People today walk alongside a promenade up coming to Victoria harbour in Hong Kong on August 31, 2023, a working day ahead of the arrival of Typhoon Saola. (Image by ISAAC LAWRENCE / AFP) (Picture by ISAAC LAWRENCE/AFP via Getty Illustrations or photos)
Isaac Lawrence | Afp | Getty Images
Asia-Pacific markets are set to fall as traders await China’s Caixin manufacturing PMI info, amid a slew of other economic data in the region.
In Japan, the Nikkei futures deal in Chicago was at 32,505 when its counterpart in Osaka was at 32,490. The two are reduced when compared to the Nikkei 225’s previous shut at 32,619.34.
In Australia, futures for the S&P/ASX 200 were at 7,237, reduce than the index’s final close of 7,350.3.
Hong Kong is bracing for Super Typhoon Saola and the Hold Seng index will pause investing as the poor weather conditions strategies. In accordance to the Hong Kong inventory exchange tips, investing will be halted if a No. 8 signal or earlier mentioned is issued right before pre-opening and will continue being in position until eventually 12 p.m.
As of 6.45 a.m. Singapore/Hong Kong time, the Hong Kong Observatory famous that the Storm Signal No. 8 will “continue to be in drive for most of now.”
Traders are also waiting for a personal-sector study examining of China’s factory exercise for July.
Overnight in the U.S., the Dow Jones Industrial Average fell by about 168 points, or .5%, to close at 34,721.91. The S&P 500 ticked down approximately .2% to 4,507.66. The Nasdaq Composite ticked higher at the closing bell, but nevertheless suffers worst thirty day period in 2023.
An aerial view demonstrates the Central Financial institution of India making, in Mumbai, India, 28 September, 2022. (Photo by Niharika Kulkarni/NurPhoto through Getty Photos)
Nurphoto | Nurphoto | Getty Photographs
The worldwide economy is set to sluggish down as inflation continues to be stickier than expected — but there may well be some “pockets of resilience,” according to Moody’s Investors Services.
“We are expecting globally a slowdown in growth, and that will have an affect on [emerging markets] Asia by means of trade situations as nicely as obtain to financing in the region,” Marie Diron, controlling director for world sovereign and sub-sovereign possibility at Moody’s Investors Company, explained to CNBC Thursday.
Diron said the slowdown can be attributed to three elements: increased desire costs that persist, China’s slowing development, as effectively as monetary process stresses.
Even though central financial institutions have managed to steer the world-wide financial system and “develop a disinflationary pattern” by increasing fascination premiums, inflation pitfalls are however a sticking position, she mentioned.
“There are continue to pitfalls out there that inflation could demonstrate stickier … than now predicted, and that would guide to higher risks for extended and slower advancement,” explained the running director.
The Federal Reserve begun its steady stream of rate hikes in March 2022, as inflation climbed to its maximum in 40 many years.
In the last calendar year and a 50 %, the U.S. central bank has elevated the benchmark fed funds charge to among 5.25% to 5.5%. Fed Chair Jerome Powell last Friday warned that more curiosity rate increases could be on the table.
A 2nd possibility is economical process anxiety, Diron reported.
“We have seen banking companies absorbing that time period of higher charges, which has had some favourable impacts on margins for some, but also necessary an adjustment in companies, an adjustment to proceed to attract deposits,” she explained.
“It could be that there are pockets of anxiety that now have not rather emerged that materialize it’s possible later this 12 months on to future year.”
Finally, China is a third source of vulnerability.
Moody’s is not anticipating a speedy turnaround in the world’s next biggest financial system and sees “somewhat gradual expansion in China with implications throughout the area,” Diron reported.
“It is an outlook seriously clouded by draw back challenges. And that may perhaps have an implication for default charges.”
China has been battered by a slew of disappointing financial figures, with the latest economic info broadly missing expectations.
‘Pockets of resilience’
Even though Moody’s expects a coming slowdown, there could be some “pockets of resilience,” Diron said.
She acknowledged that “we do see a slowdown from this 12 months onto upcoming yr,” but added: “We see reasonably robust progress and favorable problems in marketplaces like India and Indonesia.”
Indonesia in certain has the prospective to materialize the country’s “extensive normal means” and acquire the downstream sectors, as a result of processing of minerals by the worth chain, Diron noted.
