Raphael Stevens

Yum Brands reported better-than-expected earnings, but its quarterly revenue fell short of Wall Street’s estimates.
Pizza Hut’s same-store sales growth was weaker than expected, while KFC and Taco Bell outperformed expectations.
Yum’s same-store sales grew 6% in the quarter, helped by strong sales at Taco Bell’s U.S. locations and KFC’s international restaurants.

Sign for the food brand Pizza Hut on 30th May 2022 in Birmingham, United Kingdom. (photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Pictures | Getty Images

Yum Brands on Wednesday reported third-quarter revenue that fell short of analysts’ expectations, hurt by weak same-store sales growth at Pizza Hut.
But the earnings report from its operator in China on Tuesday evening was more bleak. Yum China CFO Andy Yeung said that sales had softened in late September through October, hurting its fourth-quarter results. China is KFC’s largest market and Pizza Hut’s second-largest.

Still, Yum CEO David Gibbs said in a statement that the company expects it will outperform its long-term growth algorithm of 5% unit growth, 7% system sales growth and 8% operating profit growth.
Yum’s stock fell more than 1% in premarket trading, while Yum China’s tumbled more than 14%.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: $1.44 adjusted vs. $1.28 expected
Revenue: $1.71 billion vs. $1.77 billion expected

The restaurant company reported third-quarter net income of $416 million, or $1.46 per share, up from $331 million, or $1.14 per share, a year earlier. Yum said a fair value remeasurement of its investment in its Indian franchisee boosted earnings per share by 5 cents, while foreign currency weighed on its earnings per share by 1 cent.
Excluding refranchising losses, certain tax benefits and other items, Yum earned $1.44 per share.

Net sales rose 4% to $1.71 billion. The company set a new record for digital sales growth, Gibbs said.
Yum’s same-store sales grew 6% in the quarter, helped by strong sales at Taco Bell’s U.S. locations and KFC’s international restaurants.
KFC’s overall same-store sales increased 6% in the quarter, beating StreetAccount estimates of 5.6%. The fried chicken chain’s international division reported same-store sales growth of 7%, boosted by strong growth in China, its largest market.
But in the U.S., its second-largest market, KFC saw flat same-store sales growth. The chain has struggled in its home country recently. It has lost market share to chicken leader Chick-fil-A and Restaurant Brands International’s Popeyes, which recently overtook KFC as the number-two chicken chain in the U.S.
Taco Bell reported same-store sales growth of 8%, topping StreetAccount estimates of 6.3%. The chain’s strong sales came largely from its U.S. restaurants, which saw strong consumer demand across income levels.
“If we break down the Taco Bell stores in the United States by income demographic,we see really consistent 2% to 3% transaction growth across all income levels,” Gibbs said on the company’s conference call.
Taco Bell’s expanding international division reported same-store sales growth of 1%.
Pizza Hut’s same-store sales rose just 1%, falling short of StreetAccount estimates of 1.7%. The pizza chain reported 2% same-store sales growth for international restaurants and flat same-store sales in the U.S.
Pizza Hut isn’t the only pizza chain that has struggled to win over U.S. consumers. Rival Domino’s Pizza reported a 0.6% drop in same-store sales during its third quarter. Still, Gibbs said that Pizza Hut has been taking market share from its U.S. rivals, thanks to strategies like leaning into late-night orders.
Yum’s total restaurant footprint grew 6% as it opened more than 1,100 locations during the quarter. More

District of Columbia Attorney General Brian Schwalb’s office filed a lawsuit against 14 of the district’s largest landlords and RealPage, a property management software company.
The lawsuit alleges that the landlords and RealPage colluded to illegally raise rents for tens of thousands of residents by collectively sharing their data with the company.
The office’s investigation found that the technology was used to set rents for more than 50,000 apartments across D.C. in violation of the district’s Antitrust Act.

