Raphael Stevens

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    When will Americans see those interest-rate cuts?

    Perhaps it was always too good to be true. The big economic story of 2023 was the seemingly painless disinflation in America, with consumer price pressures receding even as growth remained resilient, which underpinned surging stock prices. Alas, the story thus far in 2024 is not quite so cheerful. Growth has remained robust but, partly as a result, inflation is looking stickier. The Federal Reserve faces a dilemma about whether to start cutting interest rates; investors must grapple with the reality that monetary policy will almost certainly remain tighter for longer than they had anticipated a few months ago.Chart: The EconomistThe latest troublesome data came from higher-than-expected inflation for March, which was released on April 10th. Analysts had thought that the core consumer price index (CPI), which strips out food and energy costs, would rise by 0.3% month on month. Instead, it rose by 0.4%. Although that may not sound like much of an overshoot, it was the third straight month of CPI readings exceeding forecasts. If continued, the current pace would entrench inflation at over 4% year on year, double the Fed’s target—based on a slightly different inflation gauge—of 2% (see chart 1).Back in December, at the peak of optimism, most investors had priced in six or seven rate cuts this year. They have since dialled back those expectations. Within minutes of the latest inflation figures, market pricing shifted to implying just one or two cuts this year—a dramatic change (see chart 2). It is now possible that the Fed may not cut rates before the presidential election in November, which would be a blow to the incumbent, Joe Biden.Jerome Powell, the Fed’s chairman, has remained consistent. He has always insisted that the central bank will take a data-dependent approach to setting monetary policy. But rather than bouncing up and down in reaction to fresh figures, he has also counselled patience. At the start of this year, even after six straight months of largely benign price movements, he said the Fed wanted more confidence that inflation was going lower before starting to cut rates. Such caution risked seeming excessive. Today it looks utterly appropriate.The volatility of market pricing has also changed the Fed’s positioning relative to the market. At the end of last year, when investors foresaw as many as seven rate cuts this year, officials had pencilled in just three, appearing hawkish. In their more recent projections, published less than a month ago, officials still pencilled in three cuts, which now appears doveish. The Fed will next update its projections in June.In the meantime the Fed will be watching more than the CPI. Its preferred measure for inflation, the core personal consumption expenditures price index (PCE), will be released in a few weeks, and is expected to come closer to 0.3% month on month in March. Several of the items that drove up CPI, particularly motor-vehicle insurance and medical services, are defined differently in PCE calculations. The Fed may also be comforted by data showing wage growth has continued to moderate.Nevertheless, trying to explain away uncomfortable numbers by pointing to this or that data quirk is redolent of 2021, when inflation denialists thought that fast-rising prices were merely a transitory phenomenon. The general conclusion today is that although growth has remained impressively strong, it now appears to be bumping up against the economy’s supply limits, and is therefore translating into persistent inflationary pressure. That calls for tight, not loose, monetary policy. The Fed, already cautious about cutting rates when inflation figures were more co-operative, is likely to be even more wary now. ■ More

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    The ‘supercore’ inflation measure shows Fed may have a real problem on its hands

    Markets are buzzing about an even more specific prices gauge contained within the data — the so-called supercore inflation reading.
    The gauge measures services inflation excluding food, energy and housing and has been roaring higher lately, up 4.8% year over year in March and more than 8% at a 3-month annualized pace.
    The picture is more complicated because some of the most stubborn components of services inflation are household necessities like car and housing insurance as well as property taxes.

    US Federal Reserve Chair Jerome Powell attends a “Fed Listens” event in Washington, DC, on October 4, 2019.
    Eric Baradat | AFP | Getty Images

    A hotter-than-expected consumer price index reading rattled markets Wednesday, but markets are buzzing about an even more specific prices gauge contained within the data — the so-called supercore inflation reading.
    Along with the overall inflation measure, economists also look at the core CPI, which excludes volatile food and energy prices, to find the true trend. The supercore gauge, which also excludes shelter and rent costs from its services reading, takes it even a step further. Fed officials say it is useful in the current climate as they see elevated housing inflation as a temporary problem and not as good a gauge of underlying prices.