The Southeast Asian country carries significant purely natural deposits like tin, nickel, cobalt and bauxite — some of which are significant raw components for electric powered car manufacturing.
Dividend shares aren’t evergreen, but investing in them over numerous decades can pay off, according to a single portfolio supervisor. Their underperformance this year offers an chance, said Ben Kirby, who is also co-head of investments at Thornburg Financial commitment Management. “Dividend investing goes in and out of favor from one year to the upcoming, but about the system of a multi-year period, it’s a incredibly strong strategy,” he explained to CNBC this 7 days. “When you have a calendar year like this, exactly where a bunch of higher-quality dividend-paying shares have underperformed, it truly is a extra fat pitch and an opportunity to increase that exposure to your portfolio,” he additional. The SPDR S & P Dividend ETF (SPYD) has a whole return of -3.5% so considerably this year, in accordance to FactSet. The SPDR S & P 500 ETF (SPY) has a overall return of over 18%. He just isn’t the only just one to recognize dividend shares suitable now. Neuberger Berman senior portfolio manager Sandy Pomeroy informed CNBC before in August that dividend shares haven’t been this affordable considering the fact that the tech boom of the 1990s. “They went on to have a fantastic decade. They have been the outperformers for the subsequent 10 several years and that could materialize again, in our intellect,” she explained. Stock picks Kirby urged traders to target on stocks with “assorted and tough” earnings in their portfolios, rather of Big Tech. He named five such stocks. TSMC : The Taiwanese chipmaker is trading at 14 or 15 periods earnings, and is “a single of the most effective firms in the world,” Kirby explained, incorporating that they mature their dividend more than time. “They are crucial in the world-wide supply chain.” He reported although Taiwan will continue being a scorching place of geopolitical tensions, he likes it as a very long-time period holding. TSMC pays out a yield of all over 2%. CME : Kirby expects the derivatives trade will “benefit” from volatility in September, a ordinarily weak thirty day period for shares. “When volatility goes better, as it usually does in September … individuals want to hedge more,” he claimed. “And the additional that they hedge that drives volumes,” he said of CME. Buyers can trade futures and solutions at CME in get to regulate risk. The need to hedge will be better when charges are large, Kirby additional. “So we believe this is going to be a mid-teens earnings grower paying about a 4% dividend that is heading to be truly difficult to defeat.” Charles Schwab : Kirby stated the financial institution is a “contrarian choose” — it tumbled this calendar year simply because of significant rates — but its core company continues to be solid. The inventory utilized to trade at a 25% top quality to the marketplace, but these days it’s at about a 20% price reduction to the market, Kirby said. He predicts the stock will bounce to $100 in the future 12 months — symbolizing possible upside of about 67%. TotalEnergies : The inventory has a 5.5% dividend generate, 12% free money produce, and a “great harmony sheet,” Kirby said. Orange : Kirby stated the French telecommunications huge has “sturdy pricing power.” It can be yielding above 6.7%.
August has been a choppy month even with an eleventh-hour rally. September, a historically stormy month , may possibly not be any greater. But some on Wall Avenue feel that the S & P 500 will be greater by the conclusion of the year. There are a handful of components that traders have to think about — how substantially the U.S. Federal Reserve will proceed to hike curiosity fees , how sticky inflation will be, and critical financial knowledge on locations like work opportunities and housing. The professionals share their anticipations and guidelines for how buyers can trade in the thirty day period forward. The volatility is just not above The “potential bite” of aggressive Fed coverage could direct to additional volatility, explained Richard Saperstein, chief financial investment officer at expense agency Treasury Partners, in a Tuesday note. “The inventory marketplace volatility witnessed through August is not above and we anticipate ongoing volatility in September as the market starts to value-in a slowdown in economic action caused by the lag impact of the Federal Reserve’s previous level hikes,” he said, including that the housing market place will be pressured by new highs in home finance loan prices. Ben Kirby, portfolio manager at Thornburg Expenditure Administration, warned buyers that “now is not the time to just take hazard.” “Acquiring a bit of a careful stance likely will make some perception right now,” he told CNBC’s ” Squawk Box Asia ” on Tuesday. Which is since possibility property are “relatively expensively valued” and there are some