Raphael Stevens

The volleys between Disney and Gov. Ron DeSantis continue, as the company has asked a Florida court to dismiss a lawsuit filed by the board of supervisors that the governor handpicked to oversee Disney World’s operations.
Disney’s filing alleges that DeSantis rendered the board’s lawsuit moot after he signed a bill effectively voiding the company’s development deals at the heart of the litigation.
The Disney-DeSantis feud began after the company publicly criticized the controversial Florida bill — dubbed “Don’t Say Gay” by critics — that limits discussion of sexual orientation and gender identity in classrooms.

Handout | Getty Images Entertainment | Getty Images

Disney on Tuesday asked a Florida court to dismiss a lawsuit by the board of supervisors that Gov. Ron DeSantis had handpicked to oversee Walt Disney World’s operations.
The court filing argues that the lawsuit was rendered moot after DeSantis signed a bill that voided Disney’s development deals, which are now at the center of the long-running conflict between Disney and the Republican governor.

By signing that legislation, DeSantis essentially carried out the same action that the board is asking the court to take, Disney argued.
The governor’s move “makes any order this Court could issue — in either party’s favor — legally irrelevant,” Disney’s lawyers wrote.
In a statement to CNBC, a spokesman for the special tax district that the board oversees said, “This motion by Disney is entirely predictable and an acknowledgement they know they will lose this case.”
The state-level lawsuit was filed in response to Disney’s federal civil case accusing DeSantis and the board members of carrying out a campaign of political retribution against the entertainment giant. Disney filed suit after the board voted to undo development contracts that the company said it struck to secure its investments.
Disney expanded its lawsuit last week, accusing DeSantis of doubling down on his political vendetta by signing legislation to void Disney’s development deals in Orlando.

The battle between DeSantis and one of his state’s largest employers began after Disney publicly criticized the controversial Florida bill — dubbed “Don’t Say Gay” by critics — that limits discussion of sexual orientation and gender identity in classrooms.
The governor and his allies soon after targeted Disney’s special tax district, formerly called the Reedy Creek Improvement District, which has allowed the entertainment giant to effectively self-govern its Orlando parks’ operations for decades.
The district was ultimately left intact, but its five-member board was replaced with DeSantis’ picks.
In March, the district’s new slate of supervisors accused Disney of crafting “11th-hour” development deals intended to thwart the board’s power over the 25,000-acre area. Disney disputes that characterization, arguing that the contracts were crafted to help lock in its long-term development plans.
DeSantis has kept up his fight with Disney as he positions himself for a likely presidential campaign announcement in the coming weeks. The governor, who is currently seen as former President Donald Trump’s biggest threat for the 2024 Republican nomination, has curried Republican favor and gained national attention by waging high-profile fights over hot-button cultural issues.
But he may have swung too hard at Disney, should it prevail in its motion to dismiss the board’s lawsuit as a result of the governor’s additional legislation.
Disney argued that that bill entirely undercuts the litigation against it, regardless of who would win.
If the court agrees with Disney that its development deals were valid, then “the board would still be prohibited from complying with them under the new state statute,” Disney argued.
On the other hand, if the court sided with the board, its ruling “would be pointless because the contracts would already be void under the new state statute,” the company wrote.
“In short, any declaration about the contracts’ enforceability, voidness, or validity — either way — would be an advisory opinion with no real-world consequence. Trial courts in Florida are forbidden from issuing advisory opinions, and this case should be dismissed,” Disney argued.
DeSantis’ office did not immediately respond to a request for comment. More

Disney is more likely to buy Comcast’s 33% stake in Hulu than sell its 66% stake, Comcast CEO Brian Roberts said.
A deal will likely value Hulu at more than the $27.5 billion valuation floor the companies set in 2019.
Comcast and Disney have already held talks about Hulu this year, Disney CEO Bob Iger said last week.

Ted Soqui | Corbis | Getty Images

Comcast will likely sell its 33% stake in Hulu to Disney at the beginning of 2024, Comcast Chief Executive Brian Roberts said Tuesday.
Comcast and Disney struck a deal in 2019 that allowed Disney the option to buy out Comcast’s minority stake in 2024. That deal set a floor valuation for Hulu at $27.5 billion.