    Supercore accelerated to a 4.8% pace year over year in March, the highest in 11 months.
    Tom Fitzpatrick, managing director of global market insights at R.J. O’Brien & Associates, said if you take the readings of the last three months and annualize them, you’re looking at a supercore inflation rate of more than 8%, far from the Federal Reserve’s 2% goal.
    “As we sit here today, I think they’re probably pulling their hair out,” Fitzpatrick said.

    An ongoing problem

    CPI increased 3.5% year over year last month, above the Dow Jones estimate that called for 3.4%. The data pressured equities and sent Treasury yields higher on Wednesday, and pushed futures market traders to extend out expectations for the central bank’s first rate cut to September from June, according to the CME Group’s FedWatch tool.
    “At the end of the day, they don’t really care as long as they get to 2%, but the reality is you’re not going to get to a sustained 2% if you don’t get a key cooling in services prices, [and] at this point we’re not seeing it,” said Stephen Stanley, chief economist at Santander U.S.

    Wall Street has been keenly aware of the trend coming from supercore inflation from the beginning of the year. A move higher in the metric from January’s CPI print was enough to hinder the market’s “perception the Fed was winning the battle with inflation [and] this will remain an open question for months to come,” according to BMO Capital Markets head of U.S. rates strategy Ian Lyngen.
    Another problem for the Fed, Fitzpatrick says, lies in the differing macroeconomic backdrop of demand-driven inflation and robust stimulus payments that equipped consumers to beef up discretionary spending in 2021 and 2022 while also stoking record inflation levels.
    Today, he added, the picture is more complicated because some of the most stubborn components of services inflation are household necessities like car and housing insurance as well as property taxes.
    “They are so scared by what happened in 2021 and 2022 that we’re not starting from the same point as we have on other occasions,” Fitzpatrick added. “The problem is, if you look at all of this [together] these are not discretionary spending items, [and] it puts them between a rock and a hard place.”

    Sticky inflation problem

    Further complicating the backdrop is a dwindling consumer savings rate and higher borrowing costs which make the central bank more likely to keep monetary policy restrictive “until something breaks,” Fitzpatrick said.
    The Fed will have a hard time bringing down inflation with more rate hikes because the current drivers are stickier and not as sensitive to tighter monetary policy, he cautioned. Fitzpatrick said the recent upward moves in inflation are more closely analogous to tax increases.
    While Stanley opines that the Fed is still far removed from hiking interest rates further, doing so will remain a possibility so long as inflation remains elevated above the 2% target.
    “I think by and large inflation will come down and they’ll cut rates later than we thought,” Stanley said. “The question becomes are we looking at something that’s become entrenched here? At some point, I imagine the possibility of rate hikes comes back into focus.”

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    Sierra Space CEO unveils new satellite product ahead of Dream Chaser launch, possible IPO

    Sierra Space is considering an IPO as soon as next year.
    CEO Tom Vice tells CNBC that the company’s NASA-contracted space plane Dream Chaser is on pace to make its first flight in the fourth quarter.
    The company unveiled its Eclipse line of satellite buses, with the aim of serving a wide range of missions from low Earth to cis-lunar at a more cost-effective level.

    A render of Sierra Space’s Velocity satellite bus
    Credit: Sierra Space

    Amid preparations for its spaceplane’s maiden flight and an initial public offering as soon as next year, Sierra Space is expanding its satellite offerings.  
    Ahead of the much-anticipated solar eclipse, the commercial space unicorn unveiled its aptly named Eclipse line of satellite buses — the main structures of satellites — to serve a wide range of missions in orbits ranging for low Earth to cis-lunar. 

    “We’ve actually been waiting for six months, so it’s like, this [name], we really thought about it,” Tom Vice, Sierra Space chief executive said in an interview for CNBC’s “Manifest Space” podcast. “I think the name is very appropriate, because I think it will change everything in terms of the affordability of building the next generation buses for the next generation satellites.”
    Valued at $5.3 billion as of September, Sierra Space was spun out of defense contractor Sierra Nevada Corporation three years ago. Touting a three-decade spaceflight heritage, the independent subsidiary is the result of an ambitious early bet by SNC’s billionaire husband and wife team, Fatih and Eren Ozmen. 
    Sierra Space touts a diverse space and defense tech portfolio spanning space transportation, space habitation, propulsion and satellites. It’s perhaps best known for its NASA-contracted, reusable spaceplane Dream Chaser which will run cargo resupply missions to the International Space Station and eventually carry humans to and from orbit.
    It’s also working on a commercial space station with Jeff Bezos’ Blue Origin called Orbital Reef, and in January landed a $740 million high-profile Pentagon contract to develop a constellation of missile tracking satellites for the U.S. 
    The Eclipse offerings bring it further into the spacecraft subsystem business.

