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- 👉 Week in Review: 7/9/23
👉 Week in Review: 7/9/23
#1 beer in America...
Happy Sunday.
Before we get rolling, here’s one quick callout on the potential BRICS uprising…
While the members of BRICS — Brazil, Russia, India, China and South Africa — are pushing to conduct more trade between each other in local currencies, they aren’t quite ready to challenge the global dominance of the dollar.
However, Russian Embassies and news outlets have been proclaiming that 41 countries have applied for BRICS membership and that a gold-backed currency will become the new standard for the world.
As of April — China had reportedly added 102 tons of gold to its stockpiles in 2023. Other countries that have added the most to their central bank balances are Singapore, Turkey, Russia, and India. All are expected to be a part of BRICS.
The BRICS countries are clearly loading up on gold, meanwhile the quest for a Bitcoin ETF in the United States continues. So this begs the question… Bitcoin or Gold? Or both?
Portfolio Updates:
In case you missed it, I shared my year-to-date portfolio update about two weeks ago.
The portfolio is moving right along — with Tesla leading the charge (no pun intended). While other names like Broadcom (AVGO), W.W. Grainger (GWW), and Lowe’s (LOW) have been carrying the team in our dividend-focused subsection.
I haven’t made many changes over the last week or two besides increasing my exposure to Bitcoin and Ethereum — optimistic about these ETF applications.
Don’t forget to use StockUnlock to analyze and track your own portfolio — their platform not only shares dividend-specific data, but also fundamental analysis.
Week in Review — Too Long, Didn’t Read:
Nike is seeing a resurgence in China, Constellation Brands is thriving because of their Modelo beer brand, Levi Strauss is struggling to sell jeans at full price, Meta launched a new app, the Barbie Movie might be an opportunity to profit from the increased awareness of Mattel’s best-selling toy, Rivian’s stock price surged after earnings, Manufacturing data is looking very bad, the Fed might hike rates a few more times before the end of the year, and we saw the fewest amount of new jobs added since 2020.
Key Earnings Announcements:
A few earnings breakdowns from the last couple of weeks — Nike, Constellation Brands, and Levi Strauss.
Nike (NKE)
Key Metrics
Revenue: $12.8 billion, an increase of +5% YoY
Operating Income: $1.2 billion, compared to $1.5 billion last year
Profits: $1.0 billion, compared to $1.4 billion in profits last year
Earnings Release Callout
“FY23 was a milestone year for NIKE as our unique advantages continue to drive competitive separation. Our investment in innovation and our digital leadership are fueling broad-based growth across our portfolio of brands, as we create value by serving the future of sport.
“FY23 demonstrated the power of NIKE’s portfolio to fuel strong growth, year after year. We finished the year with mid-teens currency-neutral revenue growth and a healthy marketplace — setting the foundation for sustainable, profitable growth in FY24 and beyond.”
My Takeaway
The story is “slower growth and better margins” — revenue growth came in at +5%, while Wholesale revenue slowed to just +2% growth. For the coming 12-months, the company is guiding to mid-single digit growth — something Wall Street isn’t very confident in their ability to achieve.
However, management emphasized sales at the retail-level grew by double-digits, with traffic higher in-store vs online. Generally speaking, this is an indicator of strong brand health.
Sales growth in China bounced back (+16%), this reflected an uptick of their in-store traffic. Nike also accredited their in-store traffic to be so high this quarter because of their in-person athlete marketing — with management sharing their excitement about Giannis Antetokounmpo joining the team.
Nike’s stock price seems to move in tandem with their operating cash flow — however, with a lag. Their operating cash flow is projected to continue climbing higher, which could be a catalyst for the stock. No position for now, but I’ll keep my eyes on it.
Constellation Brands (STZ)
Key Metrics
Revenue: $2.5 billion, an increase of +6% YoY
Operating Income: $764.7 million, compared to $816.4 million last year
Profits: $139.2 million, compared to $399.2 million last year
Earnings Release Callout
“We are off to a strong start in fiscal 2024, with a solid first quarter. Our Beer Business delivered net sales growth of 11%, mainly driven by continued strong volume growth in line with our medium-term algorithm.
As anticipated, depletion performance accelerated throughout the quarter, resulting in a 5.5% increase for the period and acceleration that has continued into June, supported by our beer team's unrelenting push to increase distribution for our high-growth, high-velocity brands, continued incremental investments in marketing focused on the highest return opportunities and ongoing strong demand for our high-end Mexican beer brands aligned with consumer-led premiumization trends.”
My Takeaway
In case you missed it, their beer brand “Modelo Especial” was recently named the #1 beer in America after the Bud Light marketing catastrophe that took place in April. Their management team shared with us that this beer brand delivered double-digit dollar sales growth — as well as their Corona Extra and Pacifico brands.
This momentum has allowed the company to really double-down on marketing efforts for the coming 12-months — and if done correctly, we might see a 40% operating margin in 2024. Wall Street is expecting depletions to accelerate into the Summer, assuming the weather permits.
Wall Street is also expecting net sales growth of +9% over the coming 12-months, supported by a +3% increase in pricing. Looking toward their stock price — it seems to move closely with their earnings per share. Wall Street is expecting profits (and EPS) to accelerate into 2024 and 2025.
No position right now, but eager to open one if Q3 earnings prove to be as strong as their recent quarter. Their dividend is also very healthy with only a 30% payout ratio and seven years of continual raises.