“It’s more likely than not we will go through with what we’ve said all along,” Roberts said at the SVB MoffettNathanson investor conference. “The vast majority case is that we’ll put and they’ll call in the beginning of next year.”
Roberts also suggested the final price for Hulu will likely be higher than the $27.5 billion valuation initially set in 2019.
Hulu is Disney’s adult-focused streaming service, which it bundles with ESPN+ and Disney+ for as low as $12.99 per month. Comcast owns a minority stake in Hulu but has no operational control over the business. Hulu ended Disney’s fiscal second quarter with 48.2 million subscribers.
Comcast and Disney have already held talks about Hulu this year, Disney CEO Bob Iger said last week. Iger told CNBC in Feburary that “everything is on the table” with regard to Hulu.
“I can say we’ve had some conversations with them already,” Iger said. “They’ve been cordial and they’re aimed at being constructive, but I can’t tell you and I can’t really say where they end up — only to say that there seems to be real value in having general entertainment combined with Disney+. And if, ultimately, Hulu is that solution, that’s we’re — we’re bullish about that.”

Roberts’ position on Hulu has pushed Iger back toward buying Comcast’s stake, said people familiar with the matter who declined to be named.
“Everything was on the table,” said Iger during Disney’s earnings conference call last week. “But I’ve now had another three months to really study this carefully and figure out what is the best path for us to grow this business. And it’s clear that a combination of the content that is on Disney+ with general entertainment is a very positive, is a very strong combination from a subscriber perspective, from a subscriber acquisition, subscriber retention perspective, and also from an advertiser perspective.”
Comcast executives had assumed Disney would buy out its 33% stake in Hulu when Bob Chapek was Disney’s CEO last year. But when Iger returned, he emphasized cost-cutting and initially questioned the value of general entertainment content, which he said was “undifferentiated.”
Iger last week backtracked, saying “that was a little harsh,” while also acknowledging talks have occurred with Comcast.
Disclosure: Comcast is the parent company of NBCUniversal, which includes CNBC.
WATCH: Breakdown of Disney’s second-quarter earnings More

Home Depot’s slashed forecast indicates that even wealthier Americans who own homes have become careful about spending.
Target shoppers likely pulled back on discretionary spending too.
Target reports earnings on Wednesday.

Target and The Home Depot store signage.
Robyn Beck | AFP | Getty Images

Home Depot and Target may sell very different kinds of merchandise. But the home improvement retailer’s slashed forecast could be seen as a warning sign for the cheap chic retailer.
Target will report its fiscal first-quarter earnings on Wednesday, a day after Home Depot posted its worst revenue miss in more than 20 years and lowered its forecast for the year.

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Here’s a closer look at why Target — and other retailers that report in the coming weeks — may be in an even tougher spot than the home improvement retailer:

Home Depot customers tend to be homeowners.

Home Depot has an edge over many other retailers: Its customers typically own homes. That means they have wealth beyond what’s in their bank account.
On a call with investors on Tuesday, CEO Ted Decker emphasized that difference. He described Home Depot’s shoppers as “one of the best customer sets in any market sector.”
“Our customer is stronger than the overall consumer when you think they tend to have good jobs, increase in wages and own their homes, and collectively those home values have increased by about $15 trillion since 2019,” Decker said, referring to Federal Reserve data.
On the other hand, Target, Walmart and other retailers that report in the coming weeks draw from a more representative pool of Americans. Younger consumers and low- or middle-income families may rent homes and apartments and feel on shakier financial footing than homeowners, particularly as inflation persists and mortgage rates have put buying a home further out of reach for them.

Target sells a lot of discretionary items.

Consumers aren’t going on the big shopping sprees of the pandemic era, as they pay more for food and spend money dining out, traveling or covering the costs of other kinds of services.
Home Depot’s sales results were more evidence of that. Chief Financial Officer Richard McPhail told CNBC the company has sold fewer big-ticket items like patio sets, appliances and grills — the kinds of discretionary items that customers can delay buying. He added shoppers are tackling smaller home projects, instead of bigger and pricier ones.
The pandemic boom of home purchases and projects could also be to blame, as they don’t need to be repeated frequently, he said.
Yet across the board, consumers have started to make trade-offs. Discretionary spending fell year over year in the U.S., according to data from Circana, a market researcher formerly known as The NPD Group and IRI. In April, discretionary general merchandise dollar sales fell 7% year over year and unit sales dropped 8%, Circana found.
For Target, that’s troubling news. Its sales are driven by many different discretionary categories, including home goods, apparel and electronics. Only 21% of its annual sales come from groceries, compared with nearly 60% of Walmart’s.
Plus, Home Depot has some sector-specific advantages — even as mortgage rates rise — that could insulate it from some of the effects of lower discretionary spending. There’s a shortage of housing in the U.S., and the median year a home was built is 1979, according to the American Community Survey. That means more leaky roofs, broken furnaces and rooms that need a fresh coat of paint.
Plus, as mortgage rates rise, more homeowners are choosing to stay in place rather than sell — a dynamic that’s giving homebuilders more confidence.
On the call with investors, Decker said the retailer ultimately bets on higher demand over the longer term, as more homes “are reaching that 20-year and 40-year sort of witching hour of age” and people put more wear and tear on their homes while working remotely.
Target does not have those factors working in its favor.

