Raphael Stevens

More stories

  • 188 Shares189 Views

    in Finance

    China’s electric car race is becoming more about chip prowess as companies focus on tech

    Price wars aside, Chinese electric car companies are now competing on driver-assist and other tech powered by semiconductors.
    “It’s hard to point to your product being superior when your competitors use the exact same silicon to power their infotainment and intelligent driving systems,” said Tu Le, founder of consulting firm Sino Auto Insights.
    Over the last few years, Nvidia has already built a $300 million business in automotive chips, with many of the major Chinese electric car companies as partners.

    Shaoqing Ren, vice president, autonomous driving development, at Nio speaks about the electric company’s 5nm chip at its tech day in Shanghai on July 27, 2024.
    CNBC | Evelyn Cheng

    BEIJING — Chinese electric car companies that are already engaged in an intense price war are turning up the heat on another front: Chip-powered tech features such as the driver-assist function.
    Nio and Xpeng have announced that their in-house designed auto chips are ready for production. So far, many of the major Chinese electric car makers have relied on Nvidia chips, with the company’s automotive chips business over the past few years bringing in more than $300 million in revenue a quarter.

    “It’s hard to point to your product being superior when your competitors use the exact same silicon to power their infotainment and intelligent driving systems,” said Tu Le, founder of consulting firm Sino Auto Insights, explaining why EV makers are turning to in-house chips.
    Le said he expected Tesla and Chinese electric car startups to compete on designing their own chips, while traditional automakers will likely still rely on Nvidia and Qualcomm “for the foreseeable future.”
    Nvidia reported a 37% year-on-year increase in automotive segment revenue to $346 million in the latest quarter.
    “Automotive was a key growth driver for the quarter as every auto maker developing autonomous vehicle technology is using NVIDIA in their Data Centers,” company management said on an earnings call, according to a FactSet transcript.

    “I think the main reason why Chinese [automakers] pay attention [to] self-development system-on-chip is the success of Tesla in full-self driving,” said Alvin Liu, a Shanghai-based senior analyst for Canalys.

    In 2019, Tesla reportedly shifted from Nvidia to its own chip for advanced driver-assist functions.
    By designing their own chips, Chinese automakers can customize features, as well as reduce supply chain risk from geopolitical tensions, Liu said.
    Liu does not expect significant impact to Nvidia in the short-term, however, as Chinese automakers will likely test new tech in small batches in the higher-end of the market.

    Leveraging latest tech

    Nio in late July said it had finished designing an automotive-grade chip, the NX9031, that uses a highly advanced 5 nanometer production technology.
    “It is the first time that the five-nanometer process technology has been used in the Chinese automotive industry,” said Florence Zhang, consulting director at China Insights Consultancy, according to a CNBC translation of her Mandarin-language remarks. “It has broken through the bottleneck of domestic intelligent driving chip research and development.”
    Nio, which had teased the chip in December, plans to use it in the high-end ET9 sedan, set for delivery in 2025.
    The 5 nanometers technology is the most advanced one for autos because the 3 nanometer tech is mostly used for smartphone, personal computer and artificial intelligence-related applications, CLSA analyst Jason Tsang, said following the Nio chip announcement.
    Xpeng at its event on Tuesday did not disclose the nanometer technology it was using for its Turing chip. The company’s driver-assist technology is widely considered one of the best currently available in China. 
    While Xpeng revealed its chip on Tuesday, Brian Gu, Xpeng president, emphasized in a CNBC interview the day before that his company will primarily partner with Nvidia for chips.
    The two companies have a close relationship, and Xpeng’s former head of autonomous driving joined Nvidia last year.
    Giants in China’s electric car industry are also recognizing the importance of chips for autos.
    If batteries were the foundation for the first phase of electric car development, semiconductors are the basis for the industry’s second phase, as it focuses on smart connected vehicles, BYD’s founder, Wang Chuanfu, said in April at a press conference held by Chinese driver-assist chip company Horizon Robotics.
    Wang said more than 1 million BYD vehicles use Horizon Robotics chips.
    BYD on Tuesday announced its Fang Cheng Bao off-road vehicle brand would use Huawei’s driver-assist system.
    U.S. restrictions on Nvidia chip sales to China haven’t directly affected automakers since the cars haven’t required the most advanced semiconductor technology so far.
    But with increasing focus on driver-assist tech, which relies more on artificial intelligence — a segment at the center of U.S.-China tech competition — Chinese automakers are turning to in-house tech.
    Looking ahead to the next decade, Xpeng Founder He Xiaopeng said Tuesday the company plans to become a global artificial intelligence car company.
    When asked about the availability of computing power for training driver-assist tech, Xpeng’s Gu told reporters Monday that prior to the U.S. restrictions the company had been working with Alibaba Cloud. He claimed that access now probably gives Xpeng the largest cloud computing capacity among all car manufacturers in China.

