On July 12th of this year, Flower Foods, a bakery company famous for the snack cake brands Tastykake and Mrs. Freshley’s, made an investment in Base Culture, a better-for-you baked goods brand with recent meteoric growth. Base Culture has gained traction producing gluten- and grain-free breads. Why might a sweets-and-treats company like Flower Foods decide to invest in a company that focuses on healthy foods? Flower Foods is optimistic that the Base Culture acquisition will help it improve distribution and marketing and will add to manufacturing capacity. But beyond that, it is a sign of a larger trend: companies are increasingly making investments and acquisitions in better-for-you baked goods and snacks.
Consumer interest in healthier foods has been a decades-long trend, and it seems to have only gained steam since the beginning of the pandemic. The 2022 Food & Health Survey conducted by the International Food Information Council (IFIC) found that nearly 30% of respondents reported having improved their diet/nutrition since 2020 in response to pandemic stresses. Similarly, a 2021 survey by the Food Industry Association (FMI) reported that 49% of grocery shoppers are placing more importance on nutritious foods now than they were prior to the pandemic. Further, a 2022 survey by virtual restaurant leader Nextbite found that 46% of consumers reported intending to eat healthier.
A number of publicly traded consumer companies have responded to consumers’ heightened interest in health and nutrition by investing in better-for-you baked goods and snacks. In October 2020, Sovos Brands acquired Birch Benders, LLC, a company that produces better-for-you pancake and waffle mixes and toaster waffles and pancakes.
In December 2021, Hain Celestial acquired better-for-you snack brands ParmCrisps and Thinsters for roughly $259 million. And most recently, this June, Mondelēz International acquired Clif Bar and Company for $2.9 billion. Clif is a popular producer of highly nutritious energy bars. Mondelēz expects that the acquisition to propel its global snack bar business beyond $1 billion and broaden its baked goods portfolio.
Privately held companies have also thrown their hats into the ring investing in better-for-you baked goods and snacks. One such notable deal was Mars, Inc.’s acquisition of KIND North America, the better-for-you snack bar company. Following its minority investment in KIND in 2017, Mars reportedly fully acquired KIND in 2020 for $5 billion. More recently, in September 2021, private company HumanCo, known for its emphasis on sustainability and better-for-you consumer packaged goods brands, acquired a majority stake in Against the Grain for an undisclosed amount. Against the Grain is known for its grain- and gluten-free pizzas, breads, and cake mixes.
Consumers are seeking to maintain their health now more than ever, and one part of their plan to do so is by improving their diet. This is influencing the types of foods that consumers are buying, which is directly impacting the kinds of companies that investors are buying.
Headline of the Week
Shopify is laying off roughly 1,000 workers, or around 10% of its global workforce, the company announced Tuesday. Shares of Shopify closed down 14%. In a memo to staff, CEO Tobi Lutke acknowledged he had misjudged how long the pandemic-driven e-commerce boom would last, and amid a broader pullback in online spending, Shopify would move to cut a number of roles. The cuts will affect all of Shopify’s divisions, though most will occur in recruiting, support and sales, and “across the company” it is eliminating “over-specialized and duplicate roles, as well as some groups that were convenient to have but too far removed from building products,” Lutke said in the memo. Shopify bet that the increasing mix of online spending over commerce in stores would “permanently leap ahead by 5 or even 10 years,” Lutke said. It staffed up to meet what it anticipated would be a sustained shift to e-commerce, more than doubling its employee base since the end of 2019, the company said in February. “It’s now clear that bet didn’t pay off,” Lutke said. “What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead.”