indicators of a slowdown, he explained. And Carol Schleif, main financial commitment officer at BMO Family Office environment, cautioned that more amount hikes are nonetheless on the desk, based on economic data. She stated the Fed is probably to maintain off on fee hikes in mild of moderating inflation, moderating producing action, slowing expansion from China and weak European producing and financial facts. She added, nevertheless, that she would not count on in close proximity to-term cuts. George Ball, chairman of Sanders Morris Harris, was the outlier in his optimism. “September is historically the stormiest month of the calendar year for equities as the Barbie days of summer occur to an finish,” he claimed Wednesday. “I will not imagine that will be the scenario this year. The economic resilience of the domestic overall economy, and the earnings outlook that will come with it, argues normally.” Avoid tech — but not absolutely Stay clear of mega-cap tech shares these types of as the “Spectacular Seven” now, the execs mentioned, referring to Apple , Amazon , Alphabet , Meta , Microsoft , Nvidia and Tesla — tech stocks that have created enormous gains this yr. “Large tech shares have run and valuations are richer than they have been. It may possibly be time to trim back again on the premier of tech names, locking in wholesome revenue, if positions have turn into chubby in a portfolio,” Schleif stated. Ball reported the Outstanding 7 are good organizations but “performed out” in phrases of earnings growth premiums. But Schleif said it’s nevertheless significant for traders not to exit their Big Tech positions totally, considering the fact that such companies are investing closely in artificial intelligence, which is “bound to” pay off in the extended time period. “Broadening one’s fairness publicity in mid- and smaller-cap shares and industries that have lagged could enable equilibrium the potent progress bias of tech publicity.” Dave Sekera, main U.S. current market strategist at Morningstar, stated on Thursday that not all tech shares are overvalued. He even now sees some pick prospects in Uber , Autodesk and Checkpoint Software package. Ball likes mid-cap tech firms, this sort of as Argentine e-commerce huge MercadoLibre , U.S. promoting tech firm Trade Desk , and telehealth company Teladoc Wellbeing . What to buy Kirby of Thornburg explained he would concentration on regions of the stock market that are defensive in character, as very well as incorporate international publicity. A person inventory he likes is derivatives exchange CME , which he thinks will “advantage” from the volatility. “Any time volatility goes larger, as it frequently does in September … individuals want to hedge much more,” he advised CNBC. “And the extra that they hedge that drives volumes … So that’s a single we like from a cyclical standpoint, also from a secular standpoint,” he said of CME. Buyers can trade futures and choices at CME in get to regulate hazard. Ball explained he would glimpse for locations of “values and momentum.” He especially likes the resort sector, exactly where price ranges for each home are “most likely to skyrocket.” He named Hyatt Resorts , Host Lodges & Resorts — a REIT — and Hilton Accommodations . Morgan Stanley Expenditure Management’s Andrew Slimmon, who predicted this week that the S & P 500 will be “nearer” to 5,000 by the stop of the calendar year, named 3 stocks to invest in: Alphabet , industrial devices rental agency United Rentals and setting up materials company CRH .
Traders perform on the floor of the New York Stock Trade through morning buying and selling on August 31, 2023 in New York Town.
Michael M. Santiago | Getty Photographs
Stock futures had been near the flat line Thursday night time as traders arrived off a mixed trading session and closed out a month that observed losses for all three inventory indexes.
Futures tied to the Dow Jones Industrial Average included 15 factors, or .04%. S&P 500 futures hovered just under flat, although Nasdaq 100 futures inched down by .08%.
Database software maker MongoDB and Dell Technologies superior 4% and 7%, respectively, in prolonged investing on the again of much better-than-predicted earnings studies. Shares of athletic apparel retailer Lululemon Athletica extra 1% immediately after crushing Wall Street’s estimates.
The moves stick to a tumultuous thirty day period for stocks. In spite of a recent string of constructive periods that served inventory indexes trim their month to month losses, the S&P 500 dropped 1.77%, though the Nasdaq lose 2.17%. The 30-stock Dow dropped 2.36% in August.
Traders on Thursday sifted by new U.S. inflation details that confirmed cooling cost boosts. Core personalized use expenditures, which are closely watched by the Federal Reserve for an indicator of inflation, increased .2% thirty day period in excess of thirty day period in July and 4.2% 12 months more than yr, matching estimates from economists polled by Dow Jones.
