Friday, March 15, 2024

Dick's Sporting Goods surges 15% on holiday success

Plus, Deep Dive: Warehousing demand declining

Inside Business

For March 15, 2024

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🏋️‍♂️ Dick's Sporting Goods surges 15% on holiday success
🔍 Deep Dive: Warehousing demand declining
📉 Adobe stock falls 10% on sales forecast

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Dick's Sporting Goods ($DKS) saw its shares jump more than 15% on Thursday after reporting robust holiday sales and earnings, prompting the company to increase its quarterly dividend by 10%. CEO Lauren Hobart credited the sales surge to a rise in sales of higher-priced items, marking the company's most successful sales quarter to date.

More:

Revenue of $3.88B exceeded forecasts of $3.80B, and adjusted earnings per share for the fourth quarter came in at $3.85, topping estimates of $3.35.
During the quarter, same-store sales increased by 2.8%, exceeding analysts' estimates of a 0.8% increase.
Dick's anticipates revenue of between $13B and $13.13B, same-store sales growth of 1% to 2%, and fiscal 2024 earnings per share between $12.85 and $13.25.
Though the company is optimistic about the upcoming year, difficulties are expected in the current quarter, especially in the gross margin, because of increased rates of shrink, which could affect profitability.

What the numbers say: In Q4 2023, the U.S. saw a record-high of over 156 million square feet of warehouse space listed for sublease, tripling the amount available in Q4 2021. While the average warehouse asking rent surged by nearly 24% year-over-year in 2022, growth slowed to 12.5% in 2023 compared to the previous year, despite a 14.8% increase in leasing activity from Q3 to Q4.

Relevance: The U.S. warehousing market is contracting as companies consolidate and upgrade facilities instead of expanding, responding to reduced inventories and pre-pandemic stocking patterns. Retailers and manufacturers like Newell Brands, Rite Aid, and Fanatics are closing or upgrading warehouses, driving a surge in subleases and aligning supply chains with projections for moderate consumer spending growth.

More data: The industrial real estate market is shifting, with more subleases and less demand for new warehouse space amid a focus on cost efficiency and adapting to changing market conditions. Despite this, new warehouse space continues to be developed, with leasing activity showing some resilience despite a year-over-year decline.

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Adobe's shares ($ADBE) plummeted by 11% in after-hours trading after its fiscal first-quarter results were released, with the company narrowly missing its quarterly revenue guidance despite solid performance. Despite exceeding analysts' expectations with adjusted earnings per share of $4.48, Adobe's quarterly revenue of $5.18B was slightly above the anticipated $5.14B, marking an 11% year-over-year growth.

More:

Due to regulatory concerns, the business withdrew from its $20B acquisition of design software startup Figma, paying a $1B termination fee.
Adobe unveiled an early iteration of an AI assistant for its Acrobat and Reader software.
Adobe projects sales of $5.25B to $5.30B and adjusted earnings per share of $4.35 to $4.40 for the fiscal second quarter, indicating 9% growth.
David Wadhwani, the president of Adobe's digital media business, highlighted plans to boost digital media revenue with product upgrades like the Adobe Express app and collaboration with OpenAI on Sora.

Hilton Worldwide Holdings Inc. ($HLT) is purchasing Graduate Hotels, a brand tailored for college campuses, for $210M. Backed by AJ Capital, Graduate Hotels operates over 30 properties strategically located near universities worldwide, including prestigious campuses like Oxford and Cambridge in the U.K.

More:

Hilton plans to expand the Graduate brand, targeting a global market of 400 to 500 hotels.
With this acquisition, Hilton is breaking from its usual practice of creating new brands in-house.
Chris Nassetta, CEO of Hilton, views Graduate Hotels as a unique chance to increase Hilton's footprint in popular locations.
The deal is anticipated to be finalized in the second quarter, with AJ Capital owning the underlying real estate.
- Hilton shares have increased by about 50% over the last 12 months.

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Audi, a division of Volkswagen Group, experienced a decline in operating return on sales from 12.3% in 2022 to 9% in 2023, with operating profit falling to $6.8B from $8.28B. Audi's operating profit rose to $8.4B with a return on sales of 11%, while division revenue increased by 13% to $76B, which includes the Audi, Lamborghini, Bentley, and Ducati brands.

More:

Sales of automobiles in Asia-Pacific were steady at 3.6 million, although revenue dropped to $54.5B due to fierce competition.
- VW cut its operating profit goal for its joint ventures in China; instead of aiming for $2.8B in 2023, it now projects between $1.6B and $2.2B.
The software division of the Volkswagen Group, Cariad, reported an operational loss of $2.6B, but software license revenue increased by around 30% to $1.2B.
Volkswagen's battery division, PowerCo, reported an operational loss of $435M and a net cash outflow of $872M due to expenditures in battery-related activities necessary to manufacture electric vehicles.
The financial services division recorded an operating profit of $4.1B, down from $6.1B in 2022, mainly due to decreased used-car sale prices following chip shortages in prior years.