Consumers have become more skittish.

Failing banks. Rising interest rates. And tense talks in Washington, D.C., over the debt ceiling.
Consumers are taking cues from economic and political events that have made headlines. In some cases, it has led to more caution.
Home Depot’s McPhail said on an investor call that tighter monetary policy and tighter credit is shaping consumers’ mindsets. In February, he said the company’s business was trending well and if adjusted for seasonal trends it would have translated to positive comparable sales for the rest of the year.
But that changed in March, he said. Not only did unfavorable spring weather hit, but external factors came into play — including the collapse of Silicon Valley Bank.
“We think all of those just build to a broader caution among consumers,” he said.
Consumers who are worried about a shaky economy — or a recession — may be less likely to pick up home decor or clothing at Target.
At Target’s investor meeting in February, the company said it already noticed higher interest rates and inflation pressuring budgets. It gave a conservative outlook, saying it expected comparable sales for the fiscal year to range from a low single-digit decline to a low single-digit increase.

Spring is here. For Target, the holiday season is over.

Home Depot’s busiest sales season is springtime. Do-it-yourself customers and home professionals are more likely to kick off a new project when the weather is sunnier and warm. The shift in seasons also inspires purchases of new plants, landscaping tools and gardening equipment.
That didn’t shape up as the company expected, however. In a call with CNBC, McPhail said Home Depot’s sales got hit by colder and wetter weather in the U.S. West, including California.
Even so, where the weather was good, Home Depot saw a spring lift in categories like live goods and garden-related items, Decker said on the call with investors.
Target’s biggest sales stretch has already come and gone.
The retailer’s fiscal first quarter is after its major November and December holiday season, and before the back-to-school season begins. Sales of its own spring merchandise, such as patio sets and outdoor items, could get hurt by weather too.
One potential silver lining? Target tends to lean into seasonal merchandise, from jelly bean-flavored whipped cream and Easter candy to displays of sparkling wine for Mother’s Day. More

Food and Drug Administration staff said Pfizer’s vaccine that protects infants from respiratory syncytial virus has “generally favorable” safety data.
The FDA staff made the conclusion ahead of a meeting on Thursday when an advisory panel will discuss whether to recommend full approval of the RSV shot.
The agency is slated to make a decision on whether to clear the jab in August before RSV season in the fall. 
Pfizer’s shot is administered to expectant mothers.

Blood sample for respiratory syncytial virus (RSV) test
Jarun011 | Istock | Getty Images

U.S. Food and Drug Administration staff on Tuesday said Pfizer’s vaccine that protects infants from respiratory syncytial virus has “generally favorable” safety data.
The FDA staff made the conclusion in briefing documents ahead of a meeting on Thursday when a panel of external advisors to the agency will discuss whether to recommend full approval of the RSV shot.

The advisors will vote on whether Pfizer’s late-stage clinical trial data on the vaccine supports its safety and efficacy. The FDA typically follows the advice of its advisory committees, but is not required to do so.
The agency is slated to make a decision on whether to clear the shot in August before RSV season in the fall. If approved, Pfizer’s jab would become the world’s first vaccine that protects infants against RSV. 
RSV usually causes mild, cold-like symptoms. But infants and older adults are particularly vulnerable to having more severe cases.
Each year the virus kills 6,000 to 10,000 seniors and a few hundred children younger than 5, according to the Centers for Disease Control and Prevention.
The FDA earlier this month approved an RSV shot from GlaxoSmithKline for adults ages 60 and older.

