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“Autoship customer sales have grown to represent 74.7 percent of total net sales. Our primary measure of customer engagement, NSPAC (net sales per active customer), grew 14.8 percent year-over-year to $512, driven primarily by our large customer base that spends more with us over time, growing Autoship customer sales and increasing levels of cross-category purchases by our customers. Both NSPAC and Autoship customer sales reached new record highs for the company,” Mr. Marte told analysts on Chewy’s earnings call.
“Autoship is a big factor in Chewy’s success, however it’s their outreach to shoppers prior to the auto-ship order being processed that seals the deal for most customers,” wrote Deann Campbell, chief strategy officer at Hoobil8, in an online discussion about Chewy’s earnings on RetailWire last week. “Giving shoppers a heads up prior to billing and making it easy to adjust order timing is what really instills to trust and creates loyal customers, one of which is me! Without this piece, autoship often does more harm than good as shoppers resent being billed automatically, and resent having to track refill timing by themselves.”
Other members of RetailWire’s BrainTrust of industry insiders likewise saw autoship as one well-executed element in Chewy’s overall solid strategy.
“Chewy is a very good business that treats customers well, that’s part of their success,” wrote Neil Saunders, managing director at GlobalData. “However, they also operate in a segment where buying is essential and habitual which makes auto-shipping a useful option. One of the good features of Chewy is that the customer is always informed and remains in control over orders. There are no surprise shipments or charges.”
“it’s clear that autoship (with its high penetration of total sales) is driving the sales right now, but I would also credit Chewy’s very clever and appealing marketing campaign. (Favorite child, anyone?)” wrote Dick Seesel, president of Retailing in Focus.
Chewy said the quarter ended with a “modest” increase in active customers compared to the fourth quarter of 2022. The retailer said it had 20.4 million active customers in the first quarter.
The company’s gross margin was “buoyed by lower-than-anticipated promotional activity, overall strength in average order size, and better-than-expected leverage in freight and packaging,” according to Mr. Marte.
Chewy increased its guidance for the fiscal year as it opened a new automated fulfillment center in Nashville (its fourth overall) and prepares to expand into Canada.
“We’re not starting at ground zero in Canada, even though we’re not present in Canada. Our market awareness broadly sits in the mid-twenties. And even though that’s lower than obviously what we enjoy here in the United States, it’s worth noting that it’s not zero,” said Sumit Singh, Chewy CEO.
Mr. Singh believes that Chewy’s focus on service will be as welcomed by Canadians as it is by Americans. He said the pet products market is expected to grow slightly faster in Canada than in the U.S. over the next five years and that online sales penetration is slightly below the American market. Both of these point to opportunities for Chewy, he said.
The BrainTrust also had some thoughts on Chewy’s impending northward move and its chances for success.
“If Canadian customers are as devoted to their pets as we are in the states and if they value great customer service, great product quality and variety, and ‘order from the couch’ convenience, then Chewy should fare better than other retailers,” wrote John Lietsch, chief operating officer at Bloo Kanoo. “The assumption is that Chewy will be able to leverage its operational expertise and experience to continue to deliver the level of service and product quality that has endeared it to its U.S. customers and to do it at a competitive price.”
“Auto shipping based on a pet’s eating habits is a big convenience factor, and is part of the loyalty calculation. It is a service, one that makes feeding your pet that much easier,” wrote Mark Self, CEO of Vector Textiles. “They will experience the same if not higher level of success in Canada, count on it!”
Some noted that Chewy might even have some advantages in a market notoriously difficult to crack for American retailers.
“As a pure e-commerce retailer they will not have the brick-and-mortar challenges north of the border that so many other American retailers have faced,” wrote Mr. Seesel.
“As to Canada, by its geographic dispersal of population, it is easier – and less expensive – to reach more consumers via e-commerce than with sparsely located stores,” wrote Bob Amster, principal at Retail Technology Group.
Trip.com Earnings Overview This is a big review as Trip.com provided a good look into domestic consumption. The company very well-run, in my opinion, and management are straight shooters. The company’s …
This is a big review as Trip.com provided a good look into domestic consumption. The company very well-run, in my opinion, and management are straight shooters. The company’s results annihilated analyst expectations. Its China-focused domestic travel business saw robust year-over-year growth (YoY), as domestic travel returned to pre-COVID levels, driving an impressive 124% year-over-year (YoY) gain in revenue. Accommodation reservation revenue increased 40% YoY, which represents a growth rate of 106% quarter-over-quarter, which is 15% higher than pre-COVID (2019). Hotel bookings and transportation ticketing revenue increased 40% and 24%, respectively, from pre-pandemic levels. Corporate travel revenue increased 100% YoY and 61% quarter over quarter, which is 87% higher than the 2019 level. The domestic China travel business is clearly back, though the company’s upside has been capped by limited outbound travel and inbound foreign tourists. Outbound hotel and air reservations are at 60% of 2019 levels, with most travelers headed to Hong Kong, Macau, Thailand, and Singapore. As governments communicate with one another, we should see an increase in flights to China and Asia, for that matter. Getting from Europe and the East Coast of the US to China on a non-Chinese airline isn’t easy though Trip.com should benefit as more airline routes come back online. Hat tip to management for keeping costs down as many sell-side analysts questioned the company about their decade-high margins. When asked about the state of China’s consumers, CFO CFO Cindy Xiaofan Wang responded, “..we are confident in the long-term outlook of the travel consumption in China. The demand for travel as part of the service consumption recovery is expected to keep increasing in China…”.
Revenue +124% YoY to RMB 9.2 billion ($1.3 billion) versus analyst expectations of RMB 8.05 billion.
Adjusted net income increased to RMB 2.065 billion ($300 million) from a loss of RMB -36 million versus analyst expectations of RMB 1.254 billion.