The Philippines is poised to become Asia's second-largest gambling hub, projecting gross gaming revenue to hit $6.1B in 2024, surpassing Singapore. Alejandro Tengco, CEO of Pagcor, forecasts the addition of up to eight new casino projects and intends to privatize state-owned casinos by early 2026, while Manila aims for increased tourist arrivals despite a dip from pre-pandemic levels.

More:

To attract new markets and customers, new integrated resorts in Manila, Clark, Cebu, and Boracay are set to be created, each with a potential cost of up to $1.2B.
Philippine casinos attract South Korean, Japanese, Malaysian, and Singaporean visitors despite declining Chinese tourist numbers.
Online casinos in the Philippines are predicted to develop faster than land-based casinos, accounting for 20% of total gaming income in 2023.
- To increase revenue before the anticipated sale of its casino assets, Pagcor intends to open its online gambling website and look for a joint venture partner to run it.
Pagcor plans to privatize its casino assets to generate $1.1-$1.4B from the sale and divest its planned gaming website.

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SpaceX's Starship rocket successfully reached space but was lost during its return to Earth, failing in the final phase despite meeting the objectives of its third test mission.
Microsoft announced plans to expand the availability of its AI-powered cybersecurity tool starting April 1, adopting a "pay-as-you-go" approach for the assistant.
Volkswagen is exploring potential partnerships to manufacture electric vehicles for the mass market, aiming to mitigate competition from lower-cost rivals emerging from China.
Morgan Stanley has named Jeff McMillan, a tech executive in its wealth management division, its first head of firm-wide artificial intelligence to oversee AI implementation across the organization.
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Shriram Jeevakumar

Freelance Writer

Shriram is pursuing Master’s in Business with Marketing at Warwick Business School. He worked as a Senior Consultant in Tech and Political Consultancies before his Masters. He is passionate about Tech, Marketing, Strategy, Anthropology and Politics. He is also the Postgraduate Ambassador for Warwick Business School.

This newsletter was edited by Aaron Crutchfield

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Adult sites block access in Texas / Apple agrees to $490M settlement over CEO China comments / Google I/O takes place May 14

Plus: SCOTUS clarifies rules on public officials who block social media critics.

Inside Tech

For March 15, 2024

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Here's a look at today's tech briefing:

Pornhub blocks access in Texas over state age-verification law.
Supreme Court clarifies rules on public officials who block social media critics.
Apple agrees to $490M settlement over CEO's China comments.

Beth
p/beth-duckett

Pornhub and related adult sites have blocked access for Texas users over a legal dispute concerning the state's age-verification law. The move comes after a federal appeals court ruled that Texas can continue to enforce its law requiring adult websites to verify that their users are 18 or over.

What happened: In Texas, the adult entertainment conglomerate Aylo has blocked access to its websites including Pornhub, YouPorn, and Brazzers to users without a VPN. People trying to access the sites will see a statement criticizing the state's age verification mandate and blaming elected officials for impeding adults' access to protected speech. Aylo also previously blocked or restricted access in other states with age-verification laws, including Arkansas, Louisiana, Mississippi, Montana, North Carolina, Utah, and Virginia. Meanwhile, Aylo said it's exploring options with its legal team to fight the Texas law.

Zoom out: Texas Gov. Greg Abbott, a Republican, signed the age-verification law in June. Last week, the 5th U.S. Circuit Court of Appeals found the law doesn't violate the First Amendment. The ruling says Texas's stricter age verification falls within the state's "legitimate interest in preventing minors' access to pornography."

The Supreme Court ruled on Friday that public officials can sometimes be sued for blocking critics on social media. The court unanimously clarified that public officials using private social media for government purposes can be sued for blocking access to critics.

More:

In the ruling written by Justice Amy Coney Barrett, the court acknowledged that it "can be difficult to tell whether the speech is official or private" due to the nature of social media.
The court reviewed whether a Michigan city manager and California school board members could block residents and parents from their personal social media accounts.
In the decision, the court said state officials can't block constituents on their personal pages when they have "actual authority to speak on behalf of the State on a particular matter" and "purported to exercise that authority in the relevant posts."
But the court said officials can also choose not to use social media to discuss public matters. "If the public employee does not use his speech in furtherance of his official responsibilities, he is speaking in his own voice," Coney Barrett wrote.