    Creating new tech and standards

    Government incentives, from subsidies to support for building out a battery charging network, have helped electric cars take off in China, the world’s largest auto market.
    In July, penetration of new energy vehicles, which includes battery-only and hybrid-powered cars, exceeded 50% of new passenger cars sold in China for the first time, according to industry data.
    That scale means that companies involved in the country’s electric car development are also contributing to new standards on tech for cars, such as removing the need for a physical key to unlock the door. Instead, drivers can use a smartphone app.
    How that app or device securely connects drivers to their cars is part of the forthcoming set of standards that the California-based Car Connectivity Consortium is working on, according to president Alysia Johnson.
    A quarter of the organization’s members are based in China, including Nio, BYD, Zeekr and Huawei. Apple, Google and Samsung are also members, Johnson revealed.
    She said the organization is looking to enable a driver of a Nio car that uses a Huawei phone to securely send the car “key” to a partner who uses an Apple phone and drives a Zeekr car, for example.
    “Digital key tech is becoming a lot more accessible than people would think,” she said. More

  • 150 Shares129 Views

    in Business

    YES Network, MSG Networks to launch combined New York regional sports app

    The joint venture between the networks that locally air New York Yankees, New York Rangers and New York Knicks games, among others, is launching a combined streaming app.
    The app, Gotham Sports App, will launch in the fall before the NHL and NBA seasons.
    The package is believed to be the first time that two regional sports networks have combined their apps into a bundled option.

    New York Yankees captain Aaron Judge.
    Erick W. Rasco | Sports Illustrated | Getty Images

    Gotham Advanced Media and Entertainment, the joint venture between MSG Networks and the YES Network, is launching a new app in the fall that will air local games for seven New York area teams.
    The package announced Wednesday is believed to be the first time that two regional sports networks have combined their apps into a bundled option.

    The Gotham Sports app will launch ahead of the NBA and NHL seasons. Locals will be able to watch the New York Knicks, New York Rangers, New Jersey Devils, New York Islanders, Buffalo Sabres, Brooklyn Nets and New York Yankees with a subscription.
    The Gotham Package that gives access to all of those teams will cost $359.99 annually and $41.99 monthly, almost identical to the monthly price of Fox, Disney and Warner Bros. Discovery’s joint Venu streaming service that was blocked with a temporary injunction earlier this month. 
    Customers who watch only some of those teams can also purchase access to just MSG+ or the YES App services for $29.99 and $24.99 monthly, respectively. If they already have MSG Networks and YES Network via their pay-TV subscription, they will get Gotham Sports App’s services for no extra fee.
    “With the increased fragmentation of outlets carrying fan favorite sports programming, The Gotham Sports App allows fans of our teams one easy access point for New York area sporting events from MSG Networks and the YES Network,” MSG Networks President and CEO Andrea Greenberg said in a press release.
    Notably, SportsNet New York — the regional sports network that airs the New York Mets — is not included in this joint venture. It is only available via FuboTV, DirecTV stream and online login for people who pay for cable. 

