target shares rallied more than 3%. Kohl’s and Bed Bath & Beyond added roughly 3%. Macy’s and Nordstrom advanced about 5% and 3%, respectively.
Taiwan Semiconductor — Shares of the Taiwanese chipmaker soared more than 12% after Warren Buffett’s Berkshire Hathaway built a $4 billion new stake in the company. Berkshire added more than 60 million shares of the Taiwanese chipmaker’s American depositary receipts, by the end of the third quarter, making Taiwan Semi the conglomerate’s 10th biggest holding at the end of September.
Paramount Global — Shares of the media company jumped more than 9% after a filing revealed that Berkshire Hathaway increased its holding to $1.7 billion at the end of the third quarter. Paramount is still down more than 30% this year as it suffered from cord cutting and a drop in advertising revenue.
Louisiana-Pacific — The lumber maker saw its stock jump more than 10% after Omaha-based Berkshire took new positions in the company last quarter. The conglomerate’s stake was worth $297 million at the end of September.
Bath & Body Works — Bath and Body Works rose 4% after an SEC filing revealed that Dan Loeb’s Third Point bought $265 million in the retailer’s stock in the third quarter.
Netflix — The streaming giant added 3.8% after Bank of America double-upgraded the stock to a buy from underperform. He said the new ad tier and crackdown on password sharing could help the stock’s value increase 23.6%.
Fulcrum Therapeutics — Shares of the biotechnology company gained 8.6% after Goldman Sachs initiated coverage of the stock as a buy and said it could see an upside of 61.5% if its main experimental drugs kept performing well.
Vodafone — Vodafone’s stock dropped 6.8% after the company cut its earnings guidance and cash flow forecast. The mobile operator cited a challenging economic environment.
Getty Images — Getty Images’ stock plummeted 12% after revenue for the recent quarter missed Wall Street’s expectations.
Albemarle — Shares of the lithium miner dropped 6%. Rumors that an unnamed Chinese cathode manufacturer was cutting its production targets was putting pressure on U.S. lithium stocks, according to FactSet.
Signature Bank — Shares of the crypto bank jumped more than 10% after Signature reported minimal exposure to FTX and any potential destruction that could come from its collapse. Signature said it has only a deposit relationship with the exchange — it does not lend crypto or invest in it on behalf of clients — representing less than 0.1% of its overall deposits.
Mobileye Global — The autonomous vehicle systems software company rallied 4% after Baird initiated coverage of the stock with an outperform rating. Analyst Luke Junk called Mobileye a market leader, writing, “Net, we recommend purchase/would lean into any volatility, for this premier franchise/longer-term optionality.”
Sunnova Energy — Shares of solar company rose 7.5% after Deutsche Bank initiated coverage of Sunnova Energy, First Solar and Enphase Energy with buy ratings. First Solar was up 3.2%, and Enphase Energy rose 2%.
Capital One Financial — The regional bank’s stock sank 5% after it was downgraded by Bank of America to neutral from buy. Analyst Mihir Bhatia also cut his price target to $113 per share from $124.
Carnival — Shares of the cruise operator rose 6% after another report hinted inflation could be slowing. Royal Caribbean Cruises and Norwegian Cruise Line were also higher, up 4.9% and 2.5% respectively.
Chinese stocks — Chinese companies listed on the U.S. stock market rose following President Joe Biden’s meeting with China President Xi Jinping and despite disappointing retail sales data. Tencent Music Entertainment, which also posted beats on the top and bottom lines,soared about 30%. Alibaba rose roughly 12%. Pinduoduo and Baidu both rallied about 10%, and JD.com rose nearly 8%.
— CNBC’s Yun Li, Carmen Reinicke, Alex Harring, Samantha Subin and Tanaya Macheel contributed reporting.
Take a look at some of the biggest movers in the premarket:
Walmart (WMT) – Walmart shares surged 6.9% in the premarket after the retailer reported better-than-expected quarterly profit and revenue, and also saw comparable store sales exceed estimates. Walmart also announced a $20 billion share repurchase program.
Vodafone (VOD) – Vodafone slid 4.1% in premarket trading after the mobile operator cut its earnings guidance and cash flow forecast, pointing to a challenging economic environment.
Getty Images (GETY) – Getty Images slumped 11.8% in the premarket after its quarterly revenue fell short of Wall Street forecasts, although the visual content marketplace operator did see earnings top consensus.