Adjusted EPS increased to RMB 3.07 ($0.45) from a loss of RMB -0.06 versus analyst expectations of RMB 1.82.
Asian equities were largely lower except for Hong Kong, Mainland China, and Thailand, which outperformed.
The Bangles might need to rename their ‘80s hit to “Hazy Shade of Summer” as we are fogged/smoked in here in New York.
The Lujiazui Forum kicked off in Shanghai today with speeches from the heads of the PBOC (central bank), CSRC (China’s SEC), CBIRC (insurance/bank regulator), SAFE (currency regulator), and the National Social Security Fund Council. The opening and keynote speech was from Li Yunze of the CBIRC, who stated, “We grasp the key task of restoring and expanding effective demand… increase support for new consumption and service consumption finance, promote major consumption areas such as new energy vehicles and green home appliances.” I wonder where we should invest? Mainland investors did not need a treasure map as Gree Electric Appliances (00651 CH) gained +2.96%, and peer Midea Group (000333 CH) gained +2.97%. He also noted his “support for the transformation of urban villages in large and megacities.”
What was the best performing sector in Mainland China and Hong Kong overnight? Real estate, which gained +1.77% and +2.62% in both markets, respectively. Chinese real estate bonds denominated in the offshore US dollar look tempting despite investors’ lack of interest, in my opinion.
Autos were off on recent outperformance, despite the Ministry of Commerce releasing a statement on supporting auto consumption.
The economic focus from policymakers and bank deposit interest rate cut has raised expectations that the loan prime rate will be next week when the medium-term lending facility rate is announced. A bank reserve requirement ratio cuts may follow this. Financials gained +1.65% in China and +1.05% in Hong Kong. I would argue that there will be better news coming rather than bad news in the weeks and months ahead (fingers crossed, of course). Remember, this is against the backdrop of low investor allocation, i.e., pain trade higher.
The Hang Seng posted a small gain, closing above the 19k level as Hong Kong’s most heavily traded stocks were Tencent, which fell -0.24%, Alibaba, which fell -0.83%, and Meituan, which gained +0.73% along with Kuiashou, which fell -2.82%, JD.com, which gained +0.35%, NetEase, which gained +0.65%, and Baidu, which fell -1.36%. Hong Kong Main Board short turnover jumped +32% from yesterday, with short activity focused on Hong Kong-listed ETFs versus individual stocks, as 19% of the volume was high short volume. Value stocks and sectors led Shanghai higher as real estate and financials were higher on the policy, along with energy having a good day. Growth-focused Shenzhen and STAR Board were both off. Buying in the Mainland via foreign investors and in Hong Kong from Mainland investors via the Northbound and Southbound Connect programs.
The Hang Seng and Hang Seng Tech diverged to close +0.25% and -0.68%, respectively, on volume that increased +32.14% from yesterday, which is 71% of the 1-year average. 260 stocks advanced, while 228 stocks declined. Main Short turnover increased by +32.21% from yesterday, which is 83% of the 1-year average, as 19% of turnover was short turnover. Value factors outperformed growth factors as small caps outpaced large caps. The top sectors were real estate +2.6%, energy +1.71%, and industrials +1.56%, while the worst were tech -1.01%, healthcare -0.53%, and staples -0.38%. The top sub-sectors were energy, insurance, and food, while semis, auto, and healthcare equipment were the worst. Southbound Stock Connect volumes were light as Mainland investors bought +$516 million of Hong Kong stocks, with Li Auto a small net buy, and Tencent, Meituan, and Kuiashou were small net sells. Citibank’s CEO joined the list of Western executives visiting China.
Shanghai, Shenzhen, and the STAR Board diverged to close +0.49%, -0.15%, and -1.17%, respectively, on volume that increased +5.32%, which is 93% of the 1-year average. 1,814 stocks advanced, while 2,841 stocks declined. Value factors outperformed growth factors as large caps outperformed small caps. The top sectors were real estate +1.7%, financials +1.56%, and energy +1.44%, while tech -1.19%, communication -0.81%, and healthcare -0.63% were the worst. The top sub-sectors were construction machinery, forest, and agriculture, while education, leisure, and cultural media were the worst. Northbound Stock Connect volumes were light as foreign investors bought $414 million of Mainland stocks, with volume leaders Ping An, Kweichow Moutai, and China Tourism Duty-Free all small net sells. CNY and the Asia dollar index fell slightly versus the US dollar as the Treasury curve flattened. Copper and steel made small gains.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
CNY per USD 7.12 versus 7.11 yesterday
CNY per EUR 7.64 versus 7.62 yesterday
Yield on 10-Year Government Bond 2.68% versus 2.68% yesterday
Yield on 10-Year China Development Bank Bond 2.83% versus 2.83% yesterday
If the retail industry doesn’t think Mother Earth wants to have a word, it only has to put its ear to the ground.
The consequences of epic weather events, including record-breaking droughts, floods and temperature fluctuations, are being recorded in shopper traffic and retail sales. And isn’t it ironic. The retail industry is a key contributor to global emissions; the apparel industry alone generates nearly 10% of global greenhouse gases, the European Parliament reports.
Now all that methane and carbon is polluting retail performances:
Home Depot said cooler temperatures and wetter weather in parts of the western U.S., including California, had contributed to its biggest sales miss in more than 20 years – $1 billion, according to CNBC. The retailer had reported revenue of $37.3 billion in the first quarter, when analysts expected $38.3 billion.
Sam’s Club this spring noted slower sales of patio sets, in part because shoppers are waiting later into the season to buy them, CEO Kathryn McLay said on a May investor’s call: “We also saw kind of cooler weather, which kind of changed the shape of how people are buying.” Walmart WMT , Sam’s parent company, also saw softer sales in seasonal lawn and garden products, due to “unseasonably cooler spring weather.”
