Summary
- The latest batch of earnings shows that tech companies that primarily service other industries and companies are booming, unlike those oriented toward consumers.
- Luxury retailers are also seeing less demand from consumers and putting out weak outlooks.
- But so far travel-oriented consumer companies are doing well.
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Summary
- The latest batch of earnings shows that tech companies that primarily service other industries and companies are booming, unlike those oriented toward consumers.
- Luxury retailers are also seeing less demand from consumers and putting out weak outlooks.
- But so far travel-oriented consumer companies are doing well.
Market Implications
- Industrial tech companies could be a bellwether – if/when outlooks weaken we may be tipping into recession.
Industry-Oriented Tech Companies Are Doing Well
- The latest batch of earnings from tech companies are mostly strong, with robust outlooks. These include Cisco Systems (CSCO), Analog Devices (ADI), Wolfspeed Inc (WOLF), Keysight Technologies (KEYS), and Synopsys Inc (SNPS). That is in sharp contrast to outlooks from Intel (INTC), Micron Technologies (MU) and Nvidia Corp (NVDA).
- The primary difference? The first group of companies makes tech products for other companies. The second group makes products for consumer technology. With the pandemic stay-at-home culture fading, people are not buying much new consumer tech.
- The short of it is companies continue to upgrade their systems, computer networks, and security software. This is probably in part due to ongoing labor shortages that are pushing companies to improve productivity, as well as the relentless digitalization of industry and society.
- Another oft-repeated comment is that supply chain issues are easing, but still a concern.
- If/when these kinds of tech companies start reporting weaker earnings or order books we will likely be tipping into recession if we aren’t already there.
Luxury Retailers Keep Missing
- Retailers in the luxury goods bracket are mostly producing good earnings, but disappointing sales and earnings outlooks. These include Bath and Body Works. Inc. (BBWI), TJX Companies (TJX), Ester Lauder Companies (EL), and Tapestry, Inc. (TPR), maker of Coach handbags and Kate Moss fashions.
- Kohls Corp (KSS) is hardly a luxury retailer but rather a general merchandise department store, but it could not match the more robust outlooks of Walmart (WMT) and Target (TGT). It cut its net sales outlook for the year by 5%-6%. Part of KSS’s problems are company-specific, but are also more systemic too as much of its merchandise is apparel-related; it does not have the grocery and consumer essentials divisions to fall back on like its larger competitors.
Whether because of inflation or changing consumer tastes, people are cutting back on consumer discretionary stuff. As we’ve noted before, travel-oriented consumer discretionary companies are mostly doing well, with solid 2H outlooks. There is reason to be a bit skeptical about that as long as the Fed is pushing up rates but that may be a developing 3Q story.