On Wall Street, gloomy profit forecasts are the new source of good news—as long as you are a shop selling discretionary goods like Macy’s.
In spite of the department retailer lowering its full-year profit projection from $4.53-to-$4.95 per share to $4.00-to-$4.20 per share, the stock of Macy’s increased by around 5% as of 1:030 p.m. Eastern Time on Tuesday.
The tone on Wall Street indicated a prevalent opinion that it could have been worse and that investors spotted the warning a mile away thanks to recent adjustments from Target, Walmart, Best Buy, and others. This view was consistent with the sentiment that it might have been worse.
“The market has generally been rewarding those that reduce the bar for the second half,” Paul Lejuez, a retail analyst at Citi, said in a note to clients. “The market has generally been rewarding those that lower the bar for the second half.” We anticipate that [Macy’s] stock will increase today given that it has a low multiple and that the bar will be lowered in the second half.
The store had a difficult quarter as customers cut back on non-essential purchases like garments in response to increasing inflation, which prompted Macy’s to issue a caution, which is similar to the one that its competitor Kohl’s disclosed the previous week.
While sales at Macy’s brand stores were down 2.8% during the quarter, inventory levels increased by 7.7%, and gross profit margins were down 70 basis points compared to the same period in the prior year.
Here is how Macy’s did in comparison to the estimates provided by Wall Street:
Net Sales: $5.6 billion vs. $5.49 billion
Gross Margin: 38.9% vs. 39%
EPS: $1.00 vs. $0.85
Despite the gain in the stock on Tuesday, Macy’s shares are still down 25% year to date, which is far worse than the decrease of 13% that has been seen in the S&P 500.
The disappointing numbers and profit warning may cause investors to be more wary of the company in the near future.
According to Stephanie Wissink, an analyst at Jefferies, “Following a pattern throughout retail, the outlook for the 2H takes into account softening trends, worsening consumer fundamentals, excess inventory clearance/markdowns, a more promotional and competitive environment.”
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One Industry Is Earning Historic Profits As China’s Economy Slows. Testing Covid
The Chinese government’s zero-Covid strategy of endless testing and lockdowns has been devastating to the country’s economy and has had a significant impact on company revenues, but it has been a boon for test manufacturers.
Twelve of the most successful COVID testing companies in China have lately reported enormous leaps in both their revenues and their net profits for the first six months of this year.
Andon Health, a company that distributes Covid test kits in both the domestic and international markets, announced that its net profit in the first half of 2022 surged by 27,728%, reaching a total of 15.24 billion yuan ($2.2 billion). It was the highest growth rate achieved by any publicly traded corporation operating in mainland China.
During this time, the company’s revenue increased by 3,989%.
The company not only benefits from China’s aggressive testing campaign at home, but also from the huge demand in the United States, as its iHealth Lab had recently won US government contracts for supplying antigen rapid tests. China’s aggressive testing campaign at home has helped the company tremendously.
Because of the robust demand in the global Covid testing market, the net income of Assure Tech, a diagnostic company based in Hangzhou, increased by 1,324%.
Other manufacturers of tests reported gains in net profit for the first half of the year that ranged from 55% to 376% higher than the previous year.
The Chinese economy has been severely harmed as a result of the never-ending Covid testings, the back-and-forth government-enforced lockdowns, and the border restrictions. The increase in GDP during the second quarter was only 0.4%, making it the worst pace in almost two years. The majority of the world’s largest investment banks have reduced their full-year growth projections for China to 3% or less, which is far less than the stated target of 5.5% that the government established earlier this year.
In addition to this, Chinese businesses have experienced one of the worst earnings recessions in their history. More than half of the 4,800 firms that are listed in Shanghai, Shenzhen, and Beijing reported a decrease in their net profit for the first half of the year. This is almost as bad as the beginning of 2020, when the majority of companies reported their worst earnings season ever.
But diagnostic companies are one of the biggest moneymakers during the pandemic. They are benefiting from the enormous demand for testing as Beijing maintains its zero-Covid policy, which involves forced quarantines, mass mandatory testings, and snap lockdowns. This policy has resulted in an enormous demand for testing.
According to the government, 11.5 billion tests have been carried out in China as of April 2022, commencing when the epidemic first appeared and continuing until that month.
It is possible that this number has greatly increased since then, as analysts working for Soochow Securities recently calculated that 10.8 billion tests had been carried out during the three months spanning April, May, and June.
The costs could end up being a significant burden on the finances of the Chinese government, which have already taken a beating due to the decline in property sales. In the month of May, officials in Beijing made it quite apparent that the costs for routine Covid testing were to be borne by the provincial and city governments.
According to a prediction made by Goldman Sachs earlier this year, the direct cost of conducting Covid tests could reach a total of 200 billion yuan ($30.1 billion) from May until the end of the year if it is assumed that large cities in China, which are home to thirty percent of the country’s population, will perform the tests twice a week.
According to Goldman Sachs, the figure may increase even further if the remaining 70 percent of the population is tested as well as if the costs of putting up testing facilities and quarantine centers are taken into account.
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Asia’s Video Game Giants Are Developing New Formats And Markets
Sony, NetEase, and Tencent, Asia’s largest video game developers, continue their purchase and investment sprees as they push into new forms and, in the case of the Chinese giants, expand internationally to alleviate harsher regulation at home.
Each company’s strategy differs.
NetEase bought French game developer Quantic Dream last week, establishing its first European studio. NetEase has Japanese and U.S. gaming studios.