Fast-fashion chains, such as Zara, are especially vulnerable to unpredictable weather because of their fast-turning inventories. With seasons no longer clearly defined, consumers are making unexpected fashion choices – winter coats one day, T-shirts the next. Retailers in Europe, where torrential rains and droughts are becoming seasonal events, are striving to adjust, EuroNews reports.
Supply chains also are affected. Due to “exceptional” droughts in Texas 2022, 70% of all cotton fields in key regions failed, according to The Texas Tribune. Monsoons in Pakistan last summer affected 40% of the country’s annual cotton yield, Vogue Business reports. And in August, China shut down factories due to a record-setting drought that halted economic activity, states the New York Times NYT .
Even Good Weather Can Disrupt Inventory
The effects of weather unpredictability go both ways. Unusually warm weather in January was credited with influencing higher-than-expected retail sales that month – 3.2%, according to CNN. But by March, U.S. retail sales declined by 1%, more than twice the 0.4% decline predicted (per USA Today).
These unexpected fluctuations, too, disrupt inventory and sales management – think out-of-stocks that cause customer frustration.
Sustaining Sales: 4 Guidelines For Retailers
A lot of retailers have adopted practices to reduce their own carbon footprints – a critical first step to improving weather-related fluctuations. Stores, including Walmart, Home Depot, CVS Health and Gap GPS , have appointed chief sustainability officers, for example.
Many of these companies have big-picture ambitions, such as halving food waste. Here are a few more tactical steps retailers can take, day-by-day, to better prepare for weather events.
Climate-change your analytics – Weather repeats itself from one year to the next just 15% of the time, the National Retail Federation reports, so retailers should not use last year’s weather to predict this year’s demand. Rather, they should incorporate weather forecasting data into their merchandising and marketing insights, to calculate the predicted effects of weather-driven demand. Analytics can, for example, isolate the extent to which a category’s sales volatility is weather-related (jewelry – weirdly – is much more susceptible to weather in January, when consumers use gift cards, NRF reports). This information can help retailers adjust not only inventories, but staff schedules.
Stop thinking of inventory as seasonal – When its 82 degrees in March and 40 degrees in May, consumers are likely keeping their winter clothes in the front of the closet longer and putting thoughts of swimsuits in the back drawers of their minds. Retailers can work with Mother Nature and invest in the tech that enables them to balance stock across stores. Some artificial intelligence software can achieve this by suggesting inter-store transfers before region-specific weather events occur – from overstocked northern locations to unseasonably cool southern locations within the fulfillment chain, for example (the retail predictive analytics firms Retalon and Snowflake are among providers).
Your supply chain should act as an umbrella – Just 11% of suppliers in the U.S., China and Taiwan are prepared for climate-related disruptions, according to a 2022 report in Supply Management. Retailers can require that their top suppliers map out their supply chains to show how well their lower-level fulfillers will come through during a weather event. Data technologies can further enable distributors to prepare for weather disruptions by using digital replicas to model various climate scenarios and outcomes. Lastly, retailers should lean on these partners to be better Earth stewards themselves; supply chains generate nearly 60% of global carbon emissions, Accenture ACN reports.
Use loyalty data to add wind to retail sales – Retailers can put their loyalty member insights to work by reviewing year-ago seasonal purchases and sending incentives to members to purchase weather-sensitive categories earlier. The data can inform both what members tend to buy annually, such as summer sandals, and less-frequent items, like outdoor furniture. The boating supply and equipment store West Marine, for example, uses geographic data generated from its loyalty program to target product offerings to members at varying times, regardless of month. This is because members in Florida are more likely to be saltwater boaters, so their season starts earlier than someone in say, Michigan, who is more likely to be a freshwater boater and has to wait for snow to melt and lakes to unfreeze before boating season can begin.
Speak Mother Earth’s Language, And She’ll Speak Yours
Catastrophic weather events are becoming as seasonal as farmer’s markets and snow skiing. The sooner the factors of these events, including how to cope with the aftermath, are entered into retail’s operational lexicon, the better prepared the industry will be to serve its customers. Consumers are, after all, also scrambling to find the goods they need in response to weather shifts.
The Earth is roaring. As anyone who’s lost a home after ignoring hurricane warnings will tell you, it pays to listen.
Every modern customer experience has some aspect of digital engagement. No matter what you’re selling or offering customers, digital is now a requirement, including e-commerce, apps, chatbots, immersive VR and AR, …
Every modern customer experience has some aspect of digital engagement.
No matter what you’re selling or offering customers, digital is now a requirement, including e-commerce, apps, chatbots, immersive VR and AR, AI automation—the list goes on and on.
But as technology advances and customers evolve, so too do digital experiences. The tools and strategies brands use to engage with customers digitally today will look different in the future.
What does that future digital experience look like? Let’s take a look.
Digital Experiences of the Future
The digital experience of the future is seamless, easy, and personalized. We’re on our way to a world where customers can quickly get the help and assistance they need, from any device, without jumping through hoops.
Today’s digital experiences tend to be more disjointed, especially as customers move across channels. But soon, brands will use digital solutions to create immersive experiences to connect with customers. That will be evident in every aspect of the customer experience, from showcasing products through video to answering questions with chatbots and offering self-service help with AR instructions. Digital will be seamlessly woven into every experience so customers don’t have to repeat themselves or get irrelevant recommendations.
Prioritizing What Customers Want
The most successful brands are preparing now to serve customers digitally in the future. But preparing for a world and technology that doesn’t yet exist can be challenging, especially when deciding what channels and advancements will last and which are fleeting trends.
The key is to listen to customers, understand their behaviors, and prioritize what they want. When Lyft went through a digital transformation, leaders talked with customers, shadowed customer service agents, and even drove customers to gain insights on what was and wasn’t working and what they wanted in a digital experience. Those insights were foundational in providing a smoother, proactive digital experience.