Apparel & Footwear
US footwear group Caleres has announced that CEO Diane Sullivan is to step down after more than a decade in the role to assume the position of executive chair. Sullivan joined Caleres as president in 2004 before taking on the additional role of chief operating officer in 2006, then being appointed CEO and president in 2011, and finally being named CEO, president, and chair of the board in 2014. From January 15, 2023, Jay Schmidt will take over as chief executive. Schmidt joined the group in 2009, and in 2020 was promoted to president, at which point he assumed responsibility for consumer and brand strategy for the entire Caleres portfolio. Earlier in his career, he spent ten years with Nine West Group, most recently serving as group president. In the first quarter ended April 30, Caleres reported record net sales of $735.1 million dollars, up 15.1 percent from the prior year. It also made record first quarter earnings per diluted share of $1.32 dollars, up from $0.16 dollars a year earlier.
The shopping spree continues at Delta Galil. On Tuesday, the Tel Aviv, Israel-based apparel and innerwear manufacturer revealed it had acquired Danish innerwear and activewear brand Organic Basics for an undisclosed amount. The benefits of the acquisition are meant to be twofold: the added funds will help Organic Basics — which was founded online in 2015 — grow internationally, while expanding the brand’s assortment to include apparel for children and babies. It’s also the latest in a string of acquisitions and licensing deals made by Delta Galil in recent years, helping strengthen the firm’s position in the global innerwear market, both on and offline. In November, Delta Galil — which counts Seven For All Mankind, Splendid, Bare Necessities, Schiesser, Eminence, Delta, P.J. Salvage, Karen Neuburger, Nearly Nude and Fix in its portfolio of brands — signed a long-term global licensing agreement with Polo Ralph Lauren for women’s intimates and sleepwear. The partnership came on the back of two additional, separate. licensing agreements — one with Adidas, and the other with Italian innerwear brand Wolford — both of which were announced just days apart in June 2021. In addition, Delta Galil purchased lingerie start-up Brayola in January 2020 for more than $1 million. That year in August, Delta Galil acquired lingerie and swimwear e-tailer Bare Necessities for an undisclosed amount.
Skechers posted record sales in the second quarter of 2022 on Tuesday despite macroeconomic headwinds, supply chain issues and COVID-related restrictions in China during the period. The Los Angeles-based footwear brand reported on Tuesday that it reached $1.87 billion in sales in Q2, a 12.4% increase from the same time last year. According to Skechers COO David Weinberg, the growth was the result of a 15.4% increase in domestic sales and a 10.0% increase in international sales, primarily driven by strength in wholesale sales. Growth was also driven by sales increases of 21% in the Americas and 8% in EMEA, Weinberg said. In APAC, where sales were flat due to COVID-related restrictions in China, Skechers saw strong growth in most other markets, particularly in India, South Korea and Malaysia. Despite these gains, Skechers did note that net earnings were down in the quarter. Net earnings were $90.4 million and diluted earnings per share were $0.58, a decrease of 34.1% over the prior year, the footwear brand reported. Skechers noted that diluted earnings per share include an unfavorable impact of $0.11 due to declines in foreign exchange rates, primarily in EMEA.
One of Crocs’ long-time legal rivals has agreed to pay the clog maker $6 million to bring an end to a patent infringement complaint dating back to 2006. After years of litigation, U.S.A Dawgs finally agreed to “judgement in favor of Crocs, Inc.” in a June 26 “offer of judgement.” The $6 million it agreed to pay includes all interest, costs and attorneys’ fees otherwise recoverable by Crocs against Dawgs from this specific action. The offer is not an admission that Dawgs is liable in this action or that Crocs suffered any damage, it added. The offer relates solely to Crocs’ claims against Dawgs and “is without prejudice” to Dawgs’ related claims and counterclaims. Crocs accepted the offer on July 9, two days before a jury trial was scheduled to begin. It publicly declared victory—it published a press release stating it had secured a “long-sought after judgement of infringement”—on July 13.
