Friday, March 22, 2024

Nike shares fall on weak outlook, China sales dip / Deep Dive: U.S. ESG hiring surge slowing down / Lululemon shares dive 18% on guidance, North America slowdown

Plus, Darden: lower-income spending declines

Inside Business

For March 22, 2024

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👟 Nike shares fall on weak outlook, China sales dip
🔍 Deep Dive: U.S. ESG hiring surge slowing down
🛍️ Lululemon shares dive 18% on guidance, North America slowdown

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Shriram
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Nike's ($NKE) shares initially surged 5% following its third-quarter earnings report, which exceeded analyst expectations, but later plummeted by up to 7%. The company reported earnings per share of $0.77 (estimated $0.74) and revenue of $12.43B (estimated $12.28B) for fiscal 2024 Q3, slightly surpassing estimates.

More:

North American sales surpassed estimates, reaching $5.07B, while Chinese sales slightly missed expectations, growing to $2.08B, a 5% increase.
- Yet, sales in Asia Pacific, Latin America, the Middle East, and Africa fell short of projections.
Nike expects revenue growth to be somewhat lower than analysts' projections, which caused its shares to drop in response to their guidance for the current quarter and fiscal 2025.
To bolster profits and preserve margins amid weakened demand, the company is instituting cost-saving initiatives targeting a $2B expense reduction over the next three years.
Nike's strategic pricing initiatives and reduced logistics costs drove a 1.5 percentage point increase in the company's gross margin to 44.8%; higher input costs and restructuring charges somewhat offset this growth.

Zoom Out:

Breaking a 70-year partnership with Adidas, the German Football Association (DFB) declared on Thursday that Nike will become the official kit supplier for national soccer teams from 2027 to 2034.

What the numbers say: In December 2023, ESG job departures exceeded arrivals, reversing a multiyear trend, with 3,071 departures compared to 2,897 arrivals. While ESG hiring had been increasing since 2018, reaching a peak in late 2021, the momentum slowed notably in 2023, although 92% of chief executives still supported their ESG programs, according to a December survey.

Relevance: The slowdown in ESG hiring mirrors a shift in U.S. companies' priorities toward cost-cutting and quicker investment returns, influenced by investor pushback and political pressure. This trend also entails reevaluating ESG efforts, with companies integrating ESG responsibilities into existing roles and emphasizing finance-related ESG positions, reflecting changes in corporate sustainability strategies.

More data: Departures from ESG roles in tech, finance, and consulting sectors mirror sector-wide cutbacks, while compliance burdens from new regulations shape hiring patterns within the ESG sector. This reflects a broader trend toward integrating ESG principles into core business operations.

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Lululemon ($LULU) shares tumbled 18% following disappointing guidance and flat growth in North America, despite fourth-quarter earnings per share of $5.29, beating expectations of $5.00, and revenue slightly exceeding estimates at $3.21B versus $3.19B. Full-year sales are forecast to range from $10.7B to $10.8B, with diluted earnings per share expected to be between $14 and $14.20.

More:

Sales increased by 16% to $3.21B compared to $2.77B the previous year, with comparable sales rising 12%, slightly underperforming analysts' anticipated 12.3% growth.
Sales in North America rose by 9%, compared to a 29% surge the year before.
- CEO Calvin McDonald observed decreased U.S. traffic and conversions, citing insufficient availability of sizes zero to four and a lack of colorful items as contributing factors.
Additionally, the Canadian-American multinational athletic apparel retailer reported that overseas sales increased by 54%, with 78% of growth occurring in China and 36% in other countries.
The firm anticipates net revenue for the current quarter of $2.18B to $2.20B and diluted earnings per share of $2.35 to $2.40.

Darden Restaurants Inc. ($DRI), which operates Olive Garden and LongHorn Steakhouse, faces reduced spending from lower-income consumers due to adverse weather conditions in January and consumer weakness in February, resulting in sales below analyst projections. Consequently, Darden has adjusted its 2024 same-store sales growth forecast, anticipating a negative to 1% growth rate for the upcoming quarter.

More:

Compared to the prior year, more transactions came from households with incomes over $150,000, with fine-dining brands seeing particularly strong sales growth.
- CEO Rick Cardenas reported a significant decrease in transactions from households making less than $75,000 compared to the prior year.
Sales at Capital Grille and Ruth's Chris Steak House increased by 58% compared to the previous year, surpassing the company's 7% sales growth.
High credit card debt and delinquencies have hurt low- and middle-income consumers, while soaring stock, cryptocurrency, and real estate values have helped the wealthiest customers.
The American multi-brand restaurant operator intends to keep prices below inflation to entice customers while steering clear of aggressive promotional tactics.