Home Depot (HD) – Home Depot fell 1.1% in the premarket, after beating top and bottom line estimates for its latest quarter but merely reaffirming its full-year earnings forecast.
Energizer Holdings (ENR) – The maker of Energizer and Rayovac batteries saw its stock surge 10% in premarket action following better-than-expected quarterly results. Energizer’s results came despite what the company calls a volatile operating environment with significant headwinds.
Taiwan Semiconductor (TSM) – Taiwan Semiconductor rallied 10.9% in off-hours trading after Berkshire Hathaway (BRKb) disclosed in a Securities and Exchange Commission filing that it had bought more than $4.1 billion of the chip maker’s stock during the third quarter.
Bath & Body Works (BBWI) – Bath & Body Works rose 2.8% in the premarket after investor Dan Loeb’s Third Point revealed a $265 million purchase in the retailer’s stock in its quarterly SEC filing.
Estee Lauder (EL) – Estee Lauder is close to a deal to buy high-end fashion company Tom Ford for roughly $2.8 billion, according to people familiar with the matter who spoke to The Wall Street Journal. It would be the cosmetics company’s largest-ever acquisition. Estee Lauder rose 2.1% in the premarket.
Tencent Music (TME) – Tencent Music surged 9.7% in premarket action after reporting better-than-expected quarterly profit and revenue. The China-based music streaming service benefited from an increase in the number of paying subscribers.
A Walmart employee loads up a robotic warehouse tool with an empty cart to be filled with a customer’s online order at a Walmart micro-fulfillment center in Salem, Mass. on Jan. 8, 2020.
Boston Globe | Boston Globe | Getty Images
When the economy slows down, the classic response for consumer businesses is to cut back: slow hiring, maybe lay off workers, slash marketing, or even slow the pace of technology investment, delaying projects until after business has picked up again.
But that’s not at all what America’s troubled retail sector is doing this year.
With the S&P Retail Index down nearly 30% this year, most of the industry is boosting investment in capital spending by double digits, including industry leaders Walmart and Amazon.com. Among the top tier, only struggling clothier Gap and home-improvement chain Lowe’s are cutting back significantly. At electronics retailer Best Buy, first-half profits fell by more than half – but investment rose 37 percent.
“There is definitely concern and awareness about costs, but there is a prioritization happening,” said Thomas O’Connor, vice president of supply chain-consumer retail research at consulting firm Gartner. “A lesson has been taken from the aftermath of the financial crisis,” O’Connor said.
That lesson? Investments made by big-spending leaders like Walmart, Amazon and Home Depot are likely to result in taking customers from weaker rivals next year, when consumer discretionary cash flow is forecast to rebound from a year-long 2022 drought and revive shopping after spending on goods actually shrank early this year.
After the 2007-2009 downturn, 60 companies Gartner classified as “efficient growth companies” that invested through the crisis saw earnings double between 2009 and 2015, while other companies’ profits barely changed, according to a 2019 report on 1,200 U.S. and European firms.
Companies have taken that data to heart, with a recent Gartner survey of finance executives across industries showing that investments in technology and workforce development are the last expenses companies plan to cut as the economy struggles to keep recent inflation from causing a new recession. Budgets for mergers, environmental sustainability plans and even product innovation are taking a back seat, the Gartner data shows.
Today, some retailers are improving how supply chains work between the stores and their suppliers. That’s a focus at Home Depot, for example. Others, like Walmart, are driving to improve in-store operations so that shelves are restocked more quickly and fewer sales are lost.
The trend toward more investment has been building for a decade, but was catalyzed by the Covid pandemic, Progressive Policy Institute economist Michael Mandel said.
“Even before the pandemic, retailers were shifting from investments in structures to active investments in equipment, technology and software,” Mandel said. “[Between 2010 and 2020], software investment in the retail sector rose by 123%, compared to a 16% gain in manufacturing.”
At Walmart, money is pouring into initiatives including VizPick, an augmented-reality system linked to worker cell phones that lets associates restock shelves faster. The company boosted capital spending 50% to $7.5 billion in the first half of its fiscal year, which ends in January. Its capital spending budget this year is expected to rise 26 percent to $16.5 billion, CFRA Research analyst Arun Sundaram said.
“The pandemic obviously changed the entire retail environment,” Sundaram said, forcing Walmart and others to be efficient in their back offices and embrace online channels and in-store pickup options even more. “It made Walmart and all the other retailers improve their supply chains. You see more automation, less manual picking [in warehouses] and more robots.”