    On Dream Chaser, Vice said he’s “very confident” it will make its first flight in the fourth quarter of this year. He added the spaceplane passed the first phase of environmental testing in March and said since it will be carrying cargo to the ISS on this first demonstration, the company is dependent on NASA’s manifest and it’s working with the FAA to get a reentry license.

    Artist’s rendering of Sierra Space’s Dream Chaser spaceplane in this undated handout obtained March 25, 2022.
    Sierra Space | via Reuters

    “Dream Chaser is also a vehicle that can spend a year on orbit and be an orbiting space station for microgravity research,” Vice said, speaking to the opportunities for R&D and manufacturing that he and the company are betting will materialize in low earth orbit, providing business cases for the space plane as well as its space habitats.
    Sierra Space has identified four segments it believes can be served by microgravity to disrupt industry on earth: stem cells, oncology, vaccines and industrial glass. Those markets combined amounted to $900 billion in 2022, according to Vice, and are growing at such a rate to reach roughly $3.7 trillion by 2038. 
    “You can do some things that are radically different in terms of protein crystallization that we know actually will produce better drugs. So we think actually this is a huge market for us,” he said. 
    Sierra’s nearer-term focus is on finalizing a Series B funding round to raise capital for potential acquisitions, on getting Dream Chaser flying, and on getting its financials in a strong position ahead off a possible IPO as soon as next year. 
    “We’ll start to look at that as an option and make the decision depending on what the markets look like,” said Vice. “But I think we’re very quickly becoming a company that has been able to demonstrate significant top line growth.”
    Sierra’s sales are expected to double in 2024, according to Vice. Its backlog currently tops $4 billion, and it’s working to become cash flow positive. 
    After significant layoffs in November, Sierra Space also plans to double its workforce this year. 
    While it has received offers to go public via a special purpose acquisition company, or SPAC, the plan is to embark on a traditional IPO process.
    “We’re a company that thinks a lot about ushering in the most profound industrial revolution in human history,” explained Vice.  More

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    Fed wants more confidence that inflation is moving toward 2% target, meeting minutes indicate

    Federal Reserve officials at their March meeting expressed concern that inflation wasn’t moving lower quickly enough, though they still expected to cut interest rates at some point this year.
    At a meeting in which the Federal Open Market Committee again voted to hold short-term borrowing rates steady, policymakers also showed misgivings that inflation, while easing, wasn’t doing so in a convincing enough fashion. The Fed currently targets its benchmark rate between 5.25%-5.5%

    As such, FOMC members voted to keep language in the post-meeting statement that they wouldn’t be cutting rates until they “gained greater confidence” that inflation was on a steady path back to the central bank’s 2% annual target.
    “Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent,” the minutes said.
    In what apparently was a lengthy discussion about inflation at the meeting, officials said geopolitical turmoil and rising energy prices remain risks that could push inflation higher. They also cited the potential that looser policy could add to price pressures.
    On the downside, they cited a more balanced labor market, enhanced technology along with economic weakness in China and a deteriorating commercial real estate market.

    U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., March 20, 2024.
    Elizabeth Frantz | Reuters

    They also discussed higher-than-expected inflation readings in January and February. Chair Jerome Powell said it’s possible the two months’ readings were caused by seasonal issues, though he added it’s hard to tell at this point. There were members at the meeting who disagreed.

    “Some participants noted that the recent increases in inflation had been relatively broad based and therefore should not be discounted as merely statistical aberrations,” the minutes stated.
    That part of the discussion was partly relevant considering the release came the same day that the Fed received more bad news on inflation.