Athletic & Sporting Goods
Vista Outdoor has agreed to acquire Simms Fishing Products, a Montana-based sports fishing gear brand. Simms will join Vista Outdoor’s outdoor sports brands, which include Bell, Giro, Blackburn, QuietKat, Fox Racing and CamelBak. Vista Outdoor bought Fox Racing, the protective gear brand, earlier this month for $540 million. Vista Outdoor has announced plans to split its outdoor sports brands off into a separate publicly traded company from its shooting sports brands. The outdoor brands company, yet to be named, coincidentally will be based in Bozeman, Montana, which is where Simms is headquartered. Simms was founded in 1980 and later acquired in 1993 by K.C. Walsh, its current Executive Chairman. The company’s products are used by more than 8,500 Simms-sponsored fishing professionals and are distributed through specialty retail stores, both domestically and internationally, and directly to consumers through simmsfishing.com.
Underdog, a Brooklyn, NY-based paid fantasy sports company, raised $35M in Series B funding. The round, which includes funds and accounts managed by BlackRock (BlackRock) as well as Acies Investment, values the company at $485M. They joined existing investors Mark Cuban, Kevin Durant, Trae Young, Odell Beckham Jr. and more. The company intends to use the funds to build innovative licensed sports betting products and hire over one hundred new employees over the next year. Led by Jeremy Levine, President and Chairman, Underdog is a fantasy sports company bringing contests and games to the masses. They recently launched a $10M season-long NFL Best Ball tournament.
Cosmetics & Pharmacy
Perelel, the first and only OB/GYN-founded vitamin company to offer clean, targeted nutrition for each distinct stage of a woman’s reproductive life cycle, today announced the close of its $4.7 million seed round. Launched in 2020 by Alex Taylor, Victoria Thain Gioia, and Dr. Banafsheh Bayati, Perelel is pioneering a new standard for supporting women with vitamins for every stage of their reproductive life cycle. Perelel’s subscription-based product offerings include a Conception Support Pack, 1st Trimester Prenatal Pack, 2nd Trimester Prenatal Pack, 3rd Trimester Prenatal Pack, Mom Multi Support Pack (for postpartum and early motherhood), Women’s Daily Vitamin Trio (for women of all reproductive age), Men’s Multi Support Pack, as well as supplemental products. As a mission-driven company, Perelel’s offerings extend beyond just a pill subscription in the form of an intimately supportive community and personalized resources at every step of the pre- and post-natal journey. Their subscribers also have access to resources powered by Perelel’s founding doctors and practitioners (known as the Perelel Panel).
The Spanish Puig group is taking over Loto del Sur, a natural cosmetics brand founded in 1999 by Johana Sanint. This strategic investment expansion follows Puig’s acquisition of a minority stake in the Colombian business in 2019. Financial details of the transaction have not been disclosed. As detailed by the company led by Marc Puig, the goal of the acquisition is to uphold the “commitment to boost the leadership” of the cosmetics company in Latin America, while continuing to grow internationally. Puig is planning to open a first Loto del Sur store in Madrid and to enter the U.S. market with an establishment in Miami. In Latin America, the company has plans to strengthen the premium brand’s presence in Mexico and Chile.
Waldencast, a new combined company featuring leading beauty brands Obagi Skincare and Milk Makeup, is expected to begin trading on Nasdaq under the ticker symbol “WALD” starting on July 28, 2022. Waldencast will be led by Founder and CEO Michel Brousset and Founder, COO and Chief Growth Officer Hind Sebti; Obagi Skincare CEO Jaime Castle and Milk Makeup CEO Tim Coolican will continue to lead their respective brands. Felipe Dutra will serve as Executive Chairman of the Board of the Directors. According to the company, its mission is to create a global “best-in-class multi-brand beauty and wellness platform.”
Makeup company Glossier announced Tuesday that customers will be able to find its popular “Boy Brow” and “Cloud Paint” products at Sephora stores starting next year as it pushes to expand its reach. The move marks Glossier’s first retail partnership and comes after founder Emily Weiss stepped down as chief executive officer and handed the reins to Kyle Leahy, who was previously Glossier’s chief commercial officer. Glossier, which tapped pop star Olivia Rodrigo as a brand ambassador earlier this year, said it is one of the most searched brands on Sephora’s website that is not currently available at the LVMH-owned chain. The company will hawk its products in Sephora shops across the United States and Canada as well as on Sephora’s website starting in early 2023. In a statement, Leahy said making Glossier products available through another retailer “marks a new chapter” for the company.