Last week, Amazon announced its latest warehouse robotics acquisition, Belgian firm Cloostermans, which offers technology to help move and stack heavy palettes and goods, as well as package products together for delivery.
Home Depot’s campaign to revamp its supply chain has been underway for several years, O’Connor said. Its One Supply chain effort is actually hurting profits for now, according to the company’s financial disclosures, but it’s central to both operating efficiency and a key strategic goal – creating deeper ties to professional contractors, who spend far more than the do-it-yourselfers who have been Home Depot’s bread and butter.
“To serve our pros, it’s really about removing friction through a multitude of enhanced product offerings and capabilities,” executive vice president Hector Padilla told analysts on Home Depot’s second-quarter call. “These new supply chain assets allow us to do that at a different level.”
The store of the future for aging retail brands
Some broadline retailers are more focused on refreshing an aging store brand. At Kohl’s, the highlight of this year’s capital spending budget is an expansion of the firm’s relationship with Sephora, which is adding mini-stores within 400 Kohl’s stores this year. The partnership helps the middle-market retailer add an element of flair to its otherwise stodgy image, which contributed to its relatively weak sales growth in the first half of the year, said Landon Luxembourg, a retailing expert at consulting firm Third Bridge. First-half investment more than doubled this year at Kohl’s.
Roughly $220 million of the increase in Kohl’s spending was related to investment in beauty inventory to support the 400 Sephora shops opening in 2022, according to chief financial officer Jill Timm said. “We’ll continue that into next year. …We’re looking forward to working with Sephora on that solution to all of our stores,” she told analysts on the company’s most recent earnings call in mid-August.
Target is spending $5 billion this year as it adds 30 stores and upgrades another 200, bringing its tally of stores renovated since 2017 to more than half of the chain. It also is expanding its own beauty partnership first unveiled in 2020, with Ulta Beauty, adding 200 in-store Ulta centers en route to having 800.
And the biggest spender of all is Amazon.com, which had over $60 billion in capital expenditures in 2021. While Amazon’s reported capital spending numbers include its cloud computing division, it spent nearly $31 billion on property and equipment in the first half of the year — up from an already record breaking 2021 — even though the investment made the company’s free cash flow turn negative.
That is enough to make even Amazon tap the brakes a little bit, with chief financial officer Brian Olsavsky telling investors Amazon is shifting more of its investment dollars to the cloud computing division. This year, it estimates roughly 40% of spending will support warehouses and transportation capacity, down from last year’s combined 55%. It also plans to spend less on worldwide stores — “to better align with customer demand,” Olsavksy told analysts after its most recent earnings — already a much smaller budget item on a percentage basis.
At Gap — which has seen its shares declined by nearly 50% this year — executives defended their cuts in capital spending, saying they need to defend profits this year and hope to rebound in 2023.
“We also believe there’s an opportunity to slow down more meaningfully the pace of our technology and digital platform investments to better optimize our operating profits,” chief financial officer Katrina O’Connell told analysts after its most recent earnings.
And Lowe’s deflected an analyst’s question about spending cuts, saying it could continue to take market share from smaller competitors. Lowe’s has been the better stock market performer compared to Home Depot over the past one-year and year-to-date periods, though both have seen sizable declines in 2022.
“Home improvement is a $900 billion marketplace,” Lowe’s CEO Marvin Ellison said, without mentioning Home Depot. “And I think it’s easy to just focus on the two largest players and determine the overall market share gain just based on that, but this is a really fragmented marketplace.”
Check out the companies making the biggest moves midday:
Cisco Systems — Shares of the networking equipment producer jumped 5.8%. The company reported earnings after the bell on Wednesday that beat estimates. Cisco also provided a better-than-expected forecast for 2023.
Bed Bath & Beyond — The latest favored meme stock, which has surged in August, dropped over 20%. Investors appeared to be reacting to activist investor Ryan Cohen’s filing that he intends to sell his entire stake in the company.
Kohl’s — Kohl’s shares sank about 5% after the retailer slashed its financial forecast for the year, citing inflation pressures on middle-income customers. The company expects net sales in fiscal 2022 down 5% to 6%, down from a prior range of flat to up 1%. However, Kohl’s beat analysts’ expectations for fiscal second-quarter profit and revenue.