One of customers’ top demands is self-service. Self-service allows customers to get the assistance they need on their schedules instead of having to wait on hold for a contact center agent. Companies should prioritize self-service options for customers, such as providing service through chatbots, online forums and communities, or video or AR tutorials.
2023 is the year of immersive experiences driven by growth in AR and VR. Immersive experiences are moving beyond trying on clothing and makeup virtually to showcasing products and brands and building virtual worlds around products. Ikea uses AR to show customers how furniture would look in their house; Lush customers can scan products with the Lush Lens app to see the ingredients, directions, and story behind the product; Nike customers can create custom shoes that are tailored right in front of them using AR; the possibilities are endless.
Opportunities for Digital Growth
Building out digital experiences gives brands incredible opportunities to grow and connect with customers like never before. Some of the biggest opportunities come through AI, especially as ChatGPT and other services make AI much more accessible.
Technology like AI and machine learning allows brands to know their customers like never before, share that information across the company, and create a cohesive and personalized experience, no matter how customers interact with the brand.
New technology and digital experiences open the door for brands to deliver excellent experiences to customers that are personalized, convenient, and relevant. But as technology and customers change, brands must stay involved and agile to adapt and lead in a changing digital world.
This week, we are deeply saddened by the death of William J. O’Neil on May 28, 2023, at the age of 90. O’Neil, the founder of Investor’s Business Daily and author of How to Make Money in Stocks, has developed a strategy called CAN SLIM, an acronym to help remember the seven factors that winning stocks tend to possess. In this article I cover AAII’s O’Neil CAN SLIM No Float screening model and give you a list of stocks currently passing our screen based on the approach.
The O’Neil CAN SLIM strategy aims to identify stocks with high historical and projected growth that are likely to have rapid price increases. The strategy includes a market-timing consideration since O’Neil found that investing only during a market uptrend helps to avoid “swimming upstream.” As of May 31, 2023, AAII’s O’Neil CAN SLIM No Float screening model has an annual gain since inception (1997) of 12.2%, versus 5.7% for the S&P 500 index over the same period. The O’Neil CAN SLIM No Float screen is down 3.6% year to date, compared to an increase of 9.8% for the S&P 500 over the same period.
CAN SLIM: The Philosophy
O’Neil was a strong believer in the sustained long-term growth of the American economy due to the freedoms and opportunities available, which he said have made the U.S. a “prime success model” and a leader in high-growth, innovative entrepreneurial companies. The goal of investing in stocks, he believed, is to participate in that long-term growth.
With that basic outlook in mind, O’Neil’s approach starts with the entire universe of stocks—those listed on the major exchanges, including Nasdaq, but favors the stocks of smaller firms, since most innovations and new products come from smaller and medium-sized companies. His system can best be described as a growth stock approach that seeks companies whose stock prices are poised to rise due to favorable fundamental factors within the firm and industry, such as increased earnings due to new products and services, as well as favorable technical factors regarding price trends and the supply and demand for the stock.
In his book, O’Neil says that his approach to investing stems from an analysis covering 40 years of market data, which examined each year’s stocks with the largest percentage price increase to find the common characteristics of the “most successful stocks.” These common characteristics include fundamental factors, inherent in the nature of the firm and industry, and technical factors from observing the price patterns of the stocks.
C = Current Quarterly Earnings Per Share: How Much Is Enough?
The CAN SLIM approach focuses on companies with proven records of earnings growth while still in a stage of earnings acceleration. O’Neil’s study of winning stocks highlights the strong quarterly earnings per share of the securities prior to their significant price run-ups.
When screening for quarterly earnings increases, it is important to compare a quarter to its equivalent quarter last year—i.e., this year’s second quarter compared to last year’s second quarter. Many firms have seasonal earnings patterns, and comparing similar quarters takes this into account.
O’Neil recommends looking for stocks with a minimum increase in quarterly earnings of 18% to 20% over the same quarterly period one year ago. When examining a percentage change, it is not only important to check the figures for unusually small base numbers that may distort the percentage change figures, but it is also important to check if any of the numbers in the calculation are negative. A change in sign, as in a negative to a positive, requires special consideration and may result in misleading screening results. When screening on user-defined fields such as custom growth rates, you may find it useful to include some secondary or qualifying criterion to help ensure proper screening results. In the CAN SLIM screen, positive earnings for the current quarter are required to help make the results of the growth rate calculation more meaningful.
Whenever you are working with earnings, the issue of how to handle extraordinary earnings comes into play. One-time events can distort the actual trend in earnings and make company performance look better or worse than a comparison against a firm without special events. O’Neil recommends excluding these nonrecurring items from the analysis. With our screen, we examine growth in earnings from continuing operations only. The first two screening filters require a quarterly earnings growth rate greater than or equal to 20% and positive earnings per share for the current quarter.
Beyond looking for strong quarterly growth, O’Neil likes to see an increasing rate of growth. An increasing growth rate in quarterly earnings per share is so important in the CAN SLIM system that O’Neil warns shareholders to consider selling holdings of those companies that show a slowing rate of growth two quarters in row. The next screen specifies that the growth rate from the quarter one year ago to the latest quarter be higher than the previous quarter’s increase from its counterpart one year prior. Basically, the current quarter’s growth over the past 12-month period must be better than the previous quarter’s growth over the past 12-month period.
A = Annual Earnings Increases: Look For Meaningful Growth
Winning stocks in O’Neil’s study had a steady and significant record of annual earnings in addition to a strong record of current earnings. The CAN SLIM system tries to identify the strong companies leading the current market cycle.
The primary screen for annual earnings increases that O’Neil uses is for increasing earnings per share in each of the last five years. In applying this screen, we specify that earnings per share from continuing operations be higher for each year when compared against the previous year. To help guard against any recent reversal in trend, a criterion is included requiring that the earnings over the last 12 months be greater than or equal to earnings from the latest fiscal year. This group of criteria proved to be the most stringent independent filter.