Discounters & Department Stores
Saks Off 5th on Thursday announced a partnership where customers can buy pre-owned designer items from Rent the Runway on its website, which now features a “pre-owned” section. In a survey of the off-price retailer’s customers, over 70% off respondents had previously purchased pre-owned clothing, shoes or accessories, and 80% said they would be open to purchasing secondhand items directly from Saks Off 5th. “Through this unique relationship with Rent the Runway, we’re introducing new brands, providing exceptional deals and offering pre-owned apparel from a trusted partner that resonates with our customers,” Paige Thomas, president and CEO of Saks Off 5th, said in a statement. Shoppers overall have responded positively to purchasing previously owned apparel. The global secondhand goods market is expected to grow by 24% this year, and is forecast to double by 2026, reaching $82 billion.
Target will add three new sortation centers to help increase efficiencies in its operations, the retailer announced on Monday. Two sortation centers will be in the greater Chicago area and one in the Denver metro area. The new centers will bring Target’s sortation center total to nine as it already has six existing centers in locations such as Houston, Dallas, the Philadelphia area and Lawrenceville, Georgia. All three sortation centers will be added in the next year, though a Target spokesperson declined to provide specific dates.
In a sign that Macy’s may be realizing that its massive, mall-based operation isn’t working so well anymore — if it ever did — the department store last week said that it’s speeding up the development of a fleet of small-format stores located away from traditional enclosed malls. The company has a mix of banners slated for strip centers, including hyperlocal Market by Macy’s, stand-alone off-price Backstage stores, Bloomie’s and Bloomingdale’s the Outlet; in at least one case, Market by Macy’s and Backstage will share space. Some analysts see this as sensible, given the diminishing returns of the mall-anchor approach. “It’s positive in that this is the right move for any flagship, to move away from being an anchor store and open up smaller concepts that have a curated product assortment localized with the consumer in mind,” Liza Amlani, principal and co-founder of Retail Strategy Group, said by phone. “So, I’d like to see them actually do that.”
Difficulty unloading apparel inventory is forcing higher markdowns at Walmart, leading the retail giant to lower its operating profit estimates, which in May were expected to be flat or up slightly in Q2 and the full year. Now Walmart expects operating income to fall 13% to 14% for the second quarter and 11% to 13% for the year. Other estimates were raised, however. Net sales in Q2 should grow 7.5%, up from May’s expectation for a more than 5% rise, with full year growth to reach about 4.5%, slightly above the previous expectation for 4%, according to a company press release. Q2 comp sales for Walmart U.S., excluding fuel, are expected to reach about 6%, up from the previous 4% to 5% estimate, and reach about 3% in the back half of the year. In May Walmart said that full year comps at Walmart U.S. would reach about 3.5%.
Emerging Consumer Companies
Spotnana, a New York-based travel tech startup, raised $75 million in Series B funding to drive faster adoption of its technology and accelerate hiring. The round was led by Durable Capital Partners with participation from existing investors Madrona Venture Group, Iconiq Growth, Mubadala Capital and Blank Ventures. Founded in 2020, Spotnana is building a new architecture for the business travel industry. Its goal is to create an open platform, devoid of “biased” content, meaning on this platform, flights or hotels are not recommended solely because there are financial incentives involved.
Urban Outfitters and Parade announced their official partnership this week, marking the seven-year-old DTC brand’s first long-term foray into physical retail. Founded in San Francisco, Parade’s goal is to build a brand with high-quality products that stand for deep values like sustainability and inclusivity. The brand has also secured more than $50 million in outside funding and opened its first pop-up store in New York City last December. As of Aug. 1, Parade’s bralette and underwear will be sold at Urban Outfitters stores, where 1% of sales from this Parade x UO capsule will be donated to the Trans Law Center.