In this photo illustration AvalonBay Communities, Inc. logo seen displayed on a smartphone and in the background. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
Sopa Images | Lightrocket | Getty Images

Washington, D.C., Attorney General Brian Schwalb’s office said Tuesday that it’s suing RealPage, a property management software company, and 14 of the district’s largest landlords for allegedly colluding to raise rents.
The complaint names several publicly traded real estate investment trusts, such as UDR, AvalonBay Communities and Equity Residential.

The companies shared data with RealPage, which then used an algorithm to artificially raise prices for more than 50,000 apartments across the city, costing renters millions of dollars in illegal rent hikes, according to a release from Schwalb’s office. The alleged collusion violates the District of Columbia’s Antitrust Act, the office said.

D.C. rent-fixing lawsuit

The 14 landlords named in the suit are:

Avenue5 Residential LLC
Bell Partners Inc.
Bozzuto Management Co.

Gables Residential Services Inc.
GREP Atlantic LLC
Highmark Residential LLC

Paradigm Management II LP

William C. Smith & Co. Inc.

The companies listed in the lawsuit didn’t immediately respond to a request for comment.
“Defendants’ coordinated and anticompetitive conduct amounted to a district-wide housing cartel,” Schwalb said in a statement. “At a time when affordable housing in D.C. is increasingly scarce, our office will continue to use the law to fight for fair market conditions and ensure that District residents and law-abiding businesses are protected.”
The full complaint can be read here.

RealPage’s price technology is used by more than 30% of apartments in multifamily buildings and more than 60% of apartments in large multifamily buildings across the district, according to the attorney general’s office. The software uses proprietary, nonpublic data and statistical models to estimate supply and demand and generate a price to maximize the landlord’s revenue.
The landlords listed in the complaint allegedly colluded to exchange competitive and sensitive data and adopt the rents set by RealPage’s “Revenue Management” technology, according to the attorney general. The lawsuit alleges the companies transformed the competitive real estate marketplace into one where they worked together at the expense of renters.
The attorney general’s office is also seeking to appoint a corporate monitor to stop any alleged anti-competitive colluding and is seeking financial penalties for the district and residents whose rents were allegedly illegally raised.
The D.C. lawsuit follows a Tuesday decision by a federal jury in Missouri that found the National Association of Realtors and some brokerages, including units of Berkshire Hathaway, liable for conspiring to artificially inflate home sales commissions. More

CVS reported third-quarter adjusted earnings and revenue that topped Wall Street’s expectations.
The results come one quarter after CVS launched a sweeping cost-cutting program as part of its push to transform from a major drugstore chain to a large health-care company.
CVS lowered its full-year unadjusted earnings forecast but maintained its guidance for adjusted full-year earnings per share.

A woman walks past a CVS Pharmacy in Washington, D.C., on Nov. 2, 2022.
Brendan Smialowski | AFP | Getty Images

CVS on Wednesday reported third-quarter adjusted earnings and revenue that topped Wall Street’s expectations, lifted in part by strong revenue from the company’s health services business. 
CVS booked sales of $89.76 billion for the quarter, up nearly 11% from the same period a year ago.

The company reported net income of $2.27 billion, or $1.75 per share, for the third quarter. That compares with a net loss of $3.40 billion, or $2.59 per share, for the same period a year ago. Excluding certain items, such as amortization of intangible assets and capital losses, adjusted earnings per share were $2.21 for the quarter.
Here’s what CVS reported for the third quarter compared to what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Earnings per share: $2.21 adjusted vs. $2.13 expected
Revenue: $89.76 billion vs. $88.25 billion expected

CVS lowered its full-year unadjusted earnings forecast to a range of $6.37 to $6.61, down from a prior range of $6.53 to $6.75. However, it maintained its forecast on an adjusted basis, guiding to full-year adjusted earnings of $8.50 to $8.70 per share. 
The results come on the last day of a nationwide walkout by pharmacy staff from CVS, Walgreens and Rite Aid to protest what they call harsh working conditions that put both employees and patients at risk. CVS told CNBC last week that the company is engaging with staff to directly address any concerns that they might have. 
They also come one quarter after CVS launched a sweeping cost-cutting program as part of its push to transform from a major drugstore chain to a large health-care company. The company deepened that push earlier this year with its nearly $8 billion acquisition of health-care provider Signify Health and $10.6 billion deal to buy Oak Street Health, which operates primary care clinics for seniors.