N = New Products, New Management, New Highs: Buying At The Right Time
O’Neil feels that a stock needs a catalyst to start a strong price advance. In his study of winning stocks, he found that 95% of the winning stocks had some sort of fundamental spark to push the company ahead of the pack. This catalyst can be a new product or service, a new management team after a period of lackluster performance or even a structural change in a company’s industry, such as new technology. These are qualitative factors that do not lend themselves to easy screening. However, it is possible to study the companies passing the preliminary screens to see if any catalysts exist.
A second consideration that O’Neil emphasizes is that investors should pursue stocks showing strong upward price movements. O’Neil says stocks that seem too high-priced and risky most often go even higher, while stocks that seem cheap often go even lower. Stocks that are making the new high list while accompanied by a big increase in volume might be prospects worth checking. A stock making a new high after undergoing a period of price correction and consolidation is especially interesting. O’Neil feels that decisive investors should have sold a stock long before it hits the new low list.
S = Supply And Demand: Small Capitalization Plus Volume Demand
As the catalyst starts pushing the price of a company’s stock up, those firms with a smaller number of shares outstanding should increase more quickly than those with many outstanding shares. In his study of winning stocks, O’Neil found that 95% of the winning stocks had fewer than 25 million shares outstanding, while the median for the group was 4.6 million shares.
O’Neil suggests that investors consider looking at the actual “float” of the stock. The float is the number of shares in the hands of the public—determined by subtracting the number of shares held by management from the number of shares outstanding. In the original CAN SLIM screen, we limited the float to 20 million shares. As companies have become larger, this float has become increasingly restrictive. In addition, O’Neil did not explicitly lay out this requirement in his original book. The CAN SLIM No Float approach does not state a specific float requirement.
L = Leader Or Laggard: Which Is Your Stock?
O’Neil is not like the patient value investor—looking for out-of-favor companies and willing to wait for the market to come around to his viewpoint. Rather, he prefers to scan for rapidly growing companies that are market leaders in rapidly expanding industries. O’Neil advocates buying among the best two or three stocks in a group. You should be compensated for any premium you pay for these leaders with significantly higher rates of return.
O’Neil suggests using relative strength to identify market leaders. Relative strength compares the performance of a stock relative to the market. Relative strength is typically reported with a base level of zero or one—in which case the base level represents stock performance equal to the market index. Numbers above the base level reflect performance above the market index, while below-market performance can be seen with figures below the base.
Companies are often ranked by their relative strength performance and their percentage ranking among all stocks is calculated to show the relative position against other securities. IBD presents the percentage ranking of stocks, and O’Neil recommends only looking for stocks with a percentage rank of 70% or better—stocks that have performed better than 70% of all stocks. If you wish to make the market leader screen more stringent, O’Neil suggests only considering stocks that have relative strength rankings of 80% or 90% with a chart base pattern.
When monitoring your portfolio, O’Neil recommends that you sell off your worst-performing stocks and keep your best-performing stocks a little longer. You should try to avoid letting your ego dictate your actions. It is best to recognize a mistake early, before it becomes a major problem.
I = Institutional Sponsorship: A Little Goes A Long Way
O’Neil warns against selecting low-priced stocks with small capitalization and no institutional ownership, because these stocks have poor liquidity and often carry a lower-grade rating. O’Neil feels that a stock needs a few institutional sponsors for it to show above-market performance. Three to 10 institutional owners are suggested as a reasonable minimum number. This number refers to actual institutional owners of the common stock, not institutional analysts tracking and providing earnings estimates on stocks. Beyond looking for a minimum number of institutional owners, O’Neil suggests that investors look at the past record of the institutions. The analysis of the holdings of successful mutual funds represents a good resource for the investor because of the widely distributed information on mutual funds. We established a screen for stocks to have at least five institutional owners.
It is difficult to strike a balance between looking for stocks with room to expand further and stocks that may be over-owned. O’Neil warns that while some institutional sponsorship is required, once everyone has jumped on the stock, it may be too late to buy into it.
M = Market Direction: How To Determine It
The final aspect of the CAN SLIM system looks at the overall market direction. While it does not impact the selection of specific stocks, the trend of the overall market has a tremendous impact on the performance of your portfolio. O’Neil focuses on technical measures when determining the overall direction of the marketplace. Any good technical program or even a study of IBD or The Wall Street Journal should provide you with the necessary tools to study market movement.
O’Neil finds it difficult to fight the trend, so it is important to determine if you are in a bull or bear market. If you are selecting your own stocks, it is important to follow and understand what the general market averages are doing every day. When the market peaks and begins a major reversal, O’Neil recommends that you try to put 25% of your portfolio into cash. It is important that you act quickly, especially if you have purchased your stocks on margin.
Other items to look for at a market top include heavy volume without significant price progress and the divergence of key averages. At market tops you often find stocks that were past market leaders faltering, while poor-quality stocks are showing up on the most active lists. When the market starts down, it sometimes takes time for the volume to build. O’Neil warns that the market can be slow to acknowledge the downtrend.
The CAN SLIM system has great appeal to the active investor looking for growth stocks. While the approach is specific, it also stresses the art of investing when analyzing companies highlighted by the approach and interpreting the direction of the market.
Companies Passing the O’Neil CAN SLIM No Float Screen (Ranked by 52-Week Relative Strength)
The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
Biden Vetoes Bill Nullifying Student Loan Forgiveness And Student Loan Pause
Last week, Congress passed a joint resolution under the Congressional Review Act that would have halted Biden’s signature student loan forgiveness plan. That plan, if enacted, would provide up to $20,000 in student loan forgiveness to millions of borrowers. The CRA resolution would have also nullified the President’s most recent extension of the ongoing student loan pause, which has stopped payments and frozen interest for most federal student loan borrowers since March 2020.