The agency is expected to make a decision within weeks on Pfizer’s other RSV shot for that same age group.
Pfizer’s RSV vaccine that protects infants is administered to expectant mothers in the late second or third trimester of their pregnancy. 
The single-dose vaccine triggers antibodies that are passed to the fetus, which provides it with protection against RSV from birth through the first six months of life. 
Along with safety information, the staff also reviewed the vaccine’s efficacy data.
Pfizer’s trial found the shot was 82% effective at preventing severe disease from RSV in newborns during the first 90 days of life. The shot was about 70% effective during the first six months of the baby’s life.
Most of the more than 3,000 mothers who received the shot in a phase three trial experienced mild to moderate adverse reactions, according to the FDA staff’s review of data.
The most common reactions were fatigue, muscle pain, headache and pain at the injection site. Most reactions resolved within three to four days after vaccination, the staff review noted.
A higher number of premature births occurred among mothers who took the vaccine compared to those who received a placebo, according to the staff review.
But they said that difference does not appear to be statistically significant. 
Some of the participants’ children also had low birth weights, the staff review said. 
The trial reported a total of 18 peripartum fetal deaths, which includes infants who survived briefly after birth and fetuses that died during pregnancy. 
But the FDA staff said it is unlikely that those deaths are related to Pfizer’s shot. More

Builder confidence in the market for newly built single-family homes rose 5 points to 50 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
It’s the fifth straight month of gains and the first reading of builder sentiment since July that wasn’t negative.
Of the index’s three components, current sales conditions rose 5 points to 56, sales expectations in the next six months increased 7 points to 57, and buyer traffic climbed 2 points to 33.

Homebuilders are getting a big boost from the lack of existing homes for sale, and that appears to be outweighing some of the challenges they’re facing from financial markets.
Builder confidence in the market for newly built single-family homes rose 5 points in May to 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). It’s the fifth straight month of gains and the first reading of builder sentiment since July that wasn’t negative, which would be a reading below 50. Sentiment stood at 69 in May of last year.

“New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said NAHB Chairman Alicia Huey, a homebuilder from Birmingham, Alabama, in a release.
Huey noted that builders continue to face challenges to meet the growing demand. While the price of lumber has been falling since March, there are still supply shortages of building materials as well as tightening credit conditions for residential real estate development and construction due to the recent banking crisis and higher interest rates.
Of the index’s three components, current sales conditions rose 5 points to 56, sales expectations in the next six months increased 7 points to 57, and buyer traffic climbed 2 points to 33.
Builders are benefiting from a very lean existing home market. New listings in April were down nearly 22% year over year, according to Realtor.com. With mortgage rates now double what they were a year and a half ago, some potential sellers may be reluctant to trade to another home at a higher rate.
“In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead,” said Robert Dietz, NAHB’s chief economist.

Homebuilders also drew more buyers by offering incentives, like buying down mortgage rates. Those, however, appear to be winding down as demand grows.
The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in February and March, and 36% last November. While just over half of builders are still offering some type of sales incentive, the share is down from 62% last December.
Regionally, on a three-month moving average, builder sentiment in the Northeast was unchanged at 45. Sentiment in the Midwest rose 2 points to 39. In the South, it increased 3 points to 52, and in the West moved 3 points higher to 41. More

A consumer sentiment survey of 21,000 shoppers across 27 countries found “affordability” is the number one concern for consumers globally before they make a purchase.
If retailers have been relying on promotions to win over customers, it could impact their margins when they report earnings in the coming weeks.
Mall retailers and those who sell soft goods like apparel are most at risk for a promotion-induced margin squeeze, analysts said.

Shoppers are at the Citadel Outlets in Los Angeles.
Jonathan Alcorn | Reuters

Affordability is the number one concern for consumers globally, new data released Tuesday by EY shows.
The price worries could suggest trouble for retailers that are relying on promotions to win over cost-conscious customers. Those companies could see their margins under pressure when they report earnings over the coming weeks. 

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In a consumer sentiment survey of 21,000 shoppers across 27 countries, 35% of respondents said “affordability” is now their leading concern when it comes to choosing what to buy, according to EY’s Future Consumer Index. The survey’s respondents cited the answer more than any other concern.
That’s up 10 percentage points since Oct. 2022, the numbers show. 
“That’s having knock off effects in terms of what people are shopping for, where they’re making substitutions from national brands to private labels, how they’re thinking about scaling back on things that are not essential to them,” Kristina Rogers, EY Global Consumer Leader, told CNBC in an interview. “And similarly around loyalty. They’re more than willing to go somewhere else if there’s better value elsewhere, if they can do something to reduce costs in their budget.” 
Retailers are likely to lean on promotions to keep struggling customers buying and are “already trying” to do so, even with the hit they are taking to profits, Rogers said. Compounding the issue is growing research showing a shift in consumption habits, she said.
In the past when consumers were buying something on sale, they tended to spend the same amount they would have if they bought the item at full price by adding a few extra items to the cart. But these days, some are buying less, Rogers explained.