    Sterling Entertainment Enterprises, Comcast and Charter co-own SportsNet New York.
    The regional sports networks business has undergone dramatic changes in recent years. Boston’s local cable network that aired Red Sox and Bruins games launched the first stand-alone regional streaming service in 2022, and other markets have followed. 
    Diamond Sports Group, the biggest owner of regional sports networks, filed for bankruptcy in March 2023, leading many professional teams across leagues to change the way they air their games.
    A handful of NBA, WNBA and NHL teams have turned to local broadcasters, most recently the NBA’s New Orleans Pelicans and Dallas Mavericks.
    Some MLB teams have opted to have their games produced by the league. 
    The Gotham Sports App is not the first regional sports streaming option residents of the greater New York area have had. YES Network and MSG Networks both launched separate streaming services last year, and customers who only want one of the networks’ services and not the combined package can still pay a cheaper rate.
    Not all the new regional sports streaming services follow the subscription model. The NHL’s Dallas Stars and Anaheim Ducks both announced their games would be locally aired on Victory+, a free, ad-supported streaming service owned by A Parent Media Co. 
    Both teams previously had their local games carried by a regional sports network owned by Diamond Sports. 
    Disclosure: Comcast is the parent company of CNBC.

    Don’t miss these insights from CNBC PRO More

  • 213 Shares159 Views

    in Finance

    Buffett’s Berkshire Hathaway hits $1 trillion market value, first U.S. company outside of tech to do so

    Warren Buffett tours the grounds at the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska.
    David A. Grogan | CNBC

    Warren Buffett’s Berkshire Hathaway reached a $1 trillion market capitalization on Wednesday, the first nontechnology company in the U.S. to score the coveted milestone.
    Shares of the Omaha, Nebraska-based conglomerate have rallied more than 28% in 2024, far above the S&P 500’s 18% gain. The $1 trillion threshold was crossed just two days before the “Oracle of Omaha” turns 94 years old.

    The shares were up 0.8% to $696,502.02 on Wednesday, allowing it to top the $1 trillion mark, per FactSet.
    The milestone “is a testament to the firm’s financial strength and franchise value,” said Cathy Seifert, Berkshire analyst at CFRA Research. “This is significant at a time when Berkshire represents one of the few remaining conglomerates in existence today.”
    Unlike the six other companies in the trillion-dollar club (Apple, Nvidia, Microsoft, Alphabet, Amazon and Meta), Berkshire is known for its old-economy focus as the owner of BNSF Railway, Geico Insurance and Dairy Queen. (Although its sizable Apple position has helped drive recent gains.)
    Buffett, chairman and CEO, took control of Berkshire, a struggling textile business, in the 1960s and transformed the company into a sprawling empire that encompasses insurance, railroad, retail, manufacturing and energy with an unmatched balance sheet and cash fortress.
    “It’s a tribute to Mr. Buffet and his management team, as ‘old economy’ businesses … are what built Berkshire. Yet, these businesses trade at relatively much lower valuations, versus tech companies which are not a major part of Berkshire’s business mix,” said Andrew Kligerman, TD Cowen’s Berkshire analyst. “Moreover, Berkshire has achieved this through a conglomerate structure, a model that many view as ‘archaic,’ as corporations have increasingly moved to specialization over the decades.”

    Stock chart icon

    Berkshire Hathaway

    Greg Abel, vice chairman of Berkshire’s non-insurance operations, has been named Buffett’s successor. At this year’s annual meeting, Buffett told shareholders that Abel, 62, will have the final say on Berkshire’s investing decisions when he’s no longer at the helm.
    Selling spree
    Buffett has been in a defensive mode as of late, dumping a massive amount of stock, including half of his Apple stake, while raising Berkshire’s cash pile to a record $277 billion at the end of June.
    While Buffett famously never times the market and advises others to not try to either, these recent moves served as a wake-up call to some of his followers on Wall Street, who believe he saw some things he did not like about the economy and market valuation.
    Berkshire invests the majority of its cash in short-term Treasury bills, and its holding in such securities — valued at $234.6 billion at the end of the second quarter — has exceeded the amount the U.S. Federal Reserve owns.
    So it’s hard to judge why investors are rewarding Berkshire with the $1 trillion crown today, whether it’s a bet on the American economy and Buffett’s sprawling group of businesses poised to benefit if it keeps chugging along or whether they see Berkshire as a cash fortress that will generate steady income in the face of an uncertain macro environment.
    The conglomerate also started a selling spree of Bank of America shares in mid-July, dumping more than $5 billion worth of the bank stock. Buffett bought BofA’s preferred stock and warrants in 2011 in the aftermath of the financial crisis, shoring up confidence in the embattled lender struggling with losses tied to subprime mortgages.
    Strong earnings
    After Berkshire’s latest strong second-quarter earnings, UBS analyst Brian Meredith increased his 2024 and 2025 earnings estimates because of two factors: higher investing income and higher underwriting results at the insurance group including Geico. Insurance stocks have been on a tear this year as the group continues to raise prices coming out of the pandemic.
    Meredith sees Berkshire’s market value rising far above $1 trillion, raising his 12-month price target to $759,000 for the A shares, almost 9% higher than Wednesday’s level.
    “We continue to believe BRK’s shares are an attractive play in an uncertain macro environment,” he wrote in the note earlier this month.
    High price tag
    Berkshire’s original Class A shares carry one of the highest price tags on Wall Street. Today, each one sells for 68% more than the median price of a home in the U.S. 