CVS’s stock fell more than 3% in premarket trading Wednesday. Shares of CVS were down nearly 26% for the year through Tuesday’s close, putting the company’s market value at around $88 billion. 

Growth across business segments 

The company’s health services segment generated $46.89 billion in revenue for the quarter, a nearly 8% increase compared with the same quarter in 2022. The division includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance plans, as well as health-care services delivered in medical clinics, through telehealth and at home.
Analysts had expected the division to bring in $45.19 billion in sales, according to estimates compiled by StreetAccount.
CVS said the increase was driven in part by growth in specialty pharmacy services, which help patients who are suffering from complex disorders and require specialized therapies. The company’s recent acquisitions of Oak Street Health and Signify Health also boosted the segment results, according to CVS.
The division processed 579.6 million pharmacy claims during the quarter, a slight decrease from the year-ago period due to a drop in Covid vaccinations and a Medicaid customer contract change. 
The company’s pharmacy and consumer wellness division booked $28.87 billion in sales for the quarter, up 6% from the year-ago period. That segment dispenses prescriptions in CVS’s retail pharmacies and provides other pharmacy services, such as diagnostic testing and vaccination. 
Analysts had expected the division to bring in $28.81 billion in sales, according to estimates compiled by StreetAccount.
Same-store sales grew 8.8% during the three-month period compared with the same time a year earlier, but not equally across the store. Same-store sales jumped 11.9% in the pharmacy division, but were down by 2.2% in the front of the store, in part as customers cut back on buying over-the-counter Covid tests.
CVS said a slight increase in prescription volume contributed to the segment’s revenue growth. The division filled 407.1 million prescriptions during the quarter, fractionally up from the same period a year ago. But same-store prescription volume jumped nearly 3.5%, excluding Covid vaccines.
The company counts 9,000 brick-and-mortar drugstores across the U.S.
CVS’s health insurance segment generated $26.30 billion during the quarter, a nearly 17% increase from the second quarter of 2022. That division includes plans by CVS-owned health insurer Aetna for the Affordable Care Act, Medicare Advantage, Medicaid, and dental and vision.
The insurance segment’s medical benefit ratio— a measure of total medical expenses paid relative to premiums collected — increased to 85.7% from 83.4% a year earlier. A lower ratio typically indicates that the company collected more in premiums than it paid out in benefits, resulting in higher profitability.
Analysts had expected that ratio to be 84.7%, according to StreetAccount estimates.
CVS will hold an earnings call with investors at 8 a.m. ET. More

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.86% from 7.90%
The ARM share of mortgage applications is now at the highest level in nearly a year.
Applications for a mortgage to purchase a home fell 1% for the week and were 22% lower year over year.

A house is for sale in Arlington, Virginia, July 13, 2023.
Saul Loeb | AFP | Getty Images

As mortgage rates hover near the highest level in more than two decades, homebuyers are turning to riskier mortgage products to help them get into a home.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.86% from 7.90%, with points falling to 0.73 from 0.77 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. That is still 80 basis points higher than the same week one year ago.

Adjustable-rate mortgages, which are considered riskier because the rates are fixed for shorter terms, offer savings. The average contract interest rate for 5/1 ARMs decreased to 6.77% last week.
“As higher rates continue to impact affordability and purchasing power, ARM loans increased almost 10 percent last week and continued to gain share, growing to 10.7 percent of all applications,” said Joel Kan, an MBA economist.
The ARM share of mortgage applications is now at the highest level in nearly a year.
Overall, mortgage demand, however, continues to slide. Applications to refinance a home loan fell 4% for the week, seasonally adjusted, and were 12% lower than the same week one year ago.
Applications for a mortgage to purchase a home dropped 1% for the week and were 22% lower year over year.