Food & Beverage
Amid the ongoing war on sugar, Kraft Heinz announced it will reformulate its Capri Sun juice pouches by using monk fruit concentrate to cut the kids brand’s sugar content by an average of 40%. The announcement came during the Kraft Heinz Q2 2022 earnings call today, where CEO Miguel Patrico explained the strategic move was made to optimize the company’s offerings by “[r]emoving elements that our consumers don’t want […] while at the same time reducing costs where possible to mitigate passing on inflation through price.” In 2020, Kraft Heinz updated its Global Nutrition Guidelines to commit to reducing total sugar in its products by more than 60 million pounds across its global portfolio by 2025. The company said this would be achieved through innovations and renovations to its product portfolio. As part of the process, the company said it “identified upper limits for calories, sodium, sugar and saturated fat across the 49 categories that represent our total global portfolio.” Beverages are one of the leading sources of unsuspecting added sugar consumption for American consumers, according to SPINS, driving shoppers to opt for beverages with alternative sweeteners.
Nestlé’s $340 million Nescafé coffee factory opened in Veracruz, Mexico, creating 1,200 new jobs in the region and making the country bordering the U.S. its main producer of the popular beverage globally. The Switzerland-based food and beverage giant said the new factory includes state-of-the-art equipment and uses green energy to reduce water and energy consumption. Nestlé said it uses wastewater treatment systems to ensure 100% of water recirculation, zero wastewater discharges and zero waste to landfills. The facility also is equipped with a biomass boiler to use waste from the coffee process to generate energy.
The announcement of antitrust action against the three poultry giants lets the DOJ make a statement about targeting anticompetitive behavior in the poultry space even as it allowed the merger of Continental Grain’s Wayne Farms and Sanderson to close. In its announcement, the DOJ said the lawsuit is “part of a broader investigation into anticompetitive labor market abuses in the poultry processing industry.” The Wall Street Journal first reported on details of the civil probe in March.
Grocery & Restaurants
McDonald’s and Chipotle Mexican Grill say customers squeezed by inflation are choosing cheaper menu items and visiting their restaurants less often, signaling trends that could be hitting the broader restaurant industry. The two companies were among the first restaurant chains to report their second-quarter results. Starting around mid-May, Chipotle said on Tuesday that low-income customers were visiting its restaurants less frequently, leading to slowing traffic. Earlier in the day, McDonald’s executives also said some low-income customers have been switching to its value menu or opting out of combo meals to save money. But McDonald’s executives added that the chain is also benefiting from customers trading down from more expensive full-service or fast-casual restaurants. On average, restaurant menu prices rose 7% in the three months ended May compared with the year-ago period, according to the NPD Group. During the same period, consumers from households with income under $75,000 cut their fast-food visits by 6%, the market research firm said. Historically, fast-food chains have fared well during economic slowdowns as diners shift to cheaper options without skipping out on eating out altogether.
With pandemic-driven results now cycled, Albertsons Cos. saw a return to growth in its fiscal 2022 first quarter with strong gains in net and identical sales. For the 16 weeks ended June 18, net sales and other revenue came in at $23.31 billion, up 9.6% from $21.27 billion a year earlier, when the top line fell 6.5% year over year, Albertsons said Tuesday. The Boise, Idaho-based grocer attributed the sales uptick to elevated identical (ID) sales and higher fuel sales, noting that retail price inflation lifted ID sales. “In the first quarter, our teams continued to deliver strong operating and financial performance across all key metrics, and we continued to gain market share,” Albertsons Cos. CEO Vivek Sankaran said in a statement. Also on Tuesday, Albertsons gave an update on the company’s “strategic alternatives review” announced in late February. When announcing the action in February, the company said it had retained Goldman Sachs and Credit Suisse as financial advisers for the review, which will assess balance sheet optimization and capital return strategies, potential strategic or financial transactions, and the development of other strategic initiatives to complement Albertsons’ existing businesses. The retailer said the review also will entail “responding to inquiries.”
