LEVI - Last Week's Summary
Last week was a relatively light week on the earnings calendar, laying the field before third quarter earnings season picks up. Here are the main highlights.
Monday
Cisco Systems Inc (NASDAQ: CSCO) had its analyst meetings. Costco’s investors were in for another key update from the warehouse giant as its new service-focused strategy could pay off over the long run. The software giant has been rewarding its shareholders with steadily increasing dividends. Its leadership team took the hampered demand in equipment spending as an opportunity to streamline operations. It aims to remove more than $1 billion in costs as it realigns resources into strategic areas. While the weakness in demand is expected to continue impacting the financial performance and position in the near term, the ‘new normal’ work-at-home environment will benefit companies that are able to contribute to an IT infrastructure. As more and more companies will be forced to invest in modernizing their infrastructure, Cisco’s top line could rebound after the dust settles, coupled with a boost from 5G infrastructure spending in the subsequent years. Besides 5G and cloud segments, Cisco will amplify investments in WiFi 6, 400G optical networking, next-generation silicon, and AI.
Cisco sure changed its tune in six months. The company is reportedly laying off about 9% of its workforce, six months after CEO Chuck Robbins pledged not to cut jobs in response to the COVID-19 crisis when at least one-fourth of the U.S. economy was completely shut down. During the company’s most recent earnings call, Robinson announced a plan to move most of its portfolio to a cloud-based offering. So much for not contributing further to the economic calamity but desperate times need desperate measures.
Tuesday
Levi Strauss (NYSE: LEVI) and Paychex Inc (NASDAQ: PAYX) reported their earnings.
Investors were not expecting much good news from Levi Strauss that was slammed by the pandemic during its second fiscal quarter, with sales and profitability diving. But, Levi’s delivered a surprise as it achieved profitability and proved its brand has an enduring value. More importantly, Levi’s has officially entered the resale market last week, being one of the first apparel brands to embrace the idea itself. Besides appealing to sustainable customers of this growing market, this initiative bolsters the company’s ability to gather consumer data and then build a digital customer ecosystem out if it as digital sales were up 50%, accounting for about one-fourth of its revenue for the latest quarter.
Paychex reported some strong results as well. It was overall a positive report, with revenues $932 million beating expectations by 4.9%. Earnings per share were $0.59, 15% above expectation.
Wednesday
Lamb Weston Holdings (NYSE: LW) made its appearance on the earnings calendar and also exceeded expectations, causing its shares to rise 7.8%. Its first quarter result ended with a credible result overall – although revenues of $872 million were what the analysts expected, the statutory profit of $0.61 per share was 74% above the forecast.
Thursday
Domino’s Pizza (NYSE: DPZ) reported on Thursday with a mix of positives and negatives. Although revenues increased, costs rose. For the period that ended on September 6th, demand remained strong. But is not merely the pandemic that supercharged sales as domestic comps have a growth track record that spans over 38 straight quarters with international operations expanding for 107 consecutive quarters.
Some investors were disappointed that the sales weren’t as robust as those of Papa John’s International (NASDAQ: PZZA) and others with the elevated expenses that were caused by higher wages and sick pay.
The bottom line is that Dominos’ quarterly revenue rose 17.9% to $968 million, but earnings were hit and fell short of expectations as they amounted to $2.49 as opposed to $2.79 expected. Consequently, its shares fell more than 6% in morning trading. But, it would be a mistake to judge Domino’s based on this one quarter as before this earnings release and its consequent price drop, its shares were up nearly 50% this year. Let’s not forget Domino’s was gaining market share during the last decade, with the pandemic only further boosting its sales.
Outlook
Big banks are the ones which will open the Q3 earnings season, led by JPMorgan Chase&Co (NYSE: JPM), The Goldman Sachs Group Inc (NYSE: GS) and Wells Fargo& Company (NYSE: WFC). The financial sector has been one of the worst-performing sectors this year, dropping 18% for the year-to-date through Fridays close. The industry has faced myriad pressures throughout the pandemic, with interest rates remaining near-zero and weighing on banks’ net interest income so their reports will provide us with valuable insights with what we’re in for.