Traders now await non-farm payroll information due Friday morning. Economists polled by Dow Jones forecast 170,000 additions. Traders are holding onto hope that the report will suggest that the financial system is slowing meaningfully, and finally give the central lender explanation to pause benchmark interest rate hikes.
“We are in the camp that we will get at the very least a single extra fee hike out of the Fed,” stated Alex McGrath, chief financial commitment officer for NorthEnd Non-public Prosperity, introducing that the latest increases in commodity selling prices will have a drag on private usage expenses and shopper price index figures from August to September.
“If you kind of get in that sticky assortment in which inflation is not reducing or even increasing a little, I feel that is heading spur further Fed motion and no matter whether that transpires September or Oct, it truly is anyone’s ideal guess,” McGrath reported.
Genuine spending is envisioned to come in 1.9% bigger in the 3rd quarter, helped in section by stadium excursions from songs superstars Taylor Swift and Beyoncé, as perfectly as summertime motion picture blockbusters “Barbie” and “Oppenheimer,” in accordance to Morgan Stanley. But the financial halo may possibly be small lived, the firm warned on Wednesday.
Taken together, Morgan Stanley economist Sarah Wolfe explained the “unparalleled” revenues tied to these activities ought to include a seventh of just one percentage stage to consumption development in the quarter. They drop under the motion picture usage and non-sporting activities dwell leisure portions of the own-use expenses price index, known as the PCE.
Those sectors make up close to .2% and .05% of the full index, respectively. That signifies admirers showed up and put in ample in these usually miniscule company locations to significantly enhance the health of the broader U.S. economic system.
“These categories alone would have to see massive swings in order to impression total financial exercise,” Wolfe explained in a be aware to clients. “And they have.”
But the conclude of people songs tours in the U.S. and declining theater viewership for these films the rest of the 12 months could guide to a .6-percentage-stage “hangover result” to client shelling out in the fourth quarter. Simultaneously, Wolfe claimed the return of scholar personal loan payments this drop must pull consumption down one more by yet another eighth of a proportion level.
“The factors boosting 3Q use are amazing,” Wolfe reported. “In 4Q, these elements not only unwind, but the October expiration of the pupil loan moratorium additional weighs on use.”
A not-so-cruel summer months
Taylor Swift’s “Eras” and Beyoncé’s “Renaissance” excursions have loaded stadiums all-around the region and developed online buzz.
Swift’s tour, in specific, has garnered awareness for its expensive resale current market and ticket getting fiasco that brought scrutiny to Ticketmaster from lovers and lawmakers alike. Beyoncé designed nationwide headlines for paying out to preserve the metro technique of Washington, D.C., functioning later on right after her show was delayed by inclement weather.
The two tours have been credited for boosting the economies of the cities they go to as lovers crisscross the region for their opportunity to see the singers. The concert events and flicks put together have also influenced attendees to dress the section, encouraging additional investing on new outfits and equipment like friendship bracelets and tailor made black fedoras.
The influence has garnered the attention of absolutely everyone ranging from regional small business entrepreneurs to the Federal Reserve. Last month, the Philadelphia Fed reported resort bookings when Swift arrived to city confirmed their strongest expansion since the pandemic started.
“Even with the slowing restoration in tourism in the location overall, 1 speak to highlighted that Might was the strongest month for resort income in Philadelphia since the onset of the pandemic, in big aspect owing to an influx of company for the Taylor Swift live shows in the town,” the central financial institution officials reported in the Beige Reserve, a summary of financial exercise introduced 8 occasions a calendar year.
Swift announced on Thursday that a filmed variation of her tour will debut in theatres on Oct. 13, originally the exact same day as the new “Exorcist” film from Blumhouse Productions and Common. The pair turned identified on the internet as #Exorswift right before the release day for the most recent “Exorcist” installment was moved up. Although the tour movie can offer a bump to movie ticket gross sales, the fourth quarter is previously expected to see sturdy gross sales supplied its proximity to the Oscars.
It can be the next time this year that two unrelated films released on the exact working day have become intertwined. Warner Bros. “Barbie” and Universal’s “Oppenheimer” became recognised as “Barbenheimer,” and the pair supercharged box place of work numbers previous month even as two Hollywood union strikes have basically halted movie output.