“The whole idea is for me to buy more,” said Rogers. “That doesn’t mean I’m going to buy more. It just might mean I come to you and not your competitor… So, you know, I don’t know that helps in the way it might have in the past,” she continued.
The findings come as major retailers, such as Home Depot, Walmart and Target, are releasing earnings this week.
The earnings will offer a glimpse into consumer health and how heavily companies have been relying on promotions to keep shoppers limping to the checkout line in the face of persistent inflation and rising debt at sky-high interest rates.
Retailers that largely sell apparel, shoes or home goods are most likely to see squeezed margins due to promotions this earnings season, according to analysts and research.
“I think we’ll still hear some hurt from Target. I think Macy’s you might hear some of that come through,” said Jessica Ramirez, a senior analyst at Jane Hali and Associates. “Vans is still coming through some promotions that are likely to hurt them. Victoria’s Secret as well. They’ve been very promotional. And then the hardlines, William Sonoma.”
Home Depot on Tuesday missed quarterly revenue expectations and cut its full fiscal year guidance for comparable sales and operating margin rate — though it is unclear whether promotions factored into that forecast.
In a Thursday research note, UBS analysts reported softline promotions increased to 17% in April, a 2 percentage point jump year-over-year. They based it on a statistic they call the “discount factor,” which measures the percentage of goods on sale and the average discount off the original price. Softline retailers are those that sell “soft” goods such as apparel.
The uptick was driven by increases in both the number and size of discounts, and was accelerated by a month-over-month 0.7 percentage point increase, the note said.
“Our view is the market underestimates the pressure on industry sales from US consumers’ decreasing ability and willingness to spend on apparel and footwear. We expect sales trends to weaken over the course of 2023,” the note stated. “This is likely a bad sign for Softline retailers’ 1Q23 gross margins.” 

Annapolis, Maryland, on May 16, 2022
Jim Watson | AFP | Getty Images

The bank listed the companies that saw the biggest year-over-year changes in discounts. The public retailers where promotions rose the most are Skechers, American Eagle, Ralph Lauren, The Children’s Place, Under Armour, Nike, Urban Outfitters, Victoria’s Secret, Macy’s and three of Gap’s brands – Banana Republic, Athleta and Old Navy. 
Retailers and brands that have the largest decreases in discounts year-over-year include Gap’s namesake banner, Lululemon, Nordstrom, Foot Locker and its brand Champs Sports.
Since mid-2022, softline retailers have been passing inflationary costs onto consumers, but it suspects companies will give up these price gains in a bid to protect market share “as the macro outlook weakens,” UBS said.
Compared to last year, retailers have some supply chain tailwinds such as reduced freight expenses that are expected to boost margins. But considering the increased promotional environment, it’s not clear if those savings will materialize, said Simeon Siegel, a retail analyst for BMO Capital Markets. 
“Retailers actually have margin relief this year because last year supply chains were so expensive, but that will be offset by promotion,” Siegel told CNBC. “The question is, is it partially offset? Or does it more than engulf the savings?”
He pointed to Gap, and how promotions and higher commodity prices shaved five percentage points off of its gross margins in fiscal 2022, even with lower air freight expenses. 
Siegel expects other apparel mall retailers like Gap are most at risk for promotion-induced margin squeezes this earnings season. 
Last week, Under Armour missed fiscal fourth-quarter expectations on gross margins because it used steep discounts and promotions to drive higher sales, the retailer’s Chief Financial Officer David Bergman told analysts. The company warned the issue could persist.

A clearance sale sign is seen at the Gap retail store on September 20, 2022 in Los Angeles, California.
Allison Dinner | Getty Images

The analyst Ramirez said the savvier retailers have been selective in the items they choose to promote. They’ve focused on marking down merchandise that’s fallen out of demand, such as home goods, while keeping more coveted items off the discount shelf.  
“It’s leaning into your consumer and their priorities,” said Ramirez. “Retailers today are much more in tune with the consumer interest and the consumer needs than they were before the pandemic.” 
Despite repeated concerns over a more cautious consumer that’s echoed on earnings calls and research desks for the last few quarters, Ramirez pointed out those losses haven’t shown up on retailers’ balance sheets too broadly.
At least not yet. More