Tencent, which has invested in smaller gaming studios worldwide, bought a share in FromSoftware. Sony invested alongside Tencent.
Sony bought Helsinki and Berlin’s Savage Game Studios last week.
Recent mergers and acquisitions in gaming starting off 2022. In January, Microsoft offered $68.7 billion for Activision Blizzard. Soon later, Sony announced plans to buy Bungie for $3.6 billion.
Three Asian gaming companies have diverse M&A objectives.
Sony’s PlayStation has reigned for years.
Console gaming’s business model has altered. It’s not enough to sell games and hardware. It’s about milking income from games through continuous updates and subscriptions.
Sony’s acquisition of Bungie demonstrates this approach.
“Their goal is to have enough content to motivate users to buy their proprietary hardware, pay a monthly charge for PS Plus, and buy the occasional digital game through the PlayStation Store,” said Tom Wijman, market head for games at research company Newzoo.
“Buying studios is the best way to assure exclusive content for their ecosystem, especially in response to Microsoft’s acquisition spree.”
Sony is expanding beyond consoles. Last week, the Japanese behemoth stated it is putting up a specialized section to handle mobile game production, a relatively new initiative for the corporation.
The mobile video game developer Savage Game Studios was also acquired.
Wijman: Sony is leaving its comfort zone to stay competitive.
Mobile gaming accounts for more than 50% of the gaming market, while consoles account for 27%. Sony wants more market share.
Sony’s acquisitions will boost its IP and game catalog as it expands into mobile gaming.
Tencent and NetEase face a tougher local market, increasing the importance of their international investments and acquisitions.
Last year, Chinese censors limited the time under-18s could play online video games and froze new releases. In China, regulators must approve games for release and monetization. In April, approvals resumed.
Covid-19’s reappearance in China and subsequent lockdowns have hampered economic progress. Some of China’s internet heavyweights, including Tencent, had their worst quarter of revenue growth.
Tencent and NetEase have sought development abroad through acquisitions and investments.
Tencent and NetEase built their gaming businesses in China. Wijman said these two companies will speed their global expansion as their home market becomes more controlled.
Tencent owns or invests in Riot Games, developer of League of Legends.
NetEase focuses on purchasing high-profile IP. The Hangzhou-based firm can publish a Star Wars game after acquiring Quantic Dream. NetEase has Harry Potter and Lord of the Rings mobile games.
For the two giants, owning studios behind international major hits in gaming is a critical strategy.
NetEase has been less aggressive than Tencent in deals, although it’s stepped up in the last year.
Both firms’ investment strategies include console ambitions. NetEase and Tencent grew by focusing on PC and mobile gaming, not consoles, which were outlawed in China until 2014.
Both companies are focusing on console gaming.
This year, NetEase hired a console veteran to oversee its Japanese gaming studio. TiMi Studio, a Tencent-owned developer, opened offices in Montreal and Seattle.
Both firms can gain console IP by acquiring and investing in other gaming studios.
Tighter regulation in China and the search for expansion could drive NetEase and Tencent’s investment and acquisition strategies.
If Chinese government regulation continues to squeeze NetEase and Tencent in their native markets, they may be interested in M&A, Wijman added. “Their global expansion plans just began.”
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Royal Caribbean is Installing SpaceX’s Starlink.
Royal Caribbean, which is a subsidiary of Celebrity Cruises and Silversea Cruises, recently made the announcement that it plans to equip its whole fleet of ships with the satellite internet service provided by SpaceX under the brand name Starlink (via TechCrunch). According to the corporation, the service will make the user’s experience of the internet when they are at sea both quicker and more reliable.
It appears like Royal Caribbean is making rapid progress in deploying Starlink; the company conducted a trial run of the service on one of its ships throughout the course of the summer, and on September 5th, it will formally debut the service, beginning with a ship dubbed the Celebrity Beyond. The business anticipates having the service completely implemented throughout its whole fleet by the beginning of the first quarter of 2023.
The announcement made by Royal Caribbean does not provide any technical details, such as the number of Starlink dishes that its ships would employ or the amount of bandwidth that will be shared among several thousand guests. Nevertheless, the business assures customers that they will have access to streaming services and will be able to engage in video chats.
Starlink Maritime, the internet service provided by SpaceX that is geared specifically at usage on boats, was just released earlier this summer. At the moment, it only covers coastal seas in some sections of North and South America (including the Caribbean), Europe, and the region around Australia and New Zealand; however, SpaceX has stated that it intends to cover the majority of the world’s oceans by the first quarter of 2023.
At the present, SpaceX has a lot of things going on with the Starlink project. Its collaboration with T-Mobile to transmit text messages and phone calls to mobile devices via second-generation satellites, which are scheduled for launch the following year, is perhaps the arrangement that is most readily apparent. Additionally, the company is collaborating with Hawaiian Airlines and the charter carrier JSX to provide in-flight Wi-Fi, which is an amenity that Delta (and most likely other airlines) are also investigating. A version of Starlink designed for recreational vehicles (RVs) was just released by the business, which is good news for those of us who live on land.
According to a more recent report, the cruise sector has been having a difficult time recuperating from the pandemic since it began. Cruise lines, like many other types of businesses, have struggled with staffing shortages, which has forced some of them to cancel voyages entirely. As financial authorities such as the Chair of the Federal Reserve, Jerome Powell, warn that efforts to combat inflation will “bring some pain to households and businesses,” another question that arises is whether or not people will continue to spend money on luxuries such as cruises in the face of these warnings.
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