“Barbie” has become the highest-grossing launch in the U.S. this 12 months, while “Oppenheimer” is now director Christopher Nolan’s third best undertaking motion picture ever, domestically. With assist from other films, the opening weekend was the fourth most important ever for the U.S. box office.
Retailers have jumped on the Barbie trend in specific, hawking themed merchandise from heeled sneakers to pool floaties.
Gray November?
Wolfe observed that the drag on buyer expending from the conclude of the university student loan moratorium has been fairly mitigated by the Biden administration’s 12-thirty day period grace interval. Beneath this prepare, borrowers who are unsuccessful to make payments for the 1st year will be spared from some of the harshest repercussions.
With the excursions and the flicks winding down, Wolfe’s workforce anticipates the serious PCE will deal by .6% between the third and fourth quarter. Real gross domestic product or service ought to eke out a .1% attain in the fourth quarter.
That change could capture the attention of the Fed, according to Wolfe. She thinks the central financial institution, which is still waging war on inflation, should consider the cultural slowdown as an additional explanation to be patient when selecting on the foreseeable future route of curiosity fees.
Disclosure: Comcast owns Common and NBCUniversal, the dad or mum organization of CNBC.
SentinelOne CEO Tomer Weingarten at the New York Stock Trade.
Resource: NYSE
SentinelOne, a cybersecurity enterprise that went public in 2021 and has however to see its inventory value exceed highs from that 12 months, is not for sale, Tomer Weingarten, its co-founder and CEO, told CNBC in an job interview Thursday.
The comments adhere to a Reuters report earlier this month, citing unnamed sources, that explained the firm was wanting at a probable sale. Bloomberg claimed stability startup Wiz was thinking of an acquisition of SentinelOne, pointing to opinions from a Wiz spokesperson.
SentinelOne shares rose much more than 10% in extended buying and selling Thursday soon after the corporation noted more powerful-than-anticipated fiscal 2nd-quarter effects. Revenue grew 46% year about year, down from 70% in the fiscal 1st quarter. The company referred to as for $156 million in fiscal third-quarter earnings, previously mentioned the Refinitiv consensus of $154.2 million.
“Of course, there is an unbelievable volume of rumors and speculation in the market place,” Weingarten mentioned. “I believe what you can easily see from our numbers is that we are a high-development corporation, a superior-general performance corporation. We are entirely centered on our person route. We have shown unbelievable margin advancement alongside incredible development, so all in all right now, for us it really is just accomplishing the best that we can to drive our innovation, shield our customers.”
The greatest way to do that is to stay a publicly traded independent corporation, Weingarten said.
In June, SentinelOne introduced it was reducing 100 staff, which is about 5% of its workforce.
The enterprise sells many products, which include endpoint stability computer software, putting it in level of competition with CrowdStrike and VMware. It also faces tension from Microsoft.
“We are taking share with each individual quarter that passes,” Weingarten mentioned. “Incumbents are clearly the weakest in that overall photograph.”
SentinelOne nonetheless has a partnership with Wiz but it did conclusion a reseller agreement with the startup, Weingarten claimed.
Excluding the right after-hours transfer, SentinelOne shares have risen about 14% so far this 12 months, trailing the 1st Have faith in Nasdaq Cybersecurity ETF, which is up about 22% through the same period of time. CrowdStrike, a person of the exchange-traded fund’s holdings, is up about 55% this year.
Watch: 3-Inventory Lunch: Oracle, Biogen and SentinelOne
Barry Diller is calling on the legacy Hollywood studios to end the dual writers and actors strikes, otherwise it’ll be “catastrophic” to the industry.
The media mogul, speaking on the podcast “On with Kara Swisher,” said the strikes would only strengthen streaming giant Netflix during a tumultuous time for legacy media.
“The strike does one thing, and one thing only, it strengthens Netflix and weakens the others,” said Diller, the chairman of IAC and Expedia, who once held top roles at Fox, Paramount and ABC Entertainment.
He also advised studios to cut Netflix and other streamers out of the negoations with the unions.
“They should certainly get out of the room with their deepest, fiercest and almost conclusive enemy, Netflix, and probably Apple and Amazon,” he said, noting their different business models. He said the legacy studios, actors and writers should be “natural allies” given their century of working together.
The remarks echo comments Diller made earlier this summer on CBS’ “Face the Nation,” in which he said the strikes could cause a domino effect that could produce “an absolute collapse of an entire industry.”