Advocates for borrowers had warned that enactment of the Congressional Review Act bill could be disastrous. Not only would it deny borrowers student loan forgiveness, but it could result in hundreds of thousands of borrowers having their discharged loans reinstated due the reversal of PSLF or Income-Driven Repayment credit they received during Biden’s most recent extension of the student loan pause. Some advocates also suggested that borrowers would be forced to retroactively pay back interest that would have accrued during that most recent extension.
“Congressional Republicans led an effort to pass a bill blocking my Administration’s plan to provide up to $20,000 in student debt relief to working and middle class Americans. I won’t back down on helping hardworking folks,” said Biden in a statement yesterday. “That’s why I’m vetoing this bill.”
Biden’s veto means that the Congressional Review Act resolution will not become law, even though it was passed by both the House and the Senate. Congress could override Biden’s veto with a two-thirds majority in each chamber, but Republicans conceded that even with the handful of Democrats who voted to overturn Biden’s debt relief plan, they would fall far short of the threshold needed to override the veto.
Since the Congressional Review Act can only be used to repeal recently enacted regulations, this particular effort to nullify Biden’s student debt relief plans is effectively dead.
Biden Preserves Student Loan Forgiveness, But Ends Student Loan Pause, In Debt Ceiling Bill
Ending the student loan pause via the debt ceiling bill is distinct from the repeal efforts in the Congressional Review Act. The Congressional Review Act would have nullified Biden’s most recent extension of the student loan pause, which began after last December, potentially causing chaos for borrowers who benefited from the extension during the last several months. In contrast, the debt ceiling bill does not retroactively reverse the latest extension; it simply codifies that the student loan pause will end 60 days after June 30, a timeline that Biden administration officials had already suggested would happen.
Nevertheless, advocates for student loan borrowers have been critical of Biden’s compromise, arguing that removing any chance of another extension of the payment pause will undermine the administration’s ability to help borrowers. And a recent report by the Consumer Financial Protection Bureau released this week suggests that millions of borrowers may not be ready for an abrupt return to repayment.
Supreme Court Will Soon Rule On Biden’s Student Loan Forgiveness Plan
While Biden has effectively neutralized Republican-led efforts to repeal his student loan forgiveness plan through Congress, the initiative still remains at risk. Two federal courts blocked the program last fall in response to legal challenges, and the administration appealed those decisions to the Supreme Court. A final ruling on Biden’s student debt relief plan is expected this month, and could arrive as soon as next week.
Advocates have been pressing the Biden administration to consider a backup option for student loan forgiveness in the event of an adverse Supreme Court ruling. But officials have publicly stated that there is no fallback option under consideration at this time.
When Lululemon opened its first store in 1998 in the Kitsilano neighborhood of Vancouver the brand focused on creating product focused on the local community. Now, 25 years later, they continue to take that community-minded focus to a global footprint.
“The same unique foundation that got us here will continue to guide us in our next phase of growth,” says Celeste Burgoyne, Lululemon president of Americas and global guest innovation. “An obsession on product, a focus on human connection and looking for each and every opportunity to focus on community.”
Lululemon started as an idea, says Calvin McDonald, CEO, taking a fresh idea in women’s-focused activewear and building a community. The approach first resonated in Kitsilano and has since expanded to boast 650 stores in 18 countries.
Lululemon hit $1 billion in revenue in 2011 and reached $8 billion by 2022. A goal of $12.5 billion in sales by 2026 comes driven by three growth pillars, McDonald says. Lululemon’s focus is on product, looking to double the men’s business while growing women’s in double digits. They want to build deeper connections with consumers by doubling the ecommerce business while growing store sales in doubles digits. And they have aggressive international market expansion plans, with a goal to quadruple business while growing North America in double digits.
“We couldn’t be more excited to look back and celebrate where we came from and look forward to where we are going as a brand,” McDonald says.
Since opening in 1998, Lululemon expanded to the United States in 2003 and now has over 400 stores across North America. The expansion went global in 2004 by opening in Australia. Global growth continues with the brand opening its 100th store in China in May, its first stores in Spain in 2023 and a soon-to-open first store in Thailand.
The brand takes a unique stance on product focus, using its own research lab at its Vancouver headquarters to highlight the “feel of science” on products. “We can make prototypes in house, we test on athletes and guest ambassadors in the intended environment and activity,” says Chantelle Murnaghan, vice president of research and product innovation. “We are iterating until we get those innovations exactly right. We talk about the science of feel a lot.”
That focus, she says, blends art and science to drive the brand toward new technical and functional construction and materials. “It pushes us to take a more sensory focus to what we are building,” Murnaghan says. “We are optimizing performance, but also enhancing our guest experience.”
With a continued growth focus, the brand’s 2022 entry into women’s performance footwear continues to expand in 2023, with more products expected moving forward. The brand is also highlighting updates in materials, such as the world’s first bio nylon 6 that can help the brand’s goal of textile-to-textile recycling.
For a brand intertwined with women—75% of the workforce is women, including over 70% of the leadership team—the sales strategy comes with dual prongs. Across North America, over 50% of the business is through digital channels, but McDonald says they remain “very committed to brick and mortar” as part of community connection.
Burgoyne says community events derive from stores, with an expectation of having one million guests participate in a community event in 2023 alone.
André Maestrini, executive vice president for international, says the brand grew the international business in 2022 by 35%. More is coming.
“We are a global brand, but a multi-local brand by creating these links with the community,” he says. “We are not a brand of big sporting events or signage, we are a brand of people that in their own way are going to inspire you, whatever your level is. This is a brand about human connections, a brand that is relevant in the markets we are in.”