Home & Road
The Aaron’s Co., making its first quarterly report incorporating results from BrandsMart U.S.A., reported revenues of $610.4 million, up 30.5% over the same period ended June 30, 2021. “With the acquisition of BrandsMart U.S.A. (April 1), consolidated revenues increased in the second quarter, and we are encouraged by the performance of this new business segment,” said Douglas Lindsay, CEO. “In the Aaron’s Business, customer demand and payment activity progressively worsened through the quarter as high inflation impacted the lower-income consumer. In response to these challenging market conditions, we are leveraging our centralized lease decisioning and digital servicing platforms to maintain relationships with our customers and strengthening actions to control costs. “We continue to strategically invest in our growing e-commerce channel, our high-performing GenNext store program, and the value creation opportunities available through the BrandsMart acquisition,” he added.
Kitchen and bath spending is expected to jump 16% this year — even with inflation and mortgage rate increases — and reach $189 billion, reported the National Kitchen & Bath Association in its midyear market outlook report. NKBA’s July 2022 Residential Kitchen and Bath Market Outlook prediction is $10 billion lower than the initial 2022 forecast, it added, but the market is still robust. “This new Market Outlook report provides revised market size estimates and 2022 forecasts in the kitchen and bath industry, as well as gauges the economic and housing market shifts that continue to impact our market,” said Bill Darcy, CEO of the NKBA. “Despite some economic headwinds, kitchen and bath remodeling demand remains strong.” Other report findings: The report also found that new construction is projected to represent over 60 percent of industry revenues, driven by a record number of new home builds. The report forecasts 21 percent YOY new construction growth, unchanged from the initial report in January, it added.
Bedding manufacturer Tempur Sealy International has invested in Bryte Inc., a sleep technology company and designer of the Restorative Bed. The $20 million investment round led by Tempur Sealy includes Archina Capital and other existing Bryte investors. “Our mission is to empower lives through restorative sleep, which starts by reaching as many people as possible, with the most technically advanced products and first-rate services at a complete range of price points,” said Luke Kelly, CEO of Bryte. “There is simply no company in the world with a more complete and desirable portfolio of brands than Tempur Sealy, and we couldn’t be more excited about its investment.” Bryte is best known for its flagship product the Restorative Bed that can be found in the suites of luxury hotels such as Four Seasons Hotel Los Angeles at Beverly Hills, Fairmont Scottsdale Princess, Park Hyatt New York, as well as Rosewood locations, among others.
Jewelry & Luxury
After 10 years and leading the expansion of Shinola into a lifestyle brand, CEO Shannon Washburn has retired from the Detroit-based company, she says, noting the brand’s unique growth and hopes for its future in hospitality and beyond. Washburn joined Shinola in 2012, making her among the first 20 employees at the business that became known for its Motor City headquarters as well as its watches, fashion-forward advertising, and expansion into leather goods, partnerships with furniture giants such as Crate & Barrel, and its fine jewelry collections. “When I heard about the opportunity to work at Shinola, I wasn’t working at the time, and I didn’t want a traditional job. But when I spoke to its founder [Tom Kartsotis] and heard about its vision, I knew this is much more than a job. This was something I wanted to be part of,” says Washburn, who became CEO in 2019. Awenate Cobbina, CEO of Shinola’s parent company Bedrock Manufacturing, says Shinola is now seeking a new president for the brand.
Some 394 North American jewelry businesses closed their doors in the first half of 2022, a 56% jump from the first half of 2021, according to the regular statistics issued by the Jewelers Board of Trade (JBT). That represents a change from the recent trend of JBT reports, which have generally shown business discontinuances slowing down. The discontinuances in the first six months of the year include 316 retailers, 47 wholesalers, and 31 manufacturers. JBT defines a discontinuance as when a company ceases operations, is merged or acquired, or files for bankruptcy. Just about all of those 394 discontinuances were in the United States, but 14 were in Canada. The news wasn’t all bad—in fact, even though a lot of businesses left the industry, a healthy number of new businesses came in. In the first half of 2022, JBT recorded 296 new jewelry businesses in North America—a stunning 83% increase over the prior year. That number breaks down to 213 retailers, 56 wholesalers, and 27 manufacturers.