    Stock chart icon

    Berkshire Hathaway A shares, long term

    That’s because Buffett has never split the stock, contending that the high share price attracts and retains more long-term, quality-oriented investors. The Benjamin Graham protégé has said that many Berkshire shareholders use their stock as a savings account.
    Still, Berkshire issued Class B shares in 1996 at a price equal to one-thirtieth of a Class A share to cater to smaller investors wanting a small piece of the Buffett’s performance.

    Don’t miss these insights from CNBC PRO More

  • 113 Shares99 Views

    in Business

    Ford joins list of companies walking back DEI policies

    Ford Motor told employees in an internal communication that it had taken “a fresh look” at its DEI policies and practices over the past year.
    Following that review, the automaker said it will not use quotas for minority dealerships or suppliers, adding that it does not have hiring quotas.
    The company also will stop participating in the Human Rights Campaign’s Corporate Equality Index, as well as various other “best places to work” lists.

    The new Ford F-150 and the all-new Ranger trucks are launched at a celebratory event at the Ford Dearborn Plant on April 11, 2024 in Dearborn, Michigan.
    Bill Pugliano | Getty Images

    Ford Motor is the latest company to walk back some of its commitments to diversity, equity and inclusion initiatives.
    The automaker has taken “a fresh look” at its DEI policies and practices over the past year to take in to account the evolving “external and legal environment related to political and social issues,” according to an internal communication that was shared with global Ford employees and posted on X on Wednesday by an anti-DEI activist. Ford confirmed the letter was authentic and said it had no additional comment on the matter.

    Ford’s move follows retailer Tractor Supply, which one of the first major companies to stop its DEI efforts, as it severed ties earlier this summer with the Human Rights Campaign, an LGBTQ+ advocacy group, and retired DEI targets like boosting the number of employees of color at the manager level. Harley Davidson, whose board of directors includes Ford CEO Jim Farley, also decided last week to stop consulting the HRC’s metric for treatment of LGBTQ+ employees and affirmed that it does not have a DEI function.
    Home improvement retailer Lowe’s joined the efforts earlier this week, and noted that it might also make additional changes to the policies over time.
    The companies have cited conservative backlash or changing social and political environments in their announcements. Tractor Supply and Harley Davidson also noted a desire to appeal to their more rural or conservative-leaning customers.
    “I think you will start to see this move towards more politically neutral companies, which is to say that most of these companies didn’t really want to be doing this stuff in the first place,” Liz Hoffman, Semafor’s business and finance editor, said on CNBC’s “Squawk Box” earlier Wednesday, before the Ford memo was posted. 
    In the memo Wednesday, Farley said the company will not use quotas for minority dealerships or suppliers, adding that it does not have hiring quotas.