“The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023,” Kan added.
Markets now await news from the Federal Reserve on Wednesday to see if there will be any relief from higher interest rates. More

Wayfair’s losses narrowed during its fiscal third quarter but sales came in a bit lower than expectations.
The online furniture retailer has been working to aggressively cut costs as the home market remains under pressure.

Wayfair IPO on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters

Wayfair is inching closer to profitability, but its third-quarter results still fell short of revenue expectations as the home market continues to be under pressure. 
Here’s how the online furniture retailer did during the period compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Loss per share: 13 cents, adjusted, vs. 48 cents expected
Revenue: $2.94 billion vs. $2.98 billion expected

The company’s reported net loss for the three-month period that ended September 30 was $163 million, or $1.40 per share, compared with a loss of $283 million, or $2.66 per share, a year earlier. Excluding one-time items, Wayfair reported an adjusted loss of 13 cents per share. 
Sales rose to $2.94 billion, up about 3.7% from $2.84 billion a year earlier. 
Shares of Wayfair were down about 7% in premarket trading following the report.
Wayfair has been focusing on cost discipline to drive profitability and protect its margins as demand remains tepid across the home goods sector and other consumer discretionary categories. That discipline led Wayfair to see adjusted earnings before interest, tax, depreciation and amortization of $100 million, compared to the $55 million analysts had expected, according to StreetAccount. 
Average order values are coming down, but it’s not necessarily because shoppers are buying less, the company said. Over the last year, freight and raw material costs have come down significantly so wholesalers are charging less for Wayfair’s furniture and home goods. Instead of keeping prices elevated, the company has passed those savings down to customers, it said. 

Over the last 12 months, net revenue per active customer declined 1.6% to $538, and during the quarter, average order value dropped to $297 compared to $325 in the year ago period. 
Revenue in the U.S. was up 5.4% year over year to $2.6 billion, while sales internationally fell 7% to $372 million. 
As of Sept. 30, Wayfair’s active customer count dropped 1.3% year over year to 22.3 million but has increased on a quarter over quarter basis, the company said, adding its repeat customers are ordering more. Customers who’ve shopped at Wayfair previously placed 7.9 million orders during the quarter, an increase of 16.2% compared to the year ago period and accounting for about 80% of Wayfair’s total orders. 
“We executed further in the third quarter to produce consistent profitability – with Adjusted EBITDA now positive on a trailing 12 month basis – while also driving demonstrable market share growth, as evidenced by our gains on customers and orders,” Wayfair’s CEO and co-founder Niraj Shah said in a news release. “Even with a turbulent macro, we remain committed to our profitability goals in good times and bad.”
The digitally native retailer, which doesn’t make furniture but instead relies on a network of suppliers to fulfill orders, was a big winner during the pandemic but has struggled over the last year to revive demand amid high interest rates and a sluggish housing market. 
Last May, it instituted a hiring freeze and in January, it cut about 10% of its workforce, or about 1,750 employees. 
Since then, Wayfair’s losses have narrowed and its margins have improved as it worked to reduce selling, general and administrative expenses. During the quarter, those costs came down to $596 million, compared to $656 million in the year ago period.
Its gross margin rose to 31%, compared to 29% in the year ago period. More

Hanesbrands is considering a sale of its Champion line, and brand management firms WHP Global and Authentic Brands Group are both interested in buying it.
The longtime retailer, best known for its basic T-shirts and underwear, has been feeling pressure from activists who want to see it cut costs and reduce its debt.
Hanesbrands has received a broad array of interest for Champion, which sees estimated annual sales of about $2 billion.