Writers Guild of America members have been striking for more than 100 days, while the actors’ union joined the picket lines in July, halting production of TV shows and movies.
In recent weeks, the Alliance of Motion Picture and Television Producers has gone public with its latest contract proposal to the writers. It was quickly apparent talks between the studios and writers remain heated.
“There was a very recent attempt to get it on track with the WGA, which I gather collapsed in the last couple of days,” Diller said on Swisher’s podcast, which was recorded in late August. He added it “looks bleak” that the strike could end by September.
Representatives for SAG, WGA, AMPTP and Netflix didn’t immediately respond to a request for comment.
Recent discussions with the writers union included a sit down with top media brass including Disney CEO Bob Iger, NBCUniversal film head Donna Langley, Netflix co-CEO Ted Sarandos and Warner Bros. Discovery CEO David Zaslav.
In recent earnings calls, Netflix and its media peers have said they hoped to come to a resolution quickly with the writers and actors.
Diller said for the “old majors” like Disney, Comcast’s NBCUniversal and Paramount Global, if the strikes last through the end of the year the lack of fresh content by the spring or summer of 2024 on their streaming services will lead to subscriber cancellations and revenue losses.
“When they have to gear up to make more programming to get back subscribers, they won’t have the revenue base to be able to produce,” Diller told Swisher. “So that is kinda catastrophic.”
He goes on to call Netflix “an evil genius” that was able to dominate and leave legacy media scrambling to notch profits on their streaming businesses.
While making streaming a profitable business has been an ongoing focus for media companies, Diller said these companies should shift back to focusing on their broadcast and pay-TV networks. While cord-cutting of traditional pay-TV bundles continues to accelerate, the business still remains profitable.
Diller said legacy media should take some of its “shows and creativity and build our networks back up. It’s there for the take.”
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC. NBCUniversal is a member of the Alliance of Motion Picture and Television Producers.
A customer enters a Lululemon store on June 02, 2023 in Corte Madera, California.
Justin Sullivan | Getty Images
Lululemon raised its full-year guidance Thursday after reporting an 18% jump in both sales and profit for its fiscal second quarter, beating Wall Street’s estimates.
The athletic apparel retailer now expects sales to be between $9.51 billion and $9.57 billion for the fiscal year, compared to a previous range of $9.44 billion to $9.51 billion.
Lululemon is expecting profits to be between $12.02 to $12.17 per share for the year, compared to a previous range of $11.74 to $11.94.
For its current quarter, the retailer is forecasting earnings per share of $2.23 to $2.28 and sales of $2.17 billion to $2.19 billion, in line with analysts’ expectations, according to Refinitiv.
Here’s how Lululemon did in its second fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:
Earnings per share: $2.68vs. $2.54 expected
Revenue: $2.21 billionvs. $2.17 billion expected
The company’s reported net income for the three-month period that ended July 30 was $341.6 million, or $2.68 per share, compared with $289.5 million, or $2.26 per share, a year earlier.
Sales rose to $2.21 billion, up about 18% from $1.87 billion a year earlier.
The company easily beat Wall Street’s estimates on the top and bottom lines but fell short of same store sales expectations: Comparable sales were up 11% in the quarter, compared to an estimate of up 12.1%, according to StreetAccount.
Lululemon has undertaken an ambitious growth plan — its “Power of Three x2” strategy — that calls for sales to double to $12.5 billion by 2026 compared to 2021’s revenue of $6.25 billion. To get there, the retailer has been working to expand its brick-and-mortar footprint and double its men’s and direct-to-consumer revenue.
Sales in the men’s category were up 15% during the quarter, and the retailer opened 10 new stores on a net basis, including its first in Thailand. By the end of the quarter, it had 672 stores globally.
It’s also been working to address a persistent inventory glut, with year-over-year levels steadily coming down. During its second quarter, inventories were up 14% to $1.7 billion, compared with $1.5 billion in the year-ago quarter.
Direct to consumer revenue was up 15% but it was a smaller part of Lululemon’s overall channel mix in the quarter. Direct to consumer sales represented 40% of Lululemon’s overall sales, compared to 42% in the year ago period.
Sales in North America were up 11%, while revenue internationally was up 52%.