    The automaker will also stop participating in the Human Rights Campaign’s Corporate Equality Index, as well as various other “best places to work” lists.
    Human Rights Campaign scores over 1,300 companies annually based on their corporate equality measures for LGBTQ+ individuals, including practices like offering spousal medical benefits regardless of sex and having distinct LGBTQ+ community outreach efforts. Ford, in previous years, had received a perfect score on the index.
    “Ford Motor Company’s shortsighted decisions will have long-term consequences,” Human Rights Campaign President Kelley Robinson said in a statement. “Hastily abandoning efforts that ensure fair, safe, and inclusive work environments is bad for business and leaves Ford’s employees and millions of LGBTQ+-allied consumers behind.”
    The organization also added that it evaluates every Fortune 500 company on its equality index, regardless of whether or not the company submits additional information about its priorities, which means Ford will continue to be scored on the list.
    “As a global company, we will continue to put our effort and resources into taking care of our customers, our team, and our communities versus publicly commenting on the many polarizing issues of the day,” Ford said in the statement sent to employees. “There will of course be times when we will speak out on core issues if we believe our voice can make a positive difference.”
    Many companies, including automakers such as Ford, amped up their DEI commitments in the aftermath of the murder of George Floyd and Black Lives Matter protests of the summer of 2020 — and Ford spoke up about that at the time.
    “We are not interested in superficial actions. This is our moment to lead from the front and fully commit to creating the fair, just and inclusive culture that our employees deserve,” the company said in 2020 in a letter reaffirming its DEI commitment. “We cannot turn a blind eye to it or accept some sense of ‘order’ that’s based on oppression.”
    But, in the wake of the Supreme Court decision to overturn affirmative action in colleges, a growing number of conservative activists on social media have called on companies to stop investing in DEI.
    “There is an old saying: If you give an inch, people take a mile, and that is essentially what we have seen when the Supreme Court made a ruling that was very specific to institutions of higher education,” industrial and organizational psychologist Derek Avery told CNBC. “Conservative state attorney generals sent letters to corporations warning them that they could expect to be sued if they continue to advocate and promote DEI practices within their organizations that could be construed as counter to the Supreme Court ruling, even though the Supreme Court ruling had no bearing on those corporate initiatives.” More

  • 150 Shares169 Views

    in Finance

    401(k) auto-enrollment features don’t help savings as much as expected, study finds

    401(k) plan policies like auto-enrollment and auto-escalation have become popular.
    They aim to boost workers’ retirement savings.
    Pioneering researchers found that the policies may be less effective than they’d previously thought. However, the effects are still positive, they said.

    Images By Tang Ming Tung | Digitalvision | Getty Images

    Employers are increasingly putting workers’ 401(k) plan savings on autopilot.
    But the positive impact of automated retirement savings is more muted than initially thought, new research finds.

    Previously “underexamined” factors — like workers cashing out 401(k) balances when they leave a job — “meaningfully reduce” the long-term impact of policies like automatic enrollment and automatic escalation, according to a new paper published by the National Bureau of Economic Research.
    Importantly, some of the paper’s co-authors — James Choi of Yale University, and David Laibson and John Beshears of Harvard University — are behavioral economists who pioneered early research into the positive effects of automatic enrollment.
    “They are like the OGs [originals],” said David Blanchett, head of retirement research at PGIM, an investment manager. “These are the people who’ve been doing research on this topic now for decades.”

    ‘Not as positive as we had previously thought’

    Automated savings has been a cornerstone of 401(k) policy since Congress passed the Pension Protection Act of 2006.
    Policies like auto-enrollment and auto-escalation aim to boost the size of employees’ nest eggs, by automatically enrolling workers in their company 401(k) and then raising (or “escalating”) their savings rate over time.

    In this way, people’s tendency towards inertia works in their favor.

    About two-thirds of 401(k) plans were using auto-enrollment as of 2022, according to survey data from the Plan Sponsor Council of America, a trade group. Of them, 78% used auto-escalation.
    Overall, their effect on savings is positive, “just not as positive as we had previously thought based on the research we had done before,” Choi said in an interview.
    The group’s initial research didn’t track results for workers who left jobs where they’d been automatically enrolled.
    This research update sought to do a broader analysis, incorporating factors like job turnover, Choi said.
    More from Personal Finance:You may be paying fees for cash back at retailersWhy some young adults are disconnected from the job marketThe benefits of giving to a 529 college savings plan
    Overall, Choi and his co-authors recently found that auto-enrollment raised average 401(k) contribution rates by 0.6 percentage points of income over workers’ careers.
    That’s a 72% decrease in effectiveness from the 2.2-percentage-point boost that was extrapolated by the “results of early pioneering papers,” the paper said.
    “You’re talking 1.6% of income less saved per year,” Choi said. “If you were to just add that up over a 40-year career, you’re talking more than a half year of income saved.”
    When also accounting for compounding interest on those savings, it can amount to a “quite substantial” financial difference, he added.