“The rich keep on buying” goes the mantra. Even in tough financial times, it still bears true. French company LVMH, which owns high-end labels ranging from Tiffany to Moet & Chandon, has tapped strong post-pandemic demand for its designer labels. Its reported sales grew 19 per cent year on year to €18.73bn (£15.6bn) in the three months to 30 June. The firm said while luxury spending was up in Europe as travelling US tourists took advantage of a stronger dollar, revenues fell by a “heavy double-digit” in China due to Covid-19 restrictions. Asked about prospects in China, chief financial officer Jean Jacques Guiony said it was too early to predict the timing of a turnaround. “We are very much in a wait-and-see attitude,” he added.
De Beers Group is increasing is 2022 production guidance, citing the ongoing sanctions against Russia and continued development of provenance platforms like Tracr, which it says can track diamonds from mine to market. In reporting its second-quarter production results last Thursday, De Beers said it is increasing its 2022 guidance to 32-34 million carats, up from 30-33 million carats. “While consumer demand for natural diamonds continued to be robust in the first half, a deterioration of global macro-economic conditions and reduced consumer spending could impact demand for diamond jewelry,” the company said. “Despite this, the combination of ongoing sanctions against Russia, decisions from a number of U.S.-based jewelry businesses to apply their own restrictions on purchases of Russian diamonds, and continued development of provenance initiatives has the potential to underpin continued demand for De Beers’ rough diamonds.”
Office & Leisure
Southwest Airlines reported all-time record revenue and net income, and currently holds fuel hedges valued at $1 billion in the second half of 2022. “Travel demand surged in second quarter, and thus far, strong demand trends continue in third quarter 2022,” said CEO Bob Jordan, in a prepared statement. Leisure demand accounted for most of the second quarter gains. “While second quarter 2022 managed business revenues remained below 2019 levels, the company was encouraged by the sequential improvement during the quarter, as well as managed business average fares that exceeded 2019 levels,” Southwest said. As for fuel hedges, “We experienced inflationary pressures and headwinds from operating at suboptimal productivity levels in second quarter, which we expect will continue in second half 2022; however, our fuel hedge continues to provide significant protection against higher jet fuel prices,” Jordan said. Fuel hedges were valued at $332 million in the second quarter. As of July 21, the fair market value of fuel derivative contracts settling in third quarter 2022 through the end of 2024 was an asset of $1 billion, the carrier said.
After a lengthy bidding war with Frontier Airlines that included an attempt at a hostile takeover, JetBlue Airways announced on Thursday that it’s merging with Spirit Airlines to create the United States’ fifth-largest carrier. JetBlue has been trying to buy Spirit for months, even after the budget Florida-based carrier had a merger agreement with Frontier. In May, JetBlue attempted a hostile takeover of Spirit by appealing directly to the airline’s shareholders. Spirit, which had repeatedly rejected prior overtures from JetBlue, finally went ahead with the merger after its deal with Frontier fell apart on Wednesday. JetBlue said Thursday it will buy Spirit for $3.8 billion, but some experts — and Spirit executives — have previously expressed doubt that such a merger would be approved by federal regulators. The sale boils down to a value of $33.50 per share and includes a reverse break-up clause that would have JetBlue pay Spirit $70 million if the merger fails. Both carriers said that they expect the deal to close no later than the first half of 2024. The merger must be approved by federal regulators and Spirit shareholders.