    CNBC news on inflation

    CPI validates their concern

    The consumer price index, a popular inflation gauge though not the one the Fed most closely focuses on, showed a 12-month rate of 3.5% in March. That was both above market expectations and represented an increase of 0.3 percentage point from February, giving rise to the idea that hot readings to start the year may not have been an aberration.
    Following the CPI release, traders in the fed funds futures market recalibrated their expectations. Market pricing now implies the first rate cut to come in September, for a total of just two this year. Previous to the release, the odds were in favor of the first reduction coming in June, with three total, in line with the “dot plot” projections released after the March meeting.
    The discussion at the meeting indicated that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected,” the minutes said. “In support of this view, they noted that the disinflation process was continuing along a path that was generally expected to be somewhat uneven.”
    In other action at the meeting, officials discussed the possibility of ending the balance sheet reduction. The Fed has shaved about $1.5 trillion off its holdings of Treasurys and mortgage-backed securities by allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them.
    There were no decisions made or indications about how the easing of what has become known as “quantitative tightening” will happen, though the minutes said the roll-off would be cut by “roughly half” from its current pace and the process should start “fairly soon.” Most market economists expect the process to begin in the next month or two.
    The minutes noted that members believe a “cautious” approach should be taken.

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    Would America dare to bring down a Chinese bank?

    If any politician has the demeanour to ease tensions with Beijing, it is Janet Yellen. America’s treasury secretary comes across as a twinkly eyed professor, rather than a foreign-policy hawk. Sure enough, she used a recent trip to China, which ended on April 9th, to praise the “stronger footing” that Sino-American relations are now on compared with a year ago. Ms Yellen was not merely there to extend an olive branch, however. She also carried a warning for China’s banks: those that help “channel military or dual-use goods to Russia’s defence-industrial base expose themselves to the risk of US sanctions”.Ms Yellen’s warning marks the latest escalation in America’s financial war with Russia. Since Vladimir Putin’s invasion of Ukraine in February 2022, lawmakers in Washington have issued sanctions on nearly 3,600 Russian targets, according to Castellum.AI, a compliance firm. Allies, especially in Europe, have issued many more. Central-bank reserves have been frozen and exports of military goods banned. SWIFT, a messaging service used by 11,500 banks to make around $35trn-worth of cross-border payments a day, has banned some of Russia’s biggest banks. Yet none of this has stopped Russia from outproducing the West in artillery shells, holding its frontline and gearing up for a big push.One reason Russia’s defence industry has held firm is that, although America and allies have tried to cripple it, others have not. Many countries, including big ones, such as China and India, and financial hubs, such as the United Arab Emirates, want to stay out of the fight. Hence the weapon Ms Yellen is now brandishing: sanctions on not just Russian firms, but banks anywhere in the world that aid them.Such measures can be devastatingly effective. In 2018 America’s Treasury announced it was considering designating ABLV Bank in Latvia a money-laundering concern for helping North Korea to dodge sanctions. Out of fear of being designated similarly, other institutions began withdrawing funds from ABLV en masse, and the bank collapsed within days. Milder secondary sanctions have been used to cut Iranian firms out of the global financial system, by levelling huge fines against foreign banks that deal with them.America owes this extraterritorial reach to the role its currency, and hence its banking system, plays in international finance. The ultimate threat against foreign banks that refuse to comply is that they lose the ability to clear dollar transactions, which must eventually be processed by those with accounts at the Federal Reserve. Such is the dollar’s dominance in trade, cross-border payments and capital markets, this in effect banishes the victim from the global financial system.And so America can get foreign banks to enforce its sanctions, even if their own governments do not. Its efforts to do so are far from perfect: private outfits that are friendly to Iran, for instance, might be happy to risk losing access to dollars in return for the chance to carry on doing business there. But even they—or, say, a small Chinese bank—might think twice about risking the same treatment as ABLV. Since the White House issued an executive order in December authorizing the Treasury to go after those aiding Russian defence firms, Chinese banks have reportedly been pruning their relationships with such clients.The trouble is that America’s allies loathe this sort of behaviour. Its reimposition of secondary sanctions on Iran in 2018 annoyed European Union officials so much they started searching for ways to keep financial channels open without recourse to the dollar. For the Treasury to throw its weight around similarly in Beijing, where politicians are rather less friendly, is a much greater provocation—especially given the “no limits” partnership China declared with Russia in February 2022.Europe’s response in 2018 highlights the graver problem with secondary sanctions: they prompt other countries to devise workarounds that ultimately erode America’s influence. The eu’s attempt was a damp squib, but since 2015 China has been promoting CIPS, an alternative payment network to SWIFT that lies beyond the Treasury’s reach and now has more than 1,500 members. That figure has doubled since 2018 and, according to LeaveRussia, a Ukrainian campaign group, includes around 30 Russian banks.Banishment from the dollar clearing system, in other words, is less of a punishment than it once was. And it seems Ms Yellen’s emollient tone in Beijing could only do so much. As she prepared to leave, another visitor was arriving. It was Sergei Lavrov, Russia’s foreign minister—to discuss, among other things, Eurasian security and how to oppose hegemonism. ■ More