    The impact of 401(k) leakage

    The disparity is largely a function of so-called “leakage” from 401(k) plans. meaning the early withdrawal of funds before retirement.
    About 40% of workers who leave a job cash out their 401(k) plans each year, according to the Employee Benefit Research Institute. Such leakage amounted to $92.4 billion in 2015, according to EBRI’s most recent data.
    Workers may withdraw 401(k) plan funds before their employer match is fully vested, meaning they’d forgo that free money.

    Additionally, just 43% of workers defaulted into auto-escalation of their savings rates ultimately accepted a higher contribution rate after one year, the National Bureau of Economic Research paper found.
    By comparison, early research conducted by behavioral economists like Richard Thaler and Shlomo Benartzi estimated that share around 85%.
    Job turnover also complicates auto-escalation in addition to auto-enrollment, PGIM’s Blanchett said.
    For example, a worker’s escalated contribution rate may reset at a lower savings rate if they were to join a new employer’s 401(k) plan.
    While auto-escalation isn’t necessarily a reliable way to get people to save more money, auto-enrollment has proven “very successful,” Blanchett said.

    He believes the effectiveness of auto-enrollment shouldn’t be judged based on 401(k) leakage, which is a separate policy issue, he said.
    “I think auto-enrollment does a spectacular job at getting individuals in the plan,” Blanchett said. “But we still have this massive leakage issue. It still exists whether you have auto-enrollment or you don’t.”
    That said, there’s room for improvement with automated savings.
    “I’d like us to get to a point where 7% or 8% is the median default savings rate,” Blanchett said.
    When coupled with an employer match, the typical worker would be saving 10% or more of their salaries, a bar workers should generally strive for, he said. More

  • 100 Shares149 Views

    in Finance

    How Vladimir Putin hopes to transform Russian trade

    Vladimir Putin is spending big on his war in Ukraine. The Russian president has disbursed over $200bn, or 10% of GDP, on the invasion, according to America’s Department of Defence. He now plans to invest heavily in infrastructure that will enable his country’s economy to flourish even while cut off from the West. Over the next decade, the Russian state expects to funnel $70bn into construction of transport routes to connect the country to important trade partners in Asia and the Middle East. Russia’s far east and high north will receive the lion’s share. A smaller sum will go on the International North-South Transport Corridor (INSTC), a project designed to link Russia and the Indian Ocean via Iran. Officials promise growth in traffic along all non-Western trade routes. More

  • 163 Shares149 Views

    in Business

    Abercrombie & Fitch posts 21% sales gain, hikes outlook despite ‘increasingly uncertain environment’

    Abercrombie & Fitch handily beat Wall Street’s expectations as the apparel company posted another quarter of torrid growth.
    Despite the strong results, CEO Fran Horowitz pointed to an “increasingly uncertain environment” as macro conditions worsen.
    The longtime mall retailer is seeing gains in its Hollister brand and international markets.

    An Abercrombie & Fitch store in New York, US, on Monday, Nov. 20, 2023. Abercrombie & Fitch Co. is scheduled to release earnings figures on November 21. 
    Stephanie Keith | Bloomberg | Getty Images

    Abercrombie & Fitch’s revenue grew 21% during its fiscal second quarter as the apparel company builds on its torrid growth. 
    The sales gain, which follows 16% growth in the year-ago period, led the company to issue bullish guidance for the current quarter. Still, its full-year outlook was largely in line with estimates as it prepares for one fewer week this year than last. 

    CEO Fran Horowitz – who often says good companies win in any economic environment – may be bracing for a turbulent second half of the year because for the first time in four quarters, she referenced the uncertain state of the economy in the company’s earnings release.
    “We delivered a strong first half of the year, and we are increasing our full-year outlook. Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses,” said Horowitz. “We are on track and confident in our goal to deliver sustainable, profitable growth this year, while making strategic long-term investments across marketing, digital and technology and stores to enable future growth.”
    The company’s shares — which are up nearly 89% this year — dropped about 9% in premarket trading.
    Here’s how Abercrombie did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

    Earnings per share: $2.50 vs. $2.22 expected
    Revenue: $1.13 billion vs. $1.10 billion expected

    The company’s reported net income for the three-month period that ended Aug. 3 was $133 million, or $2.50 per share, compared with $57 million, or $1.10 per share, a year earlier.  