Technology & Internet
Best Buy on Wednesday cut its forecast for its fiscal year and second quarter, saying it has seen weaker demand for consumer electronics amid inflation. The consumer electronics retailer said it now expects same-store sales to decline about 13% for the current three-month period, which ends Saturday. That’s lower than what Best Buy said in May, when it predicted comparable sales would be roughly in line with the 8% decline in the first quarter. Best Buy said its inventory levels at the end of the second quarter will be approximately flat compared with the year-earlier period. That’s a notable difference from Walmart, Target and Gap, which have a glut of unwanted inventory weighing on profit margins. Best Buy already anticipated its sales would slow as it lapped a period when consumers had stimulus dollars and unusually big appetites for new laptops, home theater equipment and kitchen appliances during the pandemic. On Wednesday, Barry said the economic backdrop has become more challenging. “As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further, leading to Q2 financial results below the expectations we shared in May,” she said in a news release. Yet Barry added that its sales are higher than before the pandemic, emphasizing the company’s strong position even in a turbulent time.
Amazon shares climbed more than 13% in extended trading on Thursday after the company reported better-than-expected second-quarter revenue and gave an optimistic outlook. Revenue growth of 7% in the second quarter topped estimates, bucking the trend among its Big Tech peers, which all reported disappointing results prior Thursday. Amazon said it expects to post third-quarter revenue between $125 billion and $130 billion, representing growth of 13% to 17%. Analysts were expecting sales of $126.4 billion, according to Refinitiv. Amazon has been contending with higher costs, as pandemic-driven expansion left the company with too many workers and too much warehouse capacity. Amazon’s core e-commerce business continues to suffer as online sales are no longer flourishing like they were at the height of the Covid-19 shutdown. The company’s online stores segment declined 4% year over year. Physical store sales continued to rebound from the year-ago period, growing 12%. Amazon’s ad business is a bright spot in an otherwise gloomy quarter for online advertising, and shows the company is picking up share in one of its fastest-growing businesses.
Apple reported fiscal third-quarter earnings on Thursday that beat Wall Street expectations for sales and profit but showed slowing growth for the iPhone maker. Apple did not provide formal guidance for the quarter. Analysts expected the company to give fourth-quarter guidance of $1.31 in earnings per share and nearly $90 billion in sales. “In terms of an outlook in the aggregate, we expect revenue to accelerate in the September quarter despite seeing some pockets of softness,” Apple CEO Tim Cook told CNBC’s Steve Kovach. Apple’s revenue rose 2% during the quarter, compared to 36% growth during the same period last year and over 8% growth in the March quarter. Cook said the results were better than expected and CFO Luca Maestri said it was a “challenging operating environment.” Chipmakers and other computer vendors have signaled that there is slowing demand for smartphones and PCs around the world as consumers grapple with recession fears and decades-high inflation.
Finance & Economy
The U.S. economy contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession, the Bureau of Economic Analysis reported. Pressured by surging inflation, rising interest rates and intensifying supply chain pressures, gross domestic product fell 0.9% for the period, following a 1.6% decline in the first quarter. The Dow Jones estimate was for a gain of 0.3%. Officially, the National Bureau of Economic Research declares recessions and expansions, and likely won’t make a judgment on the period in question for months if not longer. But a second straight negative GDP reading meets a long-held basic view of recession, despite the unusual circumstances of the decline and regardless of what the NBER decides. GDP is the broadest measure of the economy and encompasses the total level of goods and services produced during the period.
Americans grew even more pessimistic about the US economy over the past month, according to the latest survey on consumer attitudes, intentions and expectations from The Conference Board. The consumer confidence index for July slipped to 95.7 from June’s revised reading of 98.4, which was adjusted downward by 0.3 points. It’s the lowest index reading since February 2021, when levels were 95.2; however, the July number remains considerably above the deeply pessimistic readings during the Great Recession, when the index fell as low as 25.3. It’s the third consecutive month that the index fell, a decline driven by consumers souring on the state of current business conditions. The index that tracks assessments of current business and labor conditions tumbled to 141.3 from 147.2, according to the report. Consumers’ expectations for the next six months ahead held relatively steady, but remain at a level that suggests recession risks persist.