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Chewy ($CHWY) posted a 4.2% YoY rise in fourth-quarter net sales, reaching $2.83B, accompanied by a 10 basis points increase in gross margin to 28.2%. Fourth-quarter net income skyrocketed by 370% YoY to $31.9M, despite a decrease in active customers, which fell to 20.1 million, down 1.6% from the previous year.

More:

Net sales for the year increased by 10.2% to $11.1B, net income decreased by 20.6% to $39.6M, and gross margin increased by 40 basis points to 28.4%.
Chewy has maintained its resiliency in economic volatility by concentrating on non-discretionary consumables and health categories, which account for 85% of its sales.
With a target market size of $40B, the firm opened the first Chewy Vet Care veterinary clinics and aims to add four to eight more in 2024.
The American online retailer of pet food's Autoship subscription program encouraged recurring business, generating $8.5B in total client sales for the year — a 14.7% rise over 2022.

About 10% of U.S. workers are in jobs most exposed to AI, with those in lower-income brackets and possessing lower education levels facing heightened risk. The Council of Economic Advisers' Economic Report of the President highlights AI's impact on the workforce and provides recommendations for policymakers to address its implications.

More:

White House officials are in talks with labor unions, particularly those in the service and manufacturing sectors, to address AI preparedness.
According to White House economists, about 20% of people are employed in 16 high-exposure AI employment activities.
- A Pew Research Center study found that in 2022, 19% of American workers were in positions highly susceptible to AI, aligning with the current analysis.
AI disruption could increase economic inequality because it puts women and lower-class jobs in greater danger of being replaced.
The White House emphasizes the need for proactive measures to reduce the possibility that AI may aggravate inequality and displace employment.

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Lonza's $1.2B acquisition of a U.S. manufacturing facility from Roche is expected to fuel annual sales growth of 12%-15% until 2028.
Amazon topped the latest Management Top 250 companies for innovation, followed by Apple, Microsoft, and Walmart, according to rankings based on Peter Drucker's management principles by researchers at the Drucker Institute.
Lenmeldy gene therapy, priced at $4.25M, has become the world's costliest drug, offering treatment for MLD, a rare genetic disease affecting the central nervous system in young children.
Korean Air plans to purchase Airbus A350 jets in a $13.7B deal, including 27 A350-1000s and six A350-900s, as announced by the South Korean flag carrier.
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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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Redis acquires Speedb / Early-stage funding roundup / Brinc launches LiveOps platform

Plus, AI cloud startup Foundry emerges from stealth with $80M funding round

Inside Startups

For March 22, 2024

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🤝 Redis acquired Speedb to further enhance its open-source database engine
💻 Brinc launched a new LiveOps platform to manage drone fleets
🚀 AI cloud startup Foundry emerged from stealth with $80M in seed and Series A funding

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Karan
p/karan-chafekar

Database unicorn startup Redis acquired open-source data storage engine startup Speedb for an undisclosed sum. The acquisition will help Redis further enhance its open-source database by increasing the speed of real-time data processing and lowering the latency in user experience. Later this year, Redis will integrate Speedb's storage engine into its open-source database platform.

More:

Redis had already partnered with the Israeli startup, which powers its Auto Tiering feature available to enterprise customers through the Redis Enterprise and Redis Cloud offerings.
- The Auto Tiering feature helps move some of the data from the DRAM to flash memory, which in turn helps customers reduce their infrastructure expenses by up to 70%.
Speedb had last raised a $4M funding round in 2021.

Zoom out:

Redis was valued at $2B when it raised a $110M Series G round led by Tiger Global in April 2021.
It shelved plans to go public in 2022 after market conditions soured.

VCs deployed $1.6B in early-stage North American startups this week between March 16 and 22, per Crunchbase data. Biotech startups raked in 49% of the funding this week. Healthcare, blockchain, and AI startups nabbed 16%, 7%, and 7% of the financing, respectively.

Here are the top five largest rounds announced this week:

Precision medicine startup Mirador Therapeutics emerged from stealth with a $400M funding round led by ARCH Venture Partners. OrbiMed, Fairmount, Fidelity Management & Research, Sanofi Ventures, Point72, Boxer Capital, and others participated in the round.
In vivo RNA technology biotech startup Capstan Therapeutics closed its Series B funding round at $175M. RA Capital Management led the round, with additional support from Forbion, Johnson & Johnson Innovation, Mubadala Capital, Perceptive Advisors, and Sofinnova Investments.
Engrail Therapeutics raised $157M in Series B funding to further advance its neuropsychiatric treatment through clinical development stages. F-Prime Capital, Forbion, and Norwest Venture Partners co-led the latest funding round, joined by RiverVest Venture Partners, Red Tree Venture Capital, Ysios Capital, Longwood Fund, Eight Roads Ventures, and Pivotal Life Sciences.
Clasp Therapeutics, a startup developing immunotherapies to treat tumors, raised $150M in Series A funding led by Novo Holdings, Third Rock, and Catalio.
Blockchain-based lending platform Figure Technologies raised $60M in Series A funding led by Jump Crypto, Pantera Capital, and Lightspeed Faction.