    Sales rose to $1.13 billion, up about 21% from $935 million a year earlier. 
    During the quarter, same-store sales jumped 18%, driven by better-than-expected summer and back-to-school selling. 
    For the current quarter, Abercrombie expects sales to rise by a low double-digit percentage, better than the 8.9% growth that LSEG analysts had expected. 
    Abercrombie raised its full-year sales guidance from 10% growth to a 12% to 13% increase, which is roughly in line with the 12% rise that LSEG analysts had expected. 
    The company’s fiscal 2024 will have one fewer week than fiscal 2023, which is likely weighing on its full-year guidance. Abercrombie expects the loss of one selling week will have an $80 million impact on its holiday quarter, or 5.5 percentage points. For the full year, the company expects it to hit sales by $50 million, or 1.2 percentage points. 
    Over the last year, Abercrombie has become known as retail’s biggest comeback story, and investors have been watching to see if the company can keep up its growth. 

    Abercrombie & Fitch advertisement.
    Courtesy: Abercrombie & Fitch

    Horowitz has looked to international markets and the company’s Hollister and Abercrombie Kids brands as growth vectors, which are already boosting sales. 
    During the quarter, sales at Hollister jumped 17% while comparable sales rose 15%. In the company’s Europe, Middle East and Africa division, sales climbed 16%. 
    Costly international expansion was one of the missteps that weighed on Abercrombie’s performance in the past, but the company is taking a different approach this time around.
    Earlier this month, it announced a partnership with Haddad Brands – a licensor of children’s wear – to create new distribution channels for Abercrombie Kids and grow the product line to include infant and toddler categories. 
    “As we work to diversify A&F Co.’s channel mix and drive sustainable, profitable growth, we are thrilled to partner with Haddad Brands to build on our success and create an opportunity to grow the brand in the years ahead by engaging with new customers globally,” Horowitz said in a statement at the time. 
    Products from Abercrombie Kids are set to be available in Haddad Brands’ showrooms globally next month.

    Don’t miss these insights from CNBC PRO More

  • 150 Shares199 Views

    in Business

    Foot Locker comparable sales grow for the first time in six quarters

    Foot Locker beat Wall Street’s estimates on the top and bottom lines as it posted comparable sales growth for the first time in six quarters.
    The sneaker company also saw its gross margin expand for the first time in more than two years.
    CEO Mary Dillon told CNBC Foot Locker is exiting a number of international markets and moving its headquarters from New York City to Florida.

    A Foot Locker store near the Times Square neighborhood of New York, US, on Monday, Nov. 13, 2023.
    Bing Guan | Bloomberg | Getty Images

    Foot Locker on Wednesday said comparable sales grew for the first time in six quarters as its efforts to refresh its stores and improve the customer experience continue to bear fruit. 
    The beleaguered sneaker company’s same-store sales grew 2.6% during its fiscal second quarter, far better than the 0.7% uptick that analysts had expected, according to StreetAccount. Its gross margin also expanded for the first time in more than two years. 

    Despite the positive trends, the company’s shares dropped about 8% in premarket trading.
    “The Lace Up Plan is working,” CEO Mary Dillon said in a press release, referencing the company’s turnaround strategy. “Our top line trends strengthened as we moved through the quarter, including a solid start to Back-to-School. We were also particularly pleased to deliver stabilization in our Champs Sports banner.” 
    Here’s how Foot Locker did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Loss per share: 5 cents adjusted vs. 7 cents expected 
    Revenue: $1.90 billion vs. $1.89 billion expected

    In the three-month period that ended Aug. 3, Foot Locker had a loss of $12 million, or 13 cents per share, compared with a loss of $5 million, or 5 cents per share, a year earlier. Excluding one-time items, Foot Locker posted a loss of 5 cents per share. 
    Sales rose to $1.90 billion, up about 2% from $1.86 billion a year earlier. 