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    Department stores face another squeeze. This time, with store credit card revenue

    Department stores and other retailers will feel the impact of a new federal rule, which caps credit card late fees at $8.
    Analysts say department stores will get squeezed more by the rule, since their revenue is already under pressure.
    Store credit cards allow retailers to drive repeat purchases and make a cut of cash. Even before a recent CFPB ruling, the revenue segment was under pressure.

    A customer uses a credit card to pay for items January 28, 2022 at a retail shop in New York City. 
    Robert Nickelsberg | Getty Images

    Department stores like Macy’s and Kohl’s have long used store-branded credit cards to drive purchases and get a cut of cash. 
    Starting this spring, though, those cards will become less lucrative. Late fees for customers will be capped at $8, down from an industry average of around $32, under a new rule from the Consumer Financial Protection Bureau. The change faces legal challenges, but is scheduled to take effect on May 14.

    The new rule will benefit customers with overdue balances, but will take a bite out of retailers’ highly profitable business of making money from customers’ credit card swipes and the interest or late fees that get tacked onto their unpaid balances.
    Specialty retailers with store cards, such as Gap, will feel the pinch, but it’ll be the most significant at department stores since their revenue is already under pressure, according to Jane Hali, CEO and retail analyst at equity research firm Jane Hali & Associates.
    “We are talking about an area of weakness, so any cut in revenue is going to be more important to them than another area of retail,” she said.
    For fiscal 2023, credit card revenue totaled $619 million for Macy’s and approximately $475 million for Nordstrom.
    Kohl’s reported $924 million in “other” revenue in 2023, a broader category that includes unused gift cards and third-party advertising on its website, though Fitch Ratings estimates the majority of that revenue category is from credit cards.

    The three companies do not break out how much of total credit card revenue comes from late fees.

    Value add

    Store-branded credit cards are a clear boon for retailers: They encourage purchases and come with virtually no overhead, said David Silverman, a retail analyst at Fitch Ratings.
    They’re typically issued through financial services companies and banks, such as Synchrony Financial, TD Bank or Capital One. And they often come with extra perks for shoppers, such as additional discounts or rewards for repeat purchases.
    For retailers, the branded cards provide insights into customer behavior, since they track purchases, and can amount to a perpetual advertisement, right in customers’ wallets, Silverman said.
    “If I’m constantly using my Macy’s card or my Home Depot card or whatever it is, that brand is even more so part of my daily life,” he said.
    Even before the CFPB ruling, retailers’ credit cards faced challenges.
    Shoppers, particularly those who are younger, are paying in new ways like buy now, pay later, which allows a customer to pay back a purchase in installments. Use of buy now, pay later with online purchases between January and March totaled $19.2 billion, an increase of 12.3% from the year-ago period, according to Adobe Analytics, which analyzes online transactions across retail sites.
    Some customers are opting for credit cards that offer experience-based perks, such as access to airport lounges or early purchases of high-demand concert tickets.
    Plus, in a higher interest rate environment, getting customers to sign up for store cards or use them may be a trickier proposition. For retailer-issued credit cards, interest rates — also called APRs, or annual percentage rates — were about 29.33% on average as of early April, according Bankrate. That compares with an average of 20.75% for all U.S. credit cards.
    All of that adds up to dwindling credit card revenue for retailers, who can now expect to see it shrink even further.

    Shrinking segment

    For all the millions brought in by private-label cards, they drive a small portion of retailers’ net sales. The retailers’ credit cards accounted for nearly 3% of Macy’s net sales and a little over 3% of Nordstrom’s net sales in the most recent fiscal year.

