AutoZone Beats on Sales but Profit Falls as Costs and Currency Weigh

Local Market Commentary

The South African Top 40 index was effectively flat yesterday, closing at 86,131.9 points, with the broader All Share index up marginally by 0.04% to 93,764.1 points. Economists have sharply downgraded 2025 GDP growth forecasts to 1.2%, reflecting the impact of US tariffs—the largest monthly cut since early 2023’s power shortage-driven downgrade. Growth expectations for 2026 have also been revised down to 1.6%. Meanwhile, the South African Reserve Bank (SARB) is widely expected to cut the repo rate by 25 basis points to 7.25% this week, maintaining a cautious stance amid subdued inflation, which remains below the target midpoint. Inflation forecasts predict a rise from 3.5% this year to around 4.4% by 2027 but still within the SARB’s 3-6% target range. Additionally, government officials reaffirmed commitment to Black Economic Empowerment laws despite pressure to relax equity requirements for foreign investors like Starlink, signalling a continued focus on inclusive economic policies.

European Market Commentary

European equities rose on Tuesday, led by defence stocks following U.S. President Donald Trump’s threat of further sanctions on Russia, while optimism persisted after the postponement of planned U.S. tariffs on the European Union. The STOXX 600 index gained 0.3%, extending Monday’s 1% rally after Trump delayed the imposition of 50% tariffs on EU goods. EU policymakers have engaged major companies and CEOs to formulate U.S. investment strategies ahead of trade negotiations with Washington. Meanwhile, the IMF slightly upgraded the UK’s 2025 GDP growth forecast to 1.2%, from 1.1% in April, and encouraged the government to maintain fiscal discipline.

U.S. Market Commentary

Wall Street surged on Tuesday as investor risk appetite was lifted by U.S. President Donald Trump’s latest tariff reprieve and a surprising 14.4% rise in consumer confidence. All three major indexes advanced, with the tech-heavy Nasdaq leading gains thanks to strong performance from the AI-focused "magnificent seven" stocks. The S&P 500 now stands just 3.6% below its February record high, recovering from earlier declines linked to tariff uncertainty. Despite a sharper-than-expected fall in new orders for core capital goods, investors remained optimistic, supported by comments from Richmond Fed President Thomas Barkin, who noted no clear signs yet of rising inflation or job losses.

Asia Market Commentary

Asia-Pacific markets rose on Wednesday, buoyed by Wall Street’s gains and optimism following U.S. President Donald Trump’s extension of the 50% tariff deadline on EU imports to July 9. Australian consumer inflation for April came in slightly above expectations at 2.4%, driven by seasonal travel demand and higher private insurance costs, despite remaining steady from the previous month. The Reserve Bank of Australia recently cut its cash rate by 25 basis points to 3.85%, marking its second reduction this year. Meanwhile, New Zealand’s central bank also trimmed its official cash rate by 25 basis points to 3.25%, the sixth consecutive cut, aiming to support its struggling economy amid global trade uncertainties.

Currency Market Commentary

South Africa’s rand weakened against a stronger U.S. dollar on Tuesday, pressured by lower gold prices amid improved risk sentiment following President Trump’s tariff delay on the EU. The British pound edged lower versus the dollar but stayed near a three-year high, supported by diminished expectations of Bank of England rate cuts and encouraging economic data. The dollar gained further strength as the Japanese yen weakened due to a sharp drop in Japan’s long-term bond yields, with reports that Japan’s Ministry of Finance is considering reducing issuance of super-long bonds amid recent yield spikes. The yen experienced volatility on Wednesday as bond market turmoil raised concerns about fiscal stability in major economies, while the dollar remained steady after strong economic data bolstered investor confidence.

Commodity Market Commentary

Gold prices rose on Wednesday as investors bought the dip, although gains were limited by easing U.S.-EU trade tensions and anticipation ahead of the upcoming U.S. core Personal Consumption Expenditures report for interest rate guidance. Meanwhile, oil prices edged higher following the U.S. ban on Chevron’s exports of Venezuelan crude under a new asset authorisation, raising concerns about tighter supply. OPEC+ is scheduled to meet today with no expected policy changes, but a potential July output increase could be discussed in talks among eight members on Saturday.

Reinet Investments S.C.A. (RNI) -1.88%

Reinet reported a net asset value (NAV) of EUR 6.9 billion as at 31 March 2025, reflecting an 11.8% year-on-year increase and a compound annual growth rate of 9.0% in euro terms since March 2009. NAV per share rose to EUR 38.04 from EUR 34.02. The company generated gross proceeds of EUR 1.63 billion from the sale of its remaining stake in British American Tobacco p.l.c., which also contributed EUR 98 million in dividends during the period. Pension Insurance Corporation Group Limited distributed EUR 235 million in ordinary and special dividends to Reinet. Investment activity comprised EUR 39 million in commitments and EUR 144 million in funding. A dividend of EUR 0.35 per share (EUR 64 million) was paid, with a proposed 5.7% increase to EUR 0.37 per share subject to AGM approval.