American sportswear fashion brand Champion store seen in Hong Kong.
Chukrut Budrul | SOPA Images | Sipa via AP Images

Brand management firms WHP Global and Authentic Brands Group are both interested in buying Champion from its parent company Hanesbrands, which is considering offloading the sportswear line amid pressure from activist investors, CNBC has learned. 
Hanesbrands announced it was evaluating strategic options for Champion in late September — a little over a month after activist firm Barington Capital Group began pressuring the company to cut costs and generate cash as sales fall. At the time, Hanesbrands said those options could include a potential sale of Champion or another type of strategic transaction. It also said it could hold on to the brand.

Hanesbrands has seen wide interest in acquiring Champion from a mix of buyers, including WHP and Authentic Brands, according to people familiar with the matter. Interested potential buyers include strategics and sponsors, the people said.
Champion has estimated annual sales around $2 billion, the people said.
A deal isn’t close to completion, and if Hanesbrands moves forward with a sale, it’s not expected to select a buyer until 2024, the people said. 
“We are in the initial stages of evaluating strategic options and the right path forward for the global Champion business, and at the same time, remain committed to advancing Champion’s new, disciplined channel segmentation strategy, energizing the brand and leveraging the work already completed to globalize product design and segment and streamline our supply chain,” a Hanesbrands spokesperson told CNBC.
WHP and Authentic Brands didn’t return requests for comment. Goldman Sachs, which has been tapped as Hanesbrands’ financial advisor for its review of Champion, declined to comment. 

A deal that could make ‘perfect sense’

Both WHP and Authentic Brands count a wide range of brands in their portfolios and would be well suited to add Champion to their lists. WHP recently acquired Bonobos from Walmart, and previously bought Toys R Us and Anne Klein.
Along with Champion, it’s also interested in buying Sperry from parent company Wolverine Worldwide, according to people familiar with the matter. Wolverine said in May that it was exploring a sale of the footwear brand best known for its boat shoes. The company didn’t return a request for comment. 
Authentic Brands, which owns brands like Aeropostale, Brooks Brothers and Juicy Couture, recently partnered with mega-retailer Shein to sell a co-branded clothing line with Forever 21, among other ventures.
Neil Saunders, a retail analyst and managing director with GlobalData, said WHP and Authentic Brands’ interest in Champion “makes perfect sense.” 
“This is exactly what these companies do. They buy up different brands that are struggling and they have a pretty good track record of turning them around and trying to reengineer performance,” Saunders told CNBC.
“They have a good operational backdrop that they can integrate these brands into, whether that be through licensing, through international expansion, through getting them into physical retail more, through selling them direct to consumer,” he said. “They almost have an operating model that you can just sort of drop brands into and start seeing better performance.” 
Champion may be one of the best known sports brands on the market, but demand for its hoodies, workout clothes and branded apparel have declined globally, particularly in the U.S.
During the most recent reported quarter ended July 1, Champion brand sales dropped 16% year over year, declining 25% in the U.S. and 1% internationally. The company expects Champion sales in the U.S. to be under pressure throughout the rest of the year, executives said. 
Sluggish sales at Champion are contributing to a broader slowdown across Hanesbrands, which saw revenue decline by about 8.5% in the six months ended July 1 as wholesalers pulled back on orders for its T-shirts, bras and underwear. Its stock is down about 34% this year. 
In August, Barington sent a letter to Hanesbrands Chair Ronald Nelson saying the company “must immediately focus on cash generation and debt reduction” in order to create long-term value for shareholders. 
A little over a month later, Hanesbrands announced it was undertaking “an evaluation of strategic options” for Champion as it looked to simplify and focus its larger business, while also driving growth and profitability. 
Meanwhile, Sperry sales have also been sluggish for Wolverine Worldwide. 
During the three months ended July 1, Sperry sales dropped to $57.4 million, down 23.5% from the year-ago period. That slowdown has contributed to a falloff at Wolverine, which saw total revenue decline to $589 million during that quarter, off 17% from the year-ago period. 
Wolverine’s stock is down more than 26% year to date. More