BJ’s Wholesale — Shares of the club retailer popped more than 7% on Thursday after BJ’s reported better-than-expected results for the second quarter. The company generated $1.06 in adjusted earnings per share on $5.01 billion of revenue. Analysts surveyed by FactSet were expecting 80 cents per share on $4.67 billion of revenue. The company’s comparable sales rose 7.6% year over year, excluding gasoline. BJ’s was also upgraded by Bank of America to a buy from neutral.
Elanco Animal Health — Shares of Elanco shed more than 3% after the company was downgraded by Morgan Stanley. The firm shifted the stock to equal weight from overweight citing concerns about future profits.
Verizon — Shares of Verizon slipped 2.7% after MoffettNathanson downgraded it to underperform and slashed its price target. Increased competition from AT&T and T-Mobile is weighing on Verizon and will likely drag shares lower, analysts said.
Canadian Solar — The solar equipment and services company hit a new 52-week high, popping nearly 18%, after reporting quarterly profits that beat expectations. Canadian Solar also raised its full-year revenue forecast and reported solar module shipments that were at the high end of its forecast.
Wolfspeed — Shares surged more than 27% after the semiconductor company surpassed expectations in its most recent earnings report. Wolfspeed CEO Gregg Lowe said he remains “very encouraged about the industry’s prospects for future growth and the activity we are seeing across our end-markets.”
Walgreens Boots Alliance — Shares of Walgreens fell more than 5% in midday trading. The drugstore chain, along with CVS and Walmart, was ordered Wednesday by a federal judge to pay a combined $650.6 million to two Ohio counties to address damage done by the opioid crisis. Walgreens also announced Wednesday it had sold 11 million shares of Option Care Health’s common stock in an underwritten secondary offering.
Energy stocks — Energy stocks were buoyed by the rise in oil prices, with shares of Devon Energy rising more than 3%. Halliburton jumped 4%, and APA added more than 5%. Exxon Mobil and Occidental Petroleum and both gained about 2%.
—CNBC’s Jesse Pound, Carmen Reinicke and Sarah Min contributed reporting.
Target has added new brands to its beauty department. At a growing number of stores, it also has mini Ulta Beauty shops with prestige brands.
Melissa Repko | CNBC
As prices creep up, some people have decided against getting a new outfit, delayed big purchases like TVs or cancelled Netflix accounts.
But for now, they’re still splurging on beauty.
For retailers, the beauty category has become a rare bright spot as people pull back on spending amid surging inflation. Often seen as an affordable luxury, it is the only discretionary retail category with rising unit sales in the first half of the year, according to The NPD Group, which tracks categories including clothing, tech and toys, as well as beauty products at specialty and department stores.
“You may not be able to go out to eat out as much, but you can buy yourself a lipstick,” said Olivia Tong, an analyst for Raymond James.
This spring, Target called out the strength of its beauty sales, even as it twice cut its profit outlook for the year. Walmart is also investing in the category and rolling out new beauty displays to hundreds of stores, despite its warnings that shoppers are skipping over discretionary categories like apparel.
Other factors work in the industry’s favor, too. Weddings and parties have picked up again. More people are heading back to the office, and can no longer hide behind their Zoom filters. And during the pandemic, some people got in the habit of pampering themselves at home with face masks, hair treatments and other beauty products.
Larissa Jensen, a beauty analyst for NPD, called it the return of the “lipstick index” — a term made famous by Leonard Lauder, chairman of the board of Estee Lauder, to explain climbing sales of cosmetics during the recession in the early 2000s.
As consumer sentiment has fallen, lipstick sales volume has climbed, Jensen said. That increase has carried over to other beauty products. Makeup sales, including lipstick, are up 20%, skincare is up 12%, fragrance is up 15% and hair care is up 28% for the first half of the year — and they are all growing in units, as well as dollars, she said.
Much of the beauty category’s growth is coming from households that earn over $100,000 a year, and Jensen said discounters may have a tougher time capitalizing on the trend. Still, beauty’s resilience could provide some cushion for big-box retailers in a slowdown − if they can figure out how to cash in.
Beauty at $3, $5, $9
Walmart and Target both cut their profit forecasts after having to mark down prices on apparel, home goods and other products that aren’t selling. Yet both companies are refreshing their beauty departments and adding new brands to attract customers.
A year ago, Target began opening hundreds of Ulta Beauty shops inside of its stores with brands including MAC Cosmetics and Clinique. The company plans to add more than 250 this year and eventually have the shops at 800 locations, representing about 40% of its U.S. footprint.