Lululemon’s gross margin was largely in line with expectations at 58.8%, compared to the 58.5% analysts had expected, according to StreetAccount.
Read the full earnings release here.
This story is developing. Please check back for updates.
A worker sets up Florist Farms cannabis products on the first day of legal recreational marijuana sales at the Housing Works Cannabis Co. in New York, on Thursday, Dec. 29, 2022.
Jeenah Moon | Bloomberg | Getty Images
This week, the Health and Human Services Department asked the Drug Enforcement Agency to consider easing restrictions on marijuana upon a review of its classification under the Controlled Substances Act.
It could be a significant catalyst for an industry hemmed in by federal regulations even as legalization picks up on the state level.
Marijuana stocks were higher Wednesday on the news. Aurora Cannabis, Canopy Growth and Tilray Brands were among those to see jumps. They all jumped again Thursday.
Since the 1970s, marijuana has been listed alongside heroin and LSD as Schedule I drugs, or substances that authorities say have no accepted medical use and a high potential for abuse. Today, marijuana has remained in this category – ranking higher than fentanyl, cocaine and methamphetamine – despite there being favorable momentum for pot in scientific research and state laws.
The DEA will consider moving marijuana down to a Schedule III drug, alongside ketamine, anabolic steroids and testosterone as a substance that has moderate to low potential for physical or psychological dependence. The recommendation, however, will not de-schedule marijuana.
Cultivation, production and sales would still be in violation of federal law. Marijuana is legal in 39 states medically and 23 states recreationally.
What’s next for marijuana policy?
As part of the recommendation process, HHS conducted a scientific and medical evaluation that will help authorities come to a final decision on the matter.
A decision is likely to come before the 2024 presidential election, Roth MKM analyst Scott Fortune wrote in a Thursday note to clients.
“Historically, the DEA has never gone against a scheduling recommendation from the HHS,” Fortune added.
The DEA will consider marijuana’s reclassification under three criteria: Its potential for abuse, its potential for medical use, and the extent to which its unsafe or addictive.
Regulators have previously used the second criterion to uphold marijuana’s Schedule I classification, but doing so now may prove difficult, said Fortune, with medical marijuana programs existing in nearly 40 states across the nation.
Once the DEA comes to it decision, it will submit its own recommendation in the form of a proposal to the attorney general, who will then make his final ruling.
What does it mean for the weed industry?
If marijuana moves down to a Schedule III substance, this will effectively ease a number of restrictions holding the sector back.
The biggest boon will come in the form of new tax opportunities. Currently, enterprises dealing in Schedule I substances aren’t allowed to write expenses off their federal tax returns under an Internal Revenue Service code known as 280E.
This has been a hindrance for many cultivators, processors and retailers struggling to remain profitable as the industry sees a slowdown in sales.
“The removal of 280E will have a widespread material impact on the financial performance of every company in the industry, large and small, public and private,” said Jeff Schultz, a marijuana attorney at Foley Hoag.
What’s more, the potential rescheduling will allow for interstate commerce. While many states have legal markets within their borders, transporting Schedule I substances across state lines in illegal, resulting in a glut of marijuana in some states.
The move will furthermore expand potential for research in the sector, entice investors back amid a capital crunch, and possibly return value to publicly traded marijuana stocks.
The rescheduling, however, will not free up banking services for the industry, which has been kept out of traditional banking and loans due to marijuana’s federal standing. Schedule III drugs still present a risk for banking institutions so long as federal laws remain unchanged.
A bill called the Secure and Fair Enforcement Banking Act, or SAFE, will remove this burden and is making its way through Congress.
Is federal pot legalization on the horizon?
Senate Majority Leader Chuck Schumer, D-New York, said while this is an important step forward for the industry, the end goal is ending federal prohibition.
“HHS has done the right thing and DEA should now quickly follow through on this important step to greatly reduce the harm caused by draconian marijuana laws,” Schumer said in a statement Thursday. “There is still much more that needs to be done legislatively to end the federal prohibition on cannabis and roll back the War on Drugs.”
Industry executives echoed Schumer’s feelings.
“Federal cannabis reform is long overdue, and today’s news brings us closer to the Biden administration declaring an end to the U.S. government’s failed war on cannabis,” said David Goubert, CEO of multi-state dispensary operator Ayr Wellness.