    Kohl’s, Macy’s and Target all reported year-over-year declines in credit card revenue for the most recent fiscal year — a reflection of reduced discretionary spending and normalizing credit patterns, according to the companies.
    Target’s credit card revenue fell to $667 million last year, down from $734 million in the prior fiscal year. Chief Operating Officer Michael Fiddelke said at an investor meeting in March that the discounter has seen softer spending on credit cards, but has been able to make it up with growth of its advertising business, Roundel.
    The big-box retailer recently relaunched its loyalty program as a three-tiered offering that includes a free tier, a paid annual membership and a credit card that’s now called the Target Circle Card.
    Macy’s, too, has dealt with falling credit card revenue. The segment’s $619 million during the most recent fiscal year was a decline of about 28%. And the company said it expects that to tumble even further to between $475 million and $490 million for this fiscal year as net sales fall.
    That outlook doesn’t take into account the credit card late fee ruling.
    Adrian Mitchell, chief operating officer and chief financial officer, told investors on the company’s earnings call that Macy’s is working with Citi, its financial partner, to try to offset the late fee ruling. It’s also looking for strategies to increase customers’ use of Macy’s and Bloomingdale’s credit cards, he said.
    Nordstrom, for its part, has reported year-over-year gains in credit card revenue for each of the past three years, though its haul is smaller than that of Kohl’s, Macy’s and Target. It downplayed the CFPB change, saying the average credit quality of its portfolio tends to be higher than other retailers, meaning it relies less on late fees.
    Gap does not disclose credit card revenue, but its chief financial officer, Katrina O’Connell, said on an earnings call that losses from late fees will be “largely offset in 2024 by other levers within our credit card program.” The company declined to share specifics about those offsets.
    Some card issuers, such as Synchrony, have said they will make changes in the coming months, such as increasing APRs, to try to blunt the federal rule’s effect. Synchrony is a major issuer of store cards, including the cards for Sam’s Club and Lowe’s.

    Offsetting losses

    At Kohl’s, it’s a bit of a different story.
    Kohl’s customers typically have lower household incomes than those of other retailers, such as Nordstrom, which makes them more likely to miss a payment and be subject to a late fee, said Lorraine Hutchinson, a research analyst at Bank of America.
    And, off-mall department store retailer Kohl’s is chasing a turnaround under CEO Tom Kingsbury, the former chief of off-price chain Burlington, and is leaning in part on co-branded cards to pull it off.
    To offset losses, Kohl’s has been working to get customers to switch from store-branded credit cards, which can only be used in its stores and on its website, to co-branded Capital One cards that can be used to pay for other purchases, too.
    In an interview with CNBC in mid-March, Kingsbury said the company had previously planned to introduce the co-branded cards, but accelerated its plans because of the impending CFPB late fee cap.
    Co-branded cards “will help offset any late fee changes that we have,” he said.
    Kingsbury said as of March that Kohl’s has converted nearly 700,000 private-label cardholders. It plans to convert about 5 million more later this year, covering more than a quarter of its 20 million active cardholders.
    He also underscored why Kohl’s — and other retailers — want to be in the credit card business.
    On average, Kohl’s credit customers spend six times more per year than shoppers who don’t belong to its loyalty program, Kingsbury said. Incremental credit revenue from the co-branded card is expected to grow to between $250 million and $300 million annually by 2025, he said.
    — CNBC’s Gabrielle Fonrouge contributed to this report.

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    Macy’s settles proxy fight with activist Arkhouse, adds two directors

    Macy’s said it would add two new directors to its 15-person board as it settles a proxy fight with a group led by activist Arkhouse Management.
    Arkhouse is also in the middle of negotiating with the department store about a possible sale that would take Macy’s private.
    Both new directors will be part of the committee reviewing Arkhouse’s bid to buy the company.

    Macy’s flagship store in Herald Square in New York, Dec. 23, 2021.
    Scott Mlyn | CNBC

    Department store Macy’s on Wednesday said it had settled its proxy fight with an activist group led by Arkhouse Management, and that it would add two new directors to its 15-person board.
    The reshuffle moves Macy’s closer to a deal that could take the 165-year-old department store private.