And after seeing fragrance become the biggest sales-driver in prestige beauty during the last holiday season, it also added popular fragrance brands to the Ulta shops, including Jimmy Choo Man, Juicy Couture and Kate Spade New York.
Since January, Target has introduced more than 40 brands to its stable of beauty products, including “clean” products that are free of certain ingredients and Black-owned and Black-founded brands.
On an earnings call in mid-May, CEO Brian Cornell said beauty saw double-digit growth in comparable sales in the fiscal first quarter versus the year-ago period. That broke from other categories, besides food and beverage and essentials, which saw a noticeable slowdown.
Walmart has added about a dozen prestige beauty brands to select stores. It struck a deal with British beauty retailer, Space NK, to add the assortment and develop a private label.
Melissa Repko | CNBC
At Walmart, new beauty displays were set up this summer at 250 of the company’s locations, featuring Mario Badescu, Patchology and other brands typically found at specialty beauty shops or department store makeup counters.
A more affordable display called “Beauty Finds” also began rolling to nearly 1,400 stores, offering shoppers lip glosses, lotions and more for $3, $5 or $9.
Walmart has also struck exclusive deals with direct-to-consumer companies like Bubble, a skincare brand with colorful packaging and focus on Gen Z and young millennial customers. For the past few quarters, it has seen double-digit growth in its cosmetics business, said Creighton Kiper, Walmart’s vice president of merchandising for beauty.
“Beauty is this fascinating category where it’s not like food and it’s not like health and wellness, but yet the customer interacts and engages with it every day,” he said in an interview earlier this summer. “You’ve got this mental wellness component to it around confidence and feeling good about yourself.”
When budgets get tighter, Kiper said customers might also fall back on skills they gained during the pandemic — such as doing their nails or hair color at home — and go to Walmart to shop for an at-home twist on the salon.
Ashley Marie Lemons, a stay-at-home mom in suburban Atlanta, said her family is eating out less often because they’re spending more on groceries, diapers and other necessities. She said she cooks more meatless meals and buys hot dogs instead of pricier meats, such as ribs.
But she said she still allows herself to spend about $50 a month on beauty products like eyeshadow pallets and mascaras.
“It’s an outlet for me,” she said. “Some people like art. It’s a creative way for me to express myself.”
Exterior view of a Walmart store on August 23, 2020 in North Bergen, New Jersey
VIEW press | Corbis News | Getty Images
Walmart confirmed on Wednesday that it has begun to lay off corporate employees about a week after the company slashed its profit outlook and warned consumers had pulled back on discretionary spending due to inflation.
In a statement to CNBC, the retail giant described the layoffs as a way to “better position the company for a strong future.”
Anne Hatfield, a Walmart spokesperson, declined to say how many workers will be affected and what divisions have experienced cuts. She said Walmart is still hiring in parts of its business that are growing, including supply chain, e-commerce, health and wellness and advertising sales.
“Shoppers are changing. Customers are changing,” she said. “We are doing some restructuring to make sure we’re aligned.”
The corporate layoffs were first reported by the Wall Street Journal.
Walmart is the largest employer in the country with nearly 1.6 million workers in the U.S. The company, seen as a bellwether for the nation’s economy, spooked investors last week when it cut its outlook for quarterly and full-year profit guidance. That warning had a chilling effect on the retail sector, dragging down the stocks of companies including Macy’s and Amazon and sending up a flare about the health of the American consumer.
Walmart said at the time that as shoppers spent more on necessities like groceries and fuel, they were skipping over high-margin merchandise like apparel. It said it would have to cut prices to sell more of those items, especially as a glut of inventory piled up in its stores and at those of competitors like Target and Bed Bath and Beyond.
Later that same week, Best Buy cut its profit and sales forecast, saying it was seeing softening demand for consumer electronics — big-ticket, discretionary purchases that some shoppers can postpone.
This story is developing. Please check back for updates.
