Your portfolios in brief
This week, we've chosen to talk to you about Lululemon (LULU). Last week, the Canadian company announced more than satisfactory quarterly results. Lululemon posted net earnings of US$290.4 million, up almost 53% on the same quarter a year ago. The company's revenues were up 24% year-on-year, while earnings per share reached US$2.28. This compares with US$1.48 a year earlier.
A rise in sales in its stores located in China has enabled the company to increase its revenues in this country by 79%. Lululemon continues to expand, and plans to open 30 to 35 stores, the majority of which will be located in China.
Despite a difficult economic environment, the company succeeds, quarter after quarter, in attracting consumers to its products. It continues to innovate and develop new clothing lines that appeal to consumers. Sales in North America rose by 17%, and by 60% internationally.
"Our first-quarter results were solid, as customers responded well to our product offering in all our markets around the world. A significant acceleration in our sales trend in China, coupled with lower air freight, contributed to our better-than-expected financial performance," said CFO Meghan Frank in a statement. "We are pleased with our momentum heading into the second quarter and for the year as a whole, as reflected in our revised outlook for fiscal 2023."
Indeed, Lululemon has raised its forecasts for the coming quarters. The retailer now expects annual sales of $9.44 billion to $9.51 billion, exceeding Wall Street's forecast of $9.37 billion, according to Refinitiv. The company also expects annual earnings of $11.74 to $11.94 per share, while analysts forecast $11.61 per share, again according to Refinitiv.
These sales forecasts were well received by investors. Last season, the company introduced a new color palette, footwear and clothing lines for golf and tennis. Introduced in February, these new products enabled the company to increase traffic in its stores and online. With its localized stores in China and the forthcoming opening of new stores, the company should be able to increase its sales.
Thus, the outlook for the coming quarters is attractive, while Lululemon, which we hold in our Pratte North American Equity fund, is well positioned to evolve in an environment where the economy is slowing down.
The stock has accumulated gains of 11% since the beginning of the year.
Stock markets in brief
Cryptocurrencies were falling earlier this week after the US Financial Markets Authority announced it was suing Coinbase for regulatory non-compliance. In the wake of the news, the cryptocurrency exchange's stock plunged 15% on Tuesday. The SEC alleges that Coinbase is in breach of securities law even though it never registered with the SEC before operating in the USA. Already on Monday, it announced that it was suing Binance, accusing the Hong Kong-based company of violating federal securities laws by presenting its users with unregistered securities - like its BNB token or BUSD stablecoin.
"Coinbase has raked in billions of dollars in revenue by collecting, among other things, transaction fees from investors whom Coinbase has deprived of the information and protections implied by registration and thus exposed to significant risk," the SEC believes.
The lack of rules and compliance surrounding the cryptocurrency world is increasingly problematic, and the US authority believes it's time to establish clear rules in the industry. "For the cryptocurrency community as a whole, legal actions targeting two of the largest, most well-known companies will have an impact on consumer confidence in cryptocurrencies, which was already weakened," commented Douglas Clark, analyst at Insider Intelligence.
Whereas last Friday, the NASDAQ closed at its highest level in 13 months, while the S&P 500 reached its highest level in 9 months, the main indices ended Monday's session slightly down. Profit-taking by investors pushed indices back after the previous week's solid rebound. Tuesday saw a return to the highs, as the S&P 500 reached its highest level in 2023.
In the wake of a bearish session, indices regained momentum on Thursday as the S&P 500 returned to bull market territory, now 20% above its recent lows, at 4293.93 points (+0.62%). Initial jobless claims had reached their highest level since October 2021, revealing a potentially slowing labor market. These data were well received by investors, who hope to see the Fed suspend its rate hike campaign at next week's meeting. Indices continued to perform well on Friday, opening higher, with the S&P 500 heading for a fourth week of gains.
In Canada, the Bank of Canada's surprise quarter-point (0.25%) interest rate hike shook up the economy on Tuesday. With this latest rate hike, the institution aims to tackle inflation, which rose in April.
"In Canada, the economy was stronger than expected in the first quarter of 2023, with gross domestic product growth reaching 3.1%. Consumption growth was surprisingly strong and broad-based, even when the contribution of population growth is taken into account. Demand for services continued to recover. In addition, spending on interest-sensitive goods has risen and, more recently, activity on the housing market has strengthened. The labor market remains tight: evidence that strong demand for labor continues, employers are not slow to recruit the new workers that come with rising immigration and labor force participation rates. Overall, excess demand in the economy appears to be more persistent than anticipated," announced the Bank of Canada in its press release.
"The Bank of Canada's impatience surprised many when only 1 in 5 economists were anticipating this increase. Is the Bank of Canada going too far and running out of patience in an economy that is slowing down on paper, but doesn't seem to be slowing down at a speed that is satisfactory to them? Stagnant inflation has prompted them to act in this way, and hopefully inflation will be able to continue its downward trajectory to motivate the Bank of Canada to change tack and move towards a more neutral, accommodative monetary policy," says our President and Portfolio Manager Philippe Pratte.
On Friday, Statistics Canada announced that the unemployment rate rose by 0.2% in May to 5.2% in Canada, the first increase since August 2022. "Job growth has slowed in recent months, with average monthly increases of 33,000 from February to April. This followed strong employment gains totaling 326,000 from September 2022 to January 2023," says Statistics Canada.
Here are the weekly averages for the three main U.S. indices at 1pm on Friday.
And here's the average for the week for the TSX in Canada.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
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