Costco Beats Q1 Expectations with Record Sales and Earnings

LOCAL MARKET COMMENTARY

On the Johannesburg Stock Exchange, the Top 40 index declined by 0.18%, closing at 78,341 points, while the All Share index dropped by 0.17% to 86,965 points. South Africa's producer inflation improved slightly to -0.1% year-on-year in November, up from -0.7% in October. However, formal sector employment decreased by 1.2% in Q3 2024, leaving the total workforce at 10.605 million. Concurrent creditors of the Venda Building Society (VBS) are set to receive a second liquidation dividend of 20 cents per rand, totalling R458 million. Of this amount, R291 million will be allocated to municipalities, according to a statement by VBS liquidator Anoosh Rooplal on Thursday.

EUROPEAN MARKET COMMENTARY

European markets ended slightly lower on Thursday, fluctuating in response to key central bank decisions. The European Central Bank (ECB) implemented its fourth rate cut of the year, reducing rates by 25 basis points to 3%, marking a total decrease of 1 percentage point since June 2024. The Swiss National Bank surprised markets with a sharper-than-anticipated 50-basis-point rate cut, aiming to counter low inflation and the strong Swiss franc. In France, President Emmanuel Macron delayed the announcement of a new prime minister until Friday morning, according to a statement from his office on Thursday.

US MARKET COMMENTARY

Wall Street retreated on Thursday as investors assessed economic data ahead of next week’s Federal Reserve meeting. A Labor Department report revealed that U.S. producer prices rose more than expected in November, although easing service costs supported the ongoing disinflationary trend. Meanwhile, an unexpected increase in initial unemployment claims raised concerns about the strength of the labour market.

ASIA MARKET COMMENTARY

Asian markets largely declined this morning, led by losses in Chinese stocks after Beijing reaffirmed its policy direction and growth-focused agenda during a key meeting. The Bank of Japan’s Tankan survey provided a brighter note, with the large manufacturing index rising to 14 in Q4, surpassing expectations of 12 and improving from 13 in the previous quarter. Meanwhile, India is set to release its November wholesale inflation data, with economists predicting a decline to 2.2% from October's 2.36%, following a drop in consumer inflation from a 14-month high.

CURRENCY MARKET COMMENTARY

The South African rand held steady against the dollar on Thursday following the release of Q3 employment and producer inflation data. Meanwhile, the dollar strengthened to a 2.5-week high this morning, poised for its best week in a month, as markets anticipated a Federal Reserve rate cut next week, followed by a cautious approach to further reductions.

COMMODITY MARKET COMMENTARY

Gold dropped over 1% on Thursday as investors locked in profits after a brief climb to a five-week high and adjusted positions ahead of next week’s U.S. Federal Reserve meeting. Oil prices edged lower this morning, with markets weighed by expectations of ample supply despite potential higher demand from Chinese stimulus measures, while also anticipating another Fed rate cut.

Pan African Resources Plc (PAN) -0.46%

Pan African provided a positive update for the half-year ending December 31, 2024. The company finalized its acquisition of Tennant Consolidated Mining Group (TCMG), making it a wholly owned subsidiary. Gold production is forecast to increase significantly, with FY2025 production expected to reach approximately 215,000 ounces, marking a 16% growth from FY2024. Production guidance for FY2026 is even higher, projected at 235,000–250,000 ounces (excluding TCMG operations in Australia). The company aims to be largely unhedged by February 2025, allowing it to benefit more from spot gold prices, and plans to eliminate its debt within the next 12 to 18 months.

KAP Limited (KAP) -0.95%

For the first five months of FY2025 (up to November 30, 2024), KAP operated in a challenging environment despite some positive economic trends, including reduced loadshedding, lower inflation, and declining interest rates, which have yet to impact trading. Revenue growth was driven by increased production capacity and market share gains, but performance was weighed down by higher operating costs for PG Bison's new MDF line, elevated finance costs from significant capital projects, and reduced vehicle production by key manufacturers, affecting Feltex. These challenges are expected to ease in the second half of the financial year as MDF line utilisation improves and vehicle production recovers.

 Transaction Capital Limited (TCP) +5.68%

The group posted mixed financial results for FY2024. Revenue rose by 7%, reaching R1.5 billion (up from R1.4 billion in FY2023). However, core losses increased sharply, with core losses from discontinued operations climbing to R1.9 billion (from R907 million) and total core losses reaching R2.0 billion (up from R728 million). Headline losses also grew to R2.4 billion, compared to R1.8 billion in FY2023. On a positive note, basic losses from total operations improved, falling to R986 million (down from R1.9 billion). Losses per share reflected these trends, with headline and core losses per share increasing, while basic losses per share showed improvement.

Costco Wholesale Corporation (COST) -0.63%

Costco exceeded Wall Street expectations for its fiscal first quarter, reporting earnings per share of $4.04 (vs. $3.79 expected) and revenue of $62.15 billion (vs. $62.08 billion expected). Net income rose to $1.80 billion from $1.59 billion in the same period last year, with revenue increasing from $57.80 billion. Comparable sales grew 5.2% year-over-year in the U.S., and e-commerce sales jumped 13%. CEO Ron Vachris highlighted the company's success in shipping large items, achieving nearly 1 million deliveries in the quarter—a new record.

Adobe Inc. (ADBE) -13.69%

Adobe shares tumbled on Thursday after issuing a fiscal 2025 revenue forecast of $23.30–$23.55 billion, falling short of analysts' expectations of $23.78 billion. The disappointing outlook sparked concerns about delayed returns on AI investments in its software, prompting at least seven brokerages to lower their price targets. At $493.10 per share, Adobe risks losing nearly $25 billion in market value if the decline holds. The stock is down 8% year-to-date, underperforming the S&P 500's 27.6% gain. Adobe’s 12-month forward P/E ratio of 26.46 is lower than Autodesk's 33.63, reflecting market caution.

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