Fresh quarterly results from competitors of two Club holdings spell good news for our portfolio. Over the past 24 hours, earnings from Macy’s (M) and Nordstrom (JWN) have bolstered our confidence in the Club’s off-price retailer, TJX Companies (TJX). CrowdStrike (CRWD) similarly validated our ownership of cybersecurity leader Palo Alto Networks (PANW). As part of the “buy and homework” process , it’s essential to keep tabs on the peers of companies we own. Here’s a look at what we heard from the three non-Club stocks, and the implications for our positions. Off-price a bright spot Our strategy to navigate a weaker American consumer has been to own companies that offer high-quality products at attractive prices — exactly what TJX, the parent of Marshalls, T.J. Maxx and HomeGoods, is known to deliver. Results and commentary from Macy’s and Nordstrom suggest our investment approach is on point, in addition to TJX’s own solid results on May 17 . Despite beating first-quarter earnings expectations , Macy’s on Thursday cut its full-year sales and earnings forecast. That sent its stock price lower by over 5% at session lows, though it recovered some losses to close out Thursday up more than 1%, at $13.75 a share. The New York-based retailer saw consumer demand weaken in mid-March and get worse in April, CEO Jeff Gennette said Thursday. “The U.S. consumer, particularly at Macy’s, pulled back more than we anticipated, as they reallocated spend to food, essentials and services,” he said. Macy’s also owns high-end department store chain Bloomingdale’s. Gennette acknowledged that “the customer is looking for promotional value right now,” while disclosing plans to discount summer and spring products to avoid an inventory glut. And that focus on value is exactly why we own TJX. When Nordstrom reported its April quarter after Wednesday’s close, management painted a rosy picture for its off-price chain Nordstrom Rack, despite an 11.9% decline in net sales in the period and continued pressure on consumers from inflation and higher interest rates. “As strategic brand penetration increases, we’re seeing Rack sales trends improve. April was our best month of the quarter and we have continued to see trends improve in May,” CEO Erik Nordstrom said. He added later that a greater variety of merchandise and more new stores would allow Rack to improve sequentially throughout 2023. In this current economic environment, the bright spots in retail have dwindled — not vanished. TJX, with its ability to appeal to value-seeking customers and manage expenses, remains one. Cyber still strong CrowdStrike’s results for the three months ended April 30 weren’t perfect. Net new annual recurring revenue of $174.2 million in the fiscal first quarter disappointed investors and pushed the stock down Thursday by 1.6%, to close at $157.55 a share. However, the cybersecurity firm lifted its full-year revenue and profitability outlook, with management saying momentum in the current quarter gives them confidence in a strong second half of the year. CrowdStrike continues to see “increased deal scrutiny and longer-than-typical sales cycles,” CFO Burt Podbere said Wednesday, echoing language from many software companies this season, including Palo Alto Networks. Still, Podbere stressed that “the demand environment remains resilient.” And that’s what we care most about as investors in the cybersecurity industry since February, when we first took a position in Palo Alto . “We don’t see the demand for cybersecurity slowing down.,” Palo Alto CEO Nikesh Arora told CNBC Thursday. Palo Alto last week delivered a quarterly beat, while raising its full-year earnings guidance . We prefer Palo Alto over CrowdStrike for multiple reasons, including the former’s profitability profile, its leading multi-platform approach and Arora’s deft leadership. But we also recognize there are broad tailwinds for the industry that should lift multiple players in the coming years. One of those trends is consolidation, driven by enterprise customers increasingly buying their cybersecurity products from one company, instead of a patchwork of venders providing different services. Palo Alto and CrowdStrike have both positioned themselves as beneficiaries of consolidation. Just like off-price is the right place to be in retail, CrowdStrike offered further evidence that cybersecurity spending is a standout part of the enterprise software market. With ample growth still ahead, we’re staying long Palo Alto. (Jim Cramer’s Charitable Trust is long TJX and PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The reflection of shoppers are seen in a window at a TJ Maxx store in Peoria, Illinois.
Daniel Acker | Bloomberg | Getty Images
Read More: Here’s what earnings from industry competitors mean for Club names
2023-06-01 20:34:51
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