    Ric Clark, a former executive at Brookfield, and Rick Markee will join Macy’s board effective immediately. Markee is also on the board of discount retailer Five Below. Both Clark and Markee were Arkhouse nominees.
    “The Board is open-minded about the best path to create shareholder value,” the company said.
    Macy’s shares fell around 2% in pre-market trading Wednesday.
    Macy’s also said it had provided the Arkhouse-led investor group with confidential business information as the two sides negotiated the terms of a possible sale. Both new directors will be part of the committee reviewing Arkhouse’s bid to buy the company.
    Arkhouse first submitted an offer to take the retailer private in 2023. The investor, which is working in concert with Brigade Management, has since increased its offer multiple times. The investment-firm-turned-activist then launched a proxy fight at the company in February, putting up a nine-director slate.

    Clark and Markee’s appointment “will ensure that our discussions continue to be constructive and that our proposal is treated seriously and expeditiously,” Arkhouse managing partners Jonathon Blackwell and Gavriel Kahane said.
    The storied retailer has struggled for nearly a decade as consumers have rapidly swung to online shopping and away from department stores. Macy’s said in February it would close around 150 of its roughly 500 stores, just weeks after CEO Tony Spring stepped into the top job.
    It has laid off thousands of people in recent years as the company grapples with the dramatically altered landscape.
    Macy’s has attracted activist attention before. Starboard Value, a well-established investor in the space, took a position in the retailer in 2015, only to sell it off two years later after a potential acquisition fizzled.
    Arkhouse’s bid differs from past engagements at the company. The real estate investor seeks to take the company private, removing it from the rigors of the public market and allowing executives time to streamline and rightsize the business, which still has a significant real estate portfolio. More

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    Delta forecasts quarterly earnings ahead of expectations, focuses on efficiency as growth steadies

    Delta swung to a profit in the first quarter with record sales for the period.
    The company forecast second-quarter earnings of $2.20 to $2.50 a share.
    CEO Ed Bastian said hiring has slowed after the airline added staff aggressively following the pandemic.

    An Airbus A330-941 is being delivered to Delta Air Lines, flying from Toulouse Blagnac Airport to Atlanta, in Toulouse, France, on December 8, 2023. 
    JoanValls | Nurphoto | Getty Images

    Delta Air Lines swung to a profit in the first quarter, and CEO Ed Bastian said bookings for both leisure and business travel are strong as the peak travel season approaches, despite persistent inflation.
    “Consumers continue to prioritize travel as a discretionary investment in themselves,” Bastian said in an interview.

    Delta forecast second-quarter earnings of $2.20 to $2.50 per share, while analysts forecast between $2.23 per share on average, according to LSEG, formerly known as Refinitiv. It said revenue in the current period could rise as much as 7%, ahead of analysts’ estimates. Delta also reiterated its full-year forecast for $6 to $7 a share and free cash flow of between $3 billion and $4 billion.
    Business travel improved in the last quarter and solid demand is likely to continue, executives said, citing 14% growth in corporate travel sales. They called out the technology, consumer and financial services sectors as particularly strong.
    Delta has slowed hiring, like other carriers, after a massive spree in the wake of the pandemic, and is focusing more on efficiency. Bastian told CNBC that the company’s headcount will likely be up low single digits this year compared with 2023.
    Delta’s shares were up nearly 5% in premarket trading Wednesday after the company released results.
    Here’s how the company performed in the three months ended March 31, compared with Wall Street expectations based on consensus estimates from LSEG:

    Adjusted earnings per share: 45 cents vs. 36 cents expected.
    Adjusted revenue: $12.56 billion vs. $12.59 billion expected.

    The carrier made $37 million, or 6 cents per share, in the first three months of the year, up from a loss of $363 million, or 57 cents per share, in the year-earlier period, it said Wednesday. Delta’s adjusted earnings of $288 million, or 45 cents a share, rose from $163 million, or 25 cents a share in the first quarter of 2023.
    Revenue of $12.56 billion, adjusted to strip out refinery sales, was up 6% from last year, and slightly below analysts’ expectations.
    Delta’s unit cost, when stripping out fuel, rose 1.5% on the year. Delta said domestic unit revenue rose 3% from a year ago with airplane loads at records for the quarter, traditionally a slow period for travel. Airfare rose 1% from February to March, but was down 7% last month compared with the same month last year, according to Wednesday’s U.S. inflation report.
    “Growth is normalizing and we are in a period of optimization, with a focus on restoring our most profitable core hubs and delivering efficiency gains,” CFO Dan Janki said in an earnings release.

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