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Public safety technology startup Brinc debuted a new platform to manage and monitor drone fleets. The LiveOps platform boasts features such as live streaming, real-time maps, communications, and secure evidence storage. The introduction of the software expands Brinc's scope to support emergency response teams.

More:

LiveOps is accessible through web browsers and is integrated with Brinc's current hardware, including the LEMUR 2 drone and Brinc Ball.
The Seattle-based startup offers drones that assist first responders in dangerous situations.
- Its drones have an integrated cellular connection, a crash-resistant design that can break through glass, night vision, and an integrated microphone for communication.
Additionally, the company offers a two-way communication device to negotiate effective resolutions and de-escalate threats during standoff situations.
Since its founding in 2019, the startup has raised more than $80M from investors, including Index Ventures, Tusk Venture Partners, and Next Play Ventures.
- Notably, OpenAI's CEO Sam Altman was the startup's first eternal investor.

Cloud startup Foundry emerged from stealth with $80M in seed and Series A funding co-led by Sequoia Capital and Lightspeed Ventures. The startup was valued at $350M at the latest round, seven times higher than its valuation from last year. Foundry is developing a public cloud designed to handle AI and machine learning workloads. With the latest capital infusion, Foundry aims to scale operations, further develop its product offerings, and ink more strategic partnerships.

More:

Other investors participating in the round include Redpoint, Microsoft venture arm M12, Conviction, and NEA.
KKR, LG, Stanford, MIT, Lightspeed, and Pear VC are some notable early adopters already using Foundry's solutions.
Former DeepMind employee Jared Quincy Davis founded Foundry and leads it as its CEO.
The startup simplifies the process of configuring a public cloud environment for running AI models.
- Davis said, "We're building a new breed of public cloud, backed by an orchestration platform that makes accessing AI compute resources as easy as turning on the light."
Foundry provides access to high-end chips, including Nvidia's H100 graphic card, which has about 80 billion transistors.

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Governance, risk, and compliance software developer Archer Technologies bought risk management technology startup Flisk. This marks Archer's second acquisition this year after buying Compliance.ai last month. The acquisition will help Archer enhance the current offerings and build capabilities in the risk management information system (RMIS) domain.

More:

By bringing together risk and insurance management programs, the firm will be able to offer better risk mitigation solutions to its 1,300 global clients.
Financial details of the acquisition transaction were not disclosed.
Archer reported $220M in revenue in 2022, sources informed Reuters.

Zoom out:

London-based PE firm Cinven acquired Archer from Clearlake Capital Group and Symphony Technology Group last July.
While the official transaction price was not disclosed, sources pegged the deal to be worth $1.38B, per Bloomberg.

The Browser Company, the startup behind the Arc browser, bagged $50M in fresh funding led by Pace Capital, per TechCrunch. The company was valued at $550M at the latest round. Lead investor Chris Paik envisions The Browser Company becoming a browser-based operating system with web applications.

More:

The latest capital infusion brings the firm's total capital raised to date to $128M.
Notable backers of the firm include Next Play Ventures, Play Capital, LinkedIn's Jeff Weiner, Medium's Ev Williams, Figma's Dyland Field, Notion's Akshay Kothari, and GitHub's Jason Warner.
Josh Miller, the former director of product at the White House and investor at Thrive Capital, founded The Browser Company in 2019 along with Hursh Agrawal.
- Miller and Agrawal had previously started conversational service Branch.com, which Facebook acquired in 2014.
The company has yet to reveal plans for monetization of the platform.
- Beaker's Paul Frazee believes monetization is difficult without search deals and ads in search.

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Customer service company Zendesk is set to acquire AI-powered customer experience solutions maker Ultimate. Financial details of the transaction were not disclosed.
Dutch online marketing company Flowboost acquired a 50% stake in link-building platform Backlink.nl for an undisclosed sum.
Healthcare startup Babson Diagnostics aims to deploy its blood testing system BetterWay in about 100 retail locations across Austin and San Antonio by the end of the year, VP of business development Nicholas Turos told Axios
Residential parcel delivery firm Pandion bagged $41.5M in Series B funding round led by Revolution Growth.
Bill Gates-backed green cement startup CemVision raised a €10M ($10.8M) seed round from Polar Structure, BackingMinds, and Zacua Ventures.
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Karan Chafekar

Analyst

Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot.

This newsletter was edited by Aaron Crutchfield

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