Levi Strauss & Co. (LEVI)
Key Metrics
Revenue: $1.3 billion, compared to $1.4 billion last year
Operating Income: $9.9 million, compared to $76.2 million last year
Net Loss: -$1.6 million, compared to $49.7 in profits last year
Earnings Release Callout
“While U.S. wholesale remains pressured, we are pursuing initiatives to stabilize this business and drive market share gains.
While we are adjusting our full year outlook, we expect H2 revenues up mid-single-digits and a low-double-digit adjusted EBIT margin as strong growth in our large DTC and International businesses continue. As wholesale stabilizes and COGS improve, our business model is uniquely positioned to generate significant financial leverage beyond 2023."
My Takeaway
Levi’s stock price fell -8% after sharing their earnings report — mainly because they announced cutting prices for roughly 10% of their US wholesale styles as a way to continue to increase consumer demand. The company’s management team guided to revenues declining by high single-digits to low double-digits — not exactly something investors like to see.
Their quarterly gross margins also fell to only 55% — this was primarily caused by elevated product costs and fewer full-price sales (running discounts to actually sell their products). However, management suggested next quarter’s gross margins could meaningfully improve driven higher by direct-to-consumer sales.
Personally, I’m not excited about this company in the near-term and have no intentions of opening a position anytime soon.
Investor Events / Global Affairs:
Threads, Barbies, and Rivians.
Meta Platforms (META) Launches “Twitter Killer”
Meta's new app — Threads — gained over 70 million sign-ups in less than 48 hours, disrupting the social media landscape and prompting Twitter to consider legal action against Meta. Threads' integration with Instagram — and it’s more than two billion users — helped facilitate the most rapid user acquisition campaign ever.
Tracking the hype of Threads will continue to be a talking point over the coming weeks, and there’s certainly been some pushback from people not realizing that deleting your linked Threads account will also delete your instagram…
Meta’s stock has been one of the biggest winners of the year — but the stock was up only ~1% this week after the release of Threads.
Stock Idea: Barbie Movie?
I plan to open a new position in Mattel (MAT) ahead of the Barbie movie’s release. The video above breaks it all down for you.
Nearly 6 million views across TikTok and IG — thanks so much to all of you that watch, comment, and share my videos! It means a lot and encourages me to keep pumping out interesting ideas.
Rivian Automotive (RIVN) Surges
Rivian's stock surged +52% over the last five trading days as the EV maker exceeded Wall Street expectations by delivering 12,640 vehicles in Q2 (11,000 estimated). They also maintained their annual production target of 50,000 units. The positive delivery numbers from both Rivian and Tesla (TSLA) have provided a boost to EV stocks as a whole — including other startups like Lucid (LCID) and Canoo (GOEV).
Rivian also began shipping its electric vans to Europe — with more than 300 vans set to hit the roads in Germany in the coming weeks. Amazon — Rivian's largest shareholder and customer — has ordered 100,000 vans to be delivered by 2030.
Major Economic Events:
Manufacturing looks horrendous, the Fed Meeting Minutes displayed concern over our big core inflation problem, and the Jobs Report reveals a missed estimate for labor force growth.
Manufacturing Sector Looks Wack
As a reminder — Purchasing Managers’ Indices (PMIs) are aggregate results of if numerous market conditions are expanding, staying the same, or contracting. The two main entities that produce PMIs are S&P Global and the Institute of Supply Management (ISM). With all of the acronyms and two different groups reporting things — it can be confusing.
You know what’s not confusing? How ugly this data looks. Both groups are telling us that the Manufacturing sector is getting punched in the neck.
“This provides further reason to suspect that a recession is on the horizon… The ISM survey adds to the evidence that core goods prices will start falling again soon." — Andrew Hunter, Deputy Chief U.S. Economist at Capital Economics.
Just look at this breakdown from the ISM…
Fed Minutes Point Toward More Rate Hikes
As another reminder — the Fed Meeting Minutes are when we see the exact transcript of what was said by our central bank officials. This week, we learned that last month’s decision to skip an interest rate hike (but have another one in July) was nearly unanimous.
“Almost all” of the Fed officials agreed that more tightening would likely be needed this year. They expressed a deep concern that core inflation has barely budged over the last six months.
“A strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year… Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” — Jerome Powell in Madrid last week
Jobs Report Miss
US job growth in June slowed — with nonfarm payrolls increasing by +209,000, the smallest advance since the end of 2020. However, wage growth remained strong, indicating a solid labor market.
The unemployment rate fell to 3.6%. This continually low unemployment rate and relative strength in the workforce is making the Fed’s decision to have more rate hikes all-the-more clear.
“In the post-pandemic economy, we’re experiencing some structural and demographic change that has resulted in an economy that’s far less sensitive to interest rates than it has been during previous business cycles… So when I see the job gains at this pace, my sense here is that we’re going to need some additional help in terms of cooling of overall inflation, in core services [excluding housing], for the Fed to finally wrap up its efforts to restore price stability.” — Joe Brusuelas, RSM US Chief Economist
“The labor market is slowing down, but it’s doing so from a position of strength… Nothing is guaranteed, but the US labor market continues to point toward a slower, but more sustainable pace of economic growth.” — Nick Bunker, Research Director at Indeed Hiring Lab
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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