Ulta falls short of expectations for first time in 4 years

LOCAL MARKET COMMENTARY

On the Johannesburg Stock Exchange, the blue-chip Top 40 index and the All Share index (84,239) rose by 0.34% and 0.26% respectively. South Africa's producer inflation dropped to 4.2% in July from 4.6% in June, according to data released on Thursday. Local investors are now focusing on today's release of money supply, trade, and budget balance data for July. JSE-listed insurer Santam announced a 35% increase in headline earnings per share for the six months ending 30 June 2024, and subsequently raised its interim dividend to shareholders.

EUROPEAN MARKET COMMENTARY

European markets closed higher on Thursday as investors evaluated inflation data from the region and its potential impact on interest rates. Germany's DAX index reached a new record high, supported by better-than-expected inflation data, with the country's EU-harmonized annual inflation rate easing to 2% in August, down from 2.6% in July. Spain's preliminary inflation rate also dropped to 2.4%, below both July's 2.9% and economists' expectations of 2.5%.

US MARKET COMMENTARY

The Dow reached a record high close on Thursday amid mixed trading, driven by strong U.S. economic data, while Nvidia's stock fell after its forecast, which met expectations, failed to impress investors. The Commerce Department reported faster-than-expected U.S. economic growth, fuelled by strong consumer spending, reinforcing the belief that the U.S. may avoid a recession. Additionally, the Labor Department noted slightly lower-than-expected jobless claims for the previous week. Investors are now looking to the July Personal Consumption Expenditures report, due today, for further insights into the Federal Reserve's potential monetary policy easing.

ASIA MARKET COMMENTARY

Asia-Pacific markets climbed this morning as investors digested various economic data from Japan. Tokyo's inflation rate increased to 2.6% in August, up from June's 2.2% and marking the highest level since March. The core inflation rate, excluding fresh food, rose to 2.4%, surpassing the 2.2% expected by economists. These stronger inflation figures could provide the Bank of Japan with more leeway to tighten its monetary policy. Meanwhile, Japan's unemployment rate edged up to 2.7%, higher than the 2.5% forecast.

COMMODITY MARKET COMMENTARY

Gold prices rose by about 1% on Thursday, driven by strong expectations that the Federal Reserve will cut interest rates in September. Investors are now closely watching U.S. inflation data for clues on the potential size of the rate cut. Meanwhile, oil prices remained steady in early trading today as investors balanced concerns over supply issues in the Middle East with indications of weakened demand.

CURRENCY MARKET COMMENTARY

The South African rand strengthened on Thursday, reaching its highest level in 13 months, as renewed risk appetite in financial markets boosted the currency ahead of key U.S. inflation data. This data could further support expectations of interest rate cuts in the U.S. Meanwhile, the dollar hovered near a one-week high this morning, poised to break a five-week losing streak, following strong economic data that reduced the likelihood of aggressive rate cuts by the Federal Reserve.

SANTAM LIMITED (SNT) -1.88%

For the period ended 30 June 2024, the Group reported a 10% increase in insurance revenue, reaching R24.6 million, while the ordinary dividend per share grew by 8% to 535 cents. Basic earnings per share rose by 34% to 1 567 cents, and headline earnings per share (HEPS) increased by 35% to 1 578 cents. Key highlights include a 7% growth in conventional insurance net earned premiums to R15.4 million, a higher net underwriting margin of 6.5% (up from 3.8% in June 2023), and gross claims paid totalling R14.2 million. The annualized return on shareholders' funds was 33.6%, and the economic capital coverage ratio improved to 158%, up from 155% in December 2023. An interim dividend of 535 cents per share was declared.

SANLAM LIMITED (SLM) +3.20%

The group expects strong earnings growth for the six months ended 30 June 2024. The Net Result from Financial Services (NRFFS) per share is projected to increase by 15% to 25%, ranging between 322 and 350 cents, up from 280 cents in 2023. Cash NRFFS per share is also expected to rise by 15% to 25%, reaching between 326 and 355 cents, compared to 284 cents last year. Net operational earnings per share are anticipated to grow by 5% to 15%, ranging from 358 to 392 cents, up from 340 cents in 2023. Headline earnings per share (HEPS) are forecasted to see a significant increase of 35% to 45%, reaching between 458 and 492 cents, compared to 339 cents in the previous year, with diluted HEPS expected to be in a similar range. Earnings per share (EPS) are expected to rise by 15% to 25%, reaching between 447 and 486 cents, up from 389 cents in 2023, with diluted EPS projected to be between 440 and 479 cents.

IMPALA PLATINUM HOLDINGS LIMITED (IMP) -2.52%

Key features for FY2024 include a safety performance overshadowed by the 11 Shaft tragedy, resulting in 19 fatalities at managed operations. There was a 1% improvement in the Lost Time Injury Frequency Rate (LTIFR) to 3.89 and a 10% improvement in the Total Injury Frequency Rate (TIFR) to 8.29, with no major environmental incidents reported. The company achieved an overall BBB rating from MSCI for ESG performance and was included in the S&P Global Sustainability Yearbook for the third consecutive year. Group 6E production increased by 13% to 3.65Moz, with refined and saleable 6E production up 14% to 3.38Moz and 6E sales volumes rising by 16% to 3.44Moz. However, unit costs rose 5% to R20 922/oz, and dollar revenue per 6E ounce dropped 34% to $1 350 due to lower rhodium and palladium prices. EBITDA was R12.4bn with headline earnings of R2.4bn (269c per share), but the group posted a basic loss of R17.3bn (1,929c per share). Free cash outflow was R4.0bn, with closing adjusted net cash at R6.9bn, and no dividend was declared. The RBPlat acquisition and a landmark B-BBEE transaction were completed. PGM pricing was negatively affected by industrial destocking and global economic uncertainties, with market deficits expected for platinum, palladium, and rhodium in 2024.

Ulta Beauty (ULTA) +0.21%

Ulta Beauty's shares dropped 7% in extended trading on Thursday after the company missed second-quarter earnings expectations and lowered its full-year guidance due to a decline in same-store sales. This marks Ulta's first earnings per share miss since May 2020 and its first revenue miss since December 2020. Comparable sales fell by 1.2%, significantly below the 1.2% growth analysts had anticipated. The company now expects full-year same-store sales to range from flat to a 2% decline, with revenue between $11 billion and $11.2 billion, down from the previous forecast of $11.5 billion to $11.6 billion. Earnings per share are now projected at $22.60 to $23.50, down from the prior estimate of $25.20 to $26.

Gap (GAP) +0.4%

Gap raised its full-year profit outlook after strong performance from its Old Navy brand led to better-than-expected fiscal second-quarter results. The company accidentally posted its earnings early, causing a temporary trading halt. Once the results were officially released, shares rose over 2%. Gap reported earnings of 54 cents per share, surpassing expectations of 40 cents, and revenue of $3.72 billion, beating the forecast of $3.63 billion. Net income nearly doubled to $206 million. For the full year, Gap now expects a higher gross margin and a 50% increase in operating income.

Lululemon (LULU) +0.2%

Lululemon missed revenue expectations for the first time in over two years and lowered its full-year guidance after a botched product launch and slowing growth in the Americas. The company now forecasts full-year revenue between $10.38 billion and $10.48 billion, down from a previous estimate of $10.7 billion to $10.8 billion. Despite the revenue miss, Lululemon's earnings per share of $3.15 exceeded expectations of $2.93, with net income rising to $393 million. However, comparable sales in the Americas fell 3%, and the company anticipates slower sales growth of 6% to 7% in the current quarter, below analysts' expectations. Despite these challenges, shares rose over 2% in extended trading.

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