    For the current fiscal year, Foot Locker largely maintained its guidance and continues to expect sales to be in a range of a 1% decline to 1% growth from the prior year – better than the 0.4% decline that analysts had expected, according to LSEG. 
    Foot Locker also stood by its adjusted earnings per share guidance. It expects earnings to be between $1.50 and $1.70 – much of that range ahead of the $1.54 that analysts had expected, according to LSEG. 
    Since former Ulta Beauty boss Mary Dillon took the helm of Foot Locker about two years ago, she has worked to transform the company and ensure that it stays relevant in a world where brands aren’t as reliant on multibrand retailers as they were in the past. 
    Dillon has worked to repair the company’s relationship with its biggest brand partner, Nike, and has also taken a hard look at its sprawling, but aging, store fleet, where the company does about 80% of its sales. The company plans to spend $275 million upgrading its stores this year, and it expects to have two-thirds of its fleet remodeled by the end of fiscal 2025.
    In an interview with CNBC, Dillon said the store investments are leading to increased conversion, basket size and profitability, and better performance for Foot Locker’s women’s business.
    “The reason that we’re doing it is that it is working for us, both in terms of enhancing a customer experience and a striper [store employee] experience, but also the financial returns,” said Dillon. “The performance is ahead of what we thought.”
    In a series of new megastores Foot Locker is building in hotspots like New York City and Paris, the retailer is working hand in hand with Nike to develop some portions of the shops.
    “With Nike, this has been since Day One, a high priority for me, and really building a partnership that isn’t just about like, what number of shoes are we going to sell, but how do we think about using consumer insights to mutually grow our businesses together,” said Dillon. “For us and Nike, it’s about the places that we really connect.”
    Dillon has also worked to streamline costs at Foot Locker. On Wednesday, the company said it was closing its stores and e-commerce operations in South Korea, Denmark, Norway and Sweden, and will rely on a third party for operations in Greece and Romania, where it plans to expand its reach, according to Dillon. In all, 30 of Foot Locker’s 140 stores in the Asia-Pacific region and 629 in Europe will be closed or go under a new operator as part of the changes. 
    Foot Locker’s Champs banner, which has been dragging down the company’s overall performance, is also showing some signs of improvement. During the quarter, comparable sales were down 3.9%, which is an improvement from the 25.3% decline it saw in the year-ago period.
    Foot Locker is also planning to move its global headquarters from New York City to St. Petersburg, Florida, in late 2025 and plans to maintain only a limited presence in the Big Apple moving forward. 
    “The intent of the relocation is to further build on the Company’s meaningful presence in St. Petersburg and to enable increased collaboration among teams across banners and functions, while also reducing costs,” Foot Locker said in a news release. 
    Dillon told CNBC the move will increase margins by 0.2 percentage point by 2027, but the decision wasn’t just based on saving money.
    “We’ve got a big center of gravity already in St. Pete … many of our executives are there. A lot of our commercial teams,” said Dillon. “We think actually bringing more people together for collaboration is going to matter and that’s also part of this. It’s not just about saving money. It’s about, how do we really continue to build on this momentum?”
    The company isn’t planning to make employees relocate and Dillon, who is based in Chicago, won’t be forced to become a super commuter, either.
    “I am traveling, I would say, 90% of the time, to our teams around the world, and to our brand partners, and to investor meetings and to events,” said Dillon. “I spend a good chunk of time in New York, I spend a lot of time in St. Pete, I spend a lot of time in Amsterdam where we have our headquarters, and visiting our brand partners. So I’m planning to keep my primary residence in Chicago, but the way that this has been working is really, I think, working pretty well so we’re going to continue to do that.”
    As it improves stores, products, and the customer experience online and in stores, Foot Locker is managing to drive sales even as its core consumer continues to feel the pressure of consistent inflation and high interest rates – indicating that Dillon’s efforts are working. 
    “We’re not expecting our customer to get, like, less pressured or more pressured. We’re just trying to say this is a category they care about,” said Dillon. “How can Foot Locker be the best to serve their needs? And I think our results are showing that that’s working.”
    As of Tuesday’s close, shares of the company are up more than 5% this year, compared with Nike’s stock, which has fallen more than 21% in the same time period.
    Demand has undoubtedly slowed across the retail industry, but consumers are still spending. They’re just being far choosier on who they’re spending with — which has made execution that much more important. 
    “Our strategies are building momentum as we look to the remainder of the year,” said Dillon in a statement. “I remain confident that we are taking the right actions to position the Company for its next 50 years of profitable growth and create long-term shareholder value.”

    Don’t miss these insights from CNBC PRO More