Zoom out:

On Monday, the Supreme Court will hear arguments in another social media case.
In Murthy v. Missouri, states and individuals claim federal officials violated the First Amendment by helping social media platforms counter misinformation related to COVID-19 and other matters.
Justices will decide whether the government flagging potentially harmful posts to companies is considered "unconstitutional coercion of speech."

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Apple has agreed to a $490M settlement in a case accusing CEO Tim Cook of deceiving investors by hiding falling iPhone sales in China. Apple denies the allegations. The investor lawsuit claimed Cook failed to mention China during a 2018 earnings talk, where he discussed markets where economic conditions were hurting iPhone sales.

More:

During the earnings call, Cook cited pressure in emerging markets like Turkey, India, Brazil, and Russia due to weakening currencies, but said he "would not put China in that category."
Investors claimed Cook was aware of declining iPhone demand in China at the time, but chose not to reveal it, leading to Apple's stock trading at artificially high prices.
Apple, without admitting wrongdoing, agreed to the settlement to sidestep further legal costs and time, according to a court filing.
The proposed settlement awaits approval from U.S. District Judge Yvonne Gonzalez Rogers in California.

Zoom out:

Apple's iPhone sales in China fell 24% during the first six weeks of 2024, Counterpoint Research reported this month.
Huawei's comeback with its new Mate 60 5G smartphone, along with "aggressive pricing" from Oppo, Vivo, and Xiaomi, contributed to Apple's sales dip in China, the report found.

The FCC voted to raise the speed standard for minimum broadband from 25Mbps to 100Mbps for downloads, and 3Mbps to 20Mbps for uploads. The new definition could impact billions in federal and state funding for fixed broadband service.

More:

The definition helps the FCC identify areas without adequate internet speeds and decide if more government funding is needed.
It will change how the FCC tracks progress in meeting funding rules laid out by Congress and the states.
On Thursday, the agency voted 3-2 to approve the 100Mbps/20Mbps standard, with the two Republican commissioners dissenting.
The FCC last updated the metric from 4Mbps/1Mbps to 25Mbps/3Mbps in 2015.

Zoom out:

The agency also set a long-term goal to raise its broadband benchmark to 1,000Mbps for downloads and 500Mbps for uploads.
It issued its first report in three years covering the state of U.S. broadband deployment.
The report concludes that broadband isn't being deployed quickly enough, especially for rural and tribal communities.

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Apple acquired DarwinAI, a Canada-based AI startup, and incorporated its team into Apple's AI division, according to Bloomberg. DarwinAI built AI technology for visually inspecting components during manufacturing, and it is also known for its technology to help make AI systems faster and smaller.

More:

Apple purchased DarwinAI earlier this year for an undisclosed sum.
Since the acquisition, dozens of former DarwinAI companies have joined Apple, including co-founder Alexander Wong, who is now a director in Apple's AI group.
The acquisition could help Apple further incorporate AI into products and services, including the next operating systems for the iPhone and Macs.
While Apple has been slow to launch GenAI features, the company has been the top buyer of AI startups since 2010, buying nearly twice as many as Microsoft and three times as many as Amazon.

Google announced that its annual I/O developer conference will take place on May 14. While details are slim, reports speculate that this year's event will focus on Google's latest AI advancements.

More:

Google may also reveal its Pixel 8A smartphone along with new features for Chromes, Android, and services like Gmail.
At last year's I/O, Google announced its first foldable smartphone, the Pixel Fold, along with the budget Pixel 7A, and its Google Pixel tablet.

Zoom out:

Reports suggest the company may also discuss Gemini, its text-based AI chatbot, which has faced controversy in recent weeks.
Last month, Google paused Gemini's ability to create images of people after the AI model produced historically inaccurate images, and is now working on a fix.
The bot portrayed historical figures, including the U.S. Founding Fathers and Nazi soldiers, as people of color, in what seemed to be an effort to counteract AI's racial biases.

QUICK HITS

Meowtel is where convenience meets quality cat care. Personalized, in-home cat sitting for true cat enthusiasts.*
Apple TV will stream all 14 Major League Soccer games for free this weekend.
Amazon launched a generative AI tool that automatically generates product listings for sellers.
Nvidia is expected to unveil its next-gen AI processor during its annual GTC developer conference on Monday.
Netflix announced the return of "Black Mirror" for a seventh season in 2025.
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MAR
27

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Beth Duckett

AI and technology writer

Beth is a contributing editor and writer of Inside's AI and Tech newsletters. She has written for publications including USA Today, the Arizona Business Gazette, and The Arizona Republic, where she received recognition with a Pulitzer Prize nomination and a First Amendment Award for collaborative reporting on state pension cost increases. You can reach her at Beth.Duckett@yahoo.com.

This newsletter was edited by Eduardo Garcia

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