“After 25 years,” Burgoyne says, “we really do believe we are just getting started.”
Chewy delivered another stellar performance, with sales up 14.7% for the first quarter and a gross margin of 28.4% compared to last year at 27.5%. Nearly 75% of sales came from the company’s auto-ship program, which continues to drive long-term customer loyalty. Chewy’s net sales per active customer grew almost 15% to over $500, and the company has plans to further its growth over the next year. In an interview with Chewy CEO Sumit Singh, he talked about brand growth focusing on customer experience and loyalty.
Preparing the business to scale
“When I took over as CEO in 2018, the company had just over $2 billion in sales, and our goal was to scale the business,” said Singh, who closed out the 2022 year with over $10 billion in annual revenue.
Singh’s background infused him with a deep knowledge of supply chain and logistics, and he has transformed the company regarding back-of-house operations. “We added a robust IT infrastructure, an ERP system, and focused four years ago on moving to cloud-based operations.” The enterprise resource planning software system (ERP) has been instrumental in automating many of the processes required to run a large-scale e-commerce business. Singh discussed how the business process, including outsourcing, in-house robotics, and automated workflow, has allowed Chewy to really scale in an impactful way. More efficient operations and resources invested in back-of-house have significantly impacted the bottom line, with profits up 20% year-over-year (YoY) for the first quarter.
Chewy’s digital transformation
The company made decisions several years ago to invest in the digitization of the supply chain, including adding in electronic data interchange (EDI) with vendors that allowed for more efficient purchasing and replenishment of products. Chewy uses sophisticated algorithms to predict demand and allocate product assortments across fulfillment centers. Through the use of automation, the company has been able to hire fewer buyers and planners even though the business has grown tremendously. “The headcount grew at half the rate that the revenue did, so we have become much more productive,” said Singh.
In 2020 when many companies were struggling to adapt to supply chain issues caused by the pandemic, Chewy had many processes in place which helped it survive the headwinds caused by the collapse of the global supply chain. “Advanced capabilities, using machine learning, complex algorithmic decisions of order routing, buying, and planning assortments, helped us survive the pandemic,” said Singh.
Automation is a big win
During the pandemic, the company opened its first fully automated fulfillment center and recently announced the opening of its fourth. The second-generation fully automated fulfillment centers have delivered a 60% improvement in ergonomics and safety, up to a 50% improvement in overall productivity, and about a 30% reduction in the overall cost of fulfillment.
Consumables and pet health drive revenue
The company experienced strength in the consumables and pet healthcare categories, representing 85% of revenue for the first quarter. Chewy did not see customers trading down despite current economic conditions in the U.S. market. The average order value was up compared to last year.
The company has prioritized pet insurance as a key offering, aiming to make pet healthcare more affordable and accessible for everyone. Chewy recently announced theofficial launch of Lemonade as part of the CarePlus suite of wellness and insurance offerings and which will join the existing provider, Trupanion TRUP . CarePlus plans are now available across various coverage options and price points. “The insurance vertical allows us to lower the barrier of entry into pet insurance for our customers in terms of quality and choice,” said Singh. Typically, services offer high margins, which is another benefit for Chewy.
North American pet insurance grows
According to the North American Pet Health Insurance Association (NAPHIA), pet health insurance premiums grew by 23.5% in 2022 compared to 2021. Over 5.4 million pets are insured across North America (a 21.7% increase from the 4.4 million pets insured in 2021). Rick Faucher, NAPHIA President and CEO/founder of Toto Pet Insurance, said the positive 2022 results are remarkable considering pet owners’ growing economic pressures last year, with rising food and energy costs and higher mortgage and loan interest rates.
Kristen Lynch, Executive Director of NAPHIA, added that continued increases in the number of insured pets are evidence of pet owners’ commitment to the health and well-being of their pets. “We know from various research studies that owners of insured pets are more likely to bring their pets in for regular shots, checkups, and emergency treatment, as well as to follow the recommendations of their veterinarian,” said Lynch. “With more than five million pets now insured across North America, it’s clear that more and more pet owners are viewing pet health insurance as an ideal way to ensure their pets are well cared for.”
International expansion later this year
Chewy will expand into Canada later this year and use existing infrastructure and processes to run its business internationally. The company decided to expand based on its insight that the growth of online purchasing behavior in Canada is similar to that in U.S. markets. The launch will be in the greater Toronto market, followed by gradual expansion into other Canadian markets.
Although other retail firms’ Canadian expansions have failed miserably (Target TGT , Nordstrom JWN ), Singh was confident that the expansion model would work for Chewy. “We will approach the expansion into Canada with our eyes wide open and be humble. We are highly customer oriented, which will guide our decision-making,” said Singh. He discussed how the company has been studying the Canadian market for a long time and does not plan to just show up as an American company expecting the same results as the U.S. market. “We plan to stage the expansion and be deliberate with our decision as we learn the markets,” said Singh. The key to success, according to Singh, is by using the existing solid relationships they have and deploying a model of healthy collaboration in the new market.
The future of Chewy
The company expects its revenue to grow 10-12% in 2023 compared to 2022. Since over 75% of sales are delivered through a subscription program, it is unlikely that the company will include physical retail stores as part of its growth in the near future.
At BeautyMatter’s recent CEO summit, Bobbi Brown took to the stage with her top deputy, Cody Plofker. Plofker knows a little more than most about the company; he’s Brown’s son. Together, they spoke about building a modern-day heritage brand.
“We don’t do returns, it’s a very low percentage of sales. Usually, people find the right product. Alex: We follow the regulations. It’s well-understood by customers that we don’t sell data. It’s really part of using information to craft something unique for you.”
“It’s the same as when you go to a life coach,” said Sabrina. “You have to provide info to help us help you. We’re always giving you a choice.”