This weekend I read a host of negative articles assailing this market and the earnings reports from individual companies. The suggestion: The numbers are all hiding something and even companies like Amazon (AMZN) and Apple (AAPL) simply reported figures that exceeded lowball analyst estimates that were meant to generate upside. This is an outrageously bullish sign. You now have the most important arbiters of stock prices fully skeptical of anything positive. And yet the stocks themselves not only tell you otherwise, but make you feel like you are being left out of a big run. What gives? Let’s start with nine months of reducing projections and price targets with no sign of a letup. It is the exact flip side of what was happening when stocks were going higher when we had endless price target bumps. The analysts, I believe, have finally turned negative and we’re seeing a bottom. Maybe not the bottom, but low enough to buy the beaten downs — the Honeywells (HON) and the Carriers (CARR), the Otis Worldwides (OTIS) and ServiceNows (NOW). We aren’t in a position to call a real bottom, mostly because we don’t know how the market will react to a less than 75-basis-point increase in September. We know that the bears think that nothing is enough, but they have gotten a little outrageous. Historically, back-to-back 75-point hikes is enough to get even the late Paul Volcker, former chair of the Federal Reserve, nervous, given how so many of the raw costs are coming down and spending is being reined in by all but the wealthiest. I figure the Fed will signal something in a month that might lead to a sell-off. Otherwise I can see the market doing well through earnings season and then coming to a halt near the next Fed meeting in late September. At that point we will have not only the Fed to deal with but also the midterm elections. Current predictions have the Republicans winning thirty seats in the House, which would give them a majority in both houses and pretty much end anything President Joe Biden wants to do. That could make his agencies lean even more to the left as the possibility of a Republican presidential candidate who could win certainly seems plausible. His agencies so far have a left bias, but they can really go bonkers against the banks, the oils, and the drug companies. It’s unfortunate but that and the Fed could cause a rocky moment in September. All that aside, this past week showed the power of bigger companies. Let’s spend a second on Tim Cook and Apple. That was a most impressive quarter, yet I have read a number of negative pieces about how the numbers augur badly for Apple. How in heck could they bode badly? Did they speak to Tim Cook and he gave them a negative read? To be sure, it wasn’t the most impressive of quarters. There were ways to look at it with some worry. For one, I wanted higher service revenues. But $19 billion is certainly better than satisfactory. Having talked with Cook after Apple reported earnings last week. I was most enamored of the real opening of India, Brazil and Indonesia, three of the largest markets in the world. The company is luring people there into the Apple world through the trade-on market, and then hooking them on the superior performance. I also liked that the company seems to be acceding to my endless pleas to figure out the lifetime value of an Apple customer. This is key, given that the company now has 1.8 billon active devices, and 98% of users say they’re satisfied so they aren’t switching to another maker. Looking at the current spate of Apple offerings makes you feel there could be a pot of gold here among each customer. However, I think that there needs to be more. That’s why it so intrigued me when Cook said “buy now pay later” may be the beginning of a bigger financial vertical. Can you imagine if Apple had a financial app that allowed you to do everything on it? No matter what, gaining another “must have” seems great. The fact that Cook punted on the question of getting the NFL ticket may be seen as something already well into the mix. Does American football play well overseas? That might be dispositive. But so might the fact that Cook likes how baseball is going. No matter: the fact is that Apple is in an enviable position with the world’s most dominate phone. Amazon: What can I say? Amazon can grow with fewer people and it will do so. The pull is from the customer who stayed with the company and is now becoming more in use as a trade down that delivers. I think Amazon must be crushing Walmart (WMT). Shares of Walmart are all the way back to where it disappointed and the company hasn’t reported yet. It wasn’t just big tech that did well. We also saw terrific numbers from oils — Chevron (CVX) and Exxon Mobil (XOM) — and anything aerospace and auto. Club holding Ford (F) put on a real show even as, once again, the doubters were all over it. The drug companies and healthcare names reported good numbers, but they are being sacrificed for political concerns which I expect to run its course in a couple of weeks. Of course, there were disappointments. I intend to talk about some of them when we do our Monthly Meeting this Thursday. But I think the naysayers doth protest too much. So far they are losing to the bulls, they just don’t want to admit it. They do have the S & P 500 Short Range Oscillator on their side — plus 7.9 drives us to sell some shares, not buy them. But I have learned long ago that good is good when it comes to stocks and the good-is-actually-bad-news rap is the stuff of idealists on the wrong side of the trade. (Jim Cramer’s Charitable Trust is long APPL, AMZN, CVX, WMT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Apple CEO Tim Cook speaks during Apple’s annual Worldwide Developers Conference in San Jose, California, June 6, 2022.
Peter Dasilva | Reuters
This weekend I read a host of negative articles assailing this market and the earnings reports from individual companies. The suggestion: The numbers are all hiding something and even companies like Amazon (AMZN) and Apple (AAPL) simply reported figures that exceeded lowball analyst estimates that were meant to generate upside.