Datatec Limited (DTC) -0.62%

Datatec Limited reported FY25 audited results, posting robust profitability despite an 8.8% decline in revenue to US$3.64 billion, primarily due to a revenue mix shift and increased recognition of software and services. Gross profit rose 5.6% to US$910.3 million, supported by margin expansion notably within Westcon International and Logicalis International. Adjusted EBITDA increased 28.2% to US$246.2 million, while underlying earnings per share surged 78.4% to 30.5 US cents. Net debt was substantially reduced by 57.7% to US$52.1 million. The dividend was raised 53.8% to 200 ZAR cents per share. Strategic initiatives including a share repurchase programme and OTCQX listing aim to unlock shareholder value. Management highlighted strong cash generation, improved profitability across divisions, and favourable positioning to capitalise on AI-driven digital infrastructure demand.

Coronation Fund Managers Limited (CML) +1.93%

For the six months ended 31 March 2025, Coronation reported an 8% increase in revenue to R2.037 billion, with headline and basic earnings per share both rising 2% to 205.1 cents. Fund management earnings per share, excluding fair value and foreign exchange effects on seeded products, increased 8% to 200.2 cents. The board declared an interim dividend of 200.0 cents per share, up from 185.0 cents in the prior period.

Pepkor Holdings Limited (PPH) +0.26%

Pepkor Holdings delivered a solid interim performance for the six months ended 31 March 2025, with headline earnings per share from continuing operations rising 12.4% to 84.3 cents and normalised HEPS up 18.9%. Group revenue grew 12.8% to R48.8 billion, driven by improved product availability and strong growth in cellular and fintech segments. Clothing and general merchandise revenue increased 9.5% to R34.5 billion, while furniture, appliances and electronics rose 9.1% to R6.5 billion. The fintech segment surged 34.5% to R7.9 billion, underpinned by a 67.3% increase in financial services revenue. Merchandise sales climbed 10%, and cellular handset volumes grew 17% to 6.8 million units, reinforcing Pepkor’s leading market share in prepaid handset sales.

AutoZone Inc (AZO) -3.42%

AutoZone Inc reported a 6.6% decline in quarterly profit as softening consumer demand and currency fluctuations weighed on margins, reflecting broader economic uncertainties and tightening budgets amid recession concerns. The Memphis-based auto parts retailer continues to face challenges from higher supply chain costs, partly driven by tariffs imposed during the ongoing U.S.-China trade tensions. Despite these headwinds, AutoZone delivered net sales of approximately $4.5 billion for the quarter, surpassing analyst estimates of $4.36 billion, signalling resilience in top-line performance. However, net income fell to $608.4 million, or $35.36 per share, down from $651.7 million, or $36.69 per share, a year earlier, underscoring margin pressure and the impact of volatile currency movements on profitability. The company’s results highlight the ongoing balancing act between managing cost pressures and navigating changing consumer behaviour in a challenging macroeconomic environment.

General Motors Companies (GM) +0.82%

General Motors is increasing its investment in the Tonawanda propulsion plant in Buffalo, New York, committing $888 million to boost engine production and develop its next-generation V8 engine, a significant rise from an earlier $300 million plan focused on electric vehicle (EV) drive units. This investment supports the sixth generation of GM’s V8 engines, which power full-size trucks and SUVs with improved fuel efficiency. The project is expected to safeguard 870 jobs at the plant, including 177 positions previously considered at risk, with New York State offering up to $16.96 million in tax credits in exchange for GM’s investment commitments. This move comes as New York recently paused penalties on EV sales shortfalls for two years, while GM continues to balance its aggressive EV transition with strategic recalibrations, including divesting from a battery plant joint venture with LG Energy.

PDD Holdings Inc. (PDD) -13.64%

Chinese e-commerce giant PDD Holdings reported a 47% decline in first-quarter net profit to 14.74 billion yuan ($2.05 billion), weighed down by intense domestic competition and global trade uncertainties impacting its international business. Shares in the U.S.-listed company dropped over 17% following the results. CEO Chen Lei highlighted the significant pressure on merchants due to abrupt changes in external policies, notably the ongoing tariff tensions between the U.S. and China. While a recent 90-day tariff de-escalation provided temporary relief, ongoing trade volatility continues to challenge operations. PDD’s quarterly revenue stood at 95.67 billion yuan ($13.30 billion), below analysts’ expectations of 102.51 billion yuan.

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