Brown said when she started her first company, she learned “exactly what to do and not to do. You had a very successful career in marketing,” she told Cody. “Everybody knows and loves my mom. The general manager called me and I started part time, then went full time.”
“You built a very loyal following,” said Kovack. “It’s so relevant and cross-generational. I feel like you’ve definitely pushed the boundaries. Having Cody, whom you trust helped.”
“I’m fearless,” Brown said. “Some things worked, and some didn’t. I try things. Foundationgate is not a myth. It happened. I called Cody a couple of hours later. I put the foundation on the TK and fueled sales. In two years the traction you’ve created.
“The two times we went viral, someone told me ‘You have to be on TikTok,” Cody said. “I thought we’d get like 10 people. The content was about Foundationgate. It was never a strategy. We were out of stock. We’ve been pretty good and don’t have many out of stocks anymore. Our mascara last year had a wait list. We have a launch on Monday. We make mistakes and figure out what to do.”
“My husband said, ‘Do you want a store,’ Brown said. “We have a very successful store in Montclair. We made a strategic decision not to go wholesale. We’re doing marketing outside brick & mortar.”
“I’m someone who was raised on magazines,” Brown said. “It’s definitely changed. I’m on the ‘Today Show.’ It doesn’t really move the needle the way it used to. There’s such an opportunity in physical retail that you get. A lot of brands don’t have the platform. I’m lucky, I came into this with a platform. We have no retail plans.”
“My background is in performance marketing,” Cody said. “For us, trying to drive customer acquisition online, a lot of that is based on social media. A lot of brands are going on TikTok. Now we know who our marketing is resonating with and we’ll do more.”
Brown said, “I tell all founders to breathe and pat yourself on the back. Appreciate what you’re doing. When you sell, it’s not going to be your company anymore. We’ll continue to open stores. We’ll open a few a year. We have lots of new products coming out and are trying to improve awareness.”
“We have experience,” the founder said. “Be positive and surround yourself with good people. Our creative director is 25 years old and she’s killing it. I want young people to learn from me. But I also want to learn from them.”
“I’m able to give Bobbie feedback,” said Cody. “Not that we’ve tried to go viral. TikTok makes it hard to predict. We’re looking to do more things with more staying power. Meta has done a very good job. YouTube is something we’re not using a lot yet, but we’re planning to. There’s definitely pros and cons.”
Brown sold her namesake company to Estee Lauder in TK. “They wanted me to sign a non-compete. I waited four years before starting Jones Road. I launched during the pandemic, when everybody said, ‘Don’t do it.’ I feel like it’s this playground for me. I love the beauty industry, I love people, and I’m having fun.”
Brown said she asked all her copywriter friends for ideas for a name. She was driving to the Hamptons and drove on Jones Road. “It sounded British and it was available,” she said.
Brown raised $150 million. “I started my entrepreneur journey when I started Markham,” she said. “In August 2020 that merger actually worked. It’s been a crazy pace. We bought brands and it’s been a really interesting journey. We acquired consumers organically. The big dream was to go from India to the world. We launched Baby Chakra, a baby brand.”
Jones Road was well-received in India, which is a very brand-poor country. “This creates an opportunity to launch a brand,” Brown said. “India is a very brand-friendly market. There are many points of similarities between India and the world’s brands. The Indian consumer is very value-conscious and interested in the environment. The second thing is, if you’re going to India, you have to respect the customer and who she is. For an international brand, it’s a very good market.”
“It’s a complicated market to penetrate from a regulatory standpoint,” Kovack said. “And it’s very price conscious. We have an omnichannel strategy. That’s something we’re able to target. India is omnichannel. Right now, shopping centers and area pharmacies carry our product and we have an online storefront. India is a huge opportunity. There are hundreds of languages spoken. You have to have a brick and mortar and digital strategy.”
Black entrepreneurs tend not to have a network of friends and family who can offer legal advice or access to someone else with that expertise. “Often, we put legal issues on the back burner, until it’s too late,” says Angela Majette, founder and national president of Black Connect. “If you can’t afford it, you put it out of your mind.”
That’s why, in 2019, she formed Black Connect, a group aimed at ending the racial wealth gap through Black entrepreneurship. Among other programs, it provides business-related pro bono legal services to members. “If you want to grow and stay in business, you need legal guidance—there’s no way around it,” says Majette.
With chapters in Atlanta, New York City, Tulsa and Tampa and about 2,800 members, Black Connect is the charitable arm of BlackConnect.com, a Black-owned business and social networking platform.
A Focus on Foundational Matters
Working with 30 partners, Black Connect focuses its legal advice on contracts, business formation and intellectual property. While all small businesses need legal counsel about those foundational areas, according toAlissa Nann, counsel with Foley & Lardner, which partners with Black Connect, Black entrepreneurs may have fewer legal contacts they can tap. “It’s more about access,” she says.
As a result, Black founders may be more likely than others to land in legal trouble, thanks to anything from a poorly formed contract to unwitting IP violations.
Tarrence Lackran, a BlackConnect member and CEO of startup EYECONS Agency, an experiential marketing agency he founded in February, had such an experience when he formed a nonprofit in 2021. Not long after his launch, he received a cease and desist letter from another organization, because he’d used a name that group had already trademarked. Now, he’s planning to expand his client base for EYECONS—his first client is his former employer—and he’s turning to BlackConnect’s services for developing and reviewing contracts.
He also points to the ability to tap Black Connect for ongoing questions. “I can give them a call and get a question answered vs. trying to figure out where I should turn to,” he says. “They serve as my network.”
Most of the cases cover basics, like forming contracts or trademark searches. Occasionally, litigation is involved, like a member whose web site didn’t meet regulatory requirements for accessibility.
Black Connect started taking cases from members in 2021, after the group was able to sign on enough law firms as partners. Ultimately, Majette’s goal is to hire a staff attorney.