# 705 – 👚 Fashion’s never finished – The Average Joe

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    # 705 – 👚 Fashion’s never finished

    victorlei

    May 30, 2024

    Good morning. How many sets do you have left? If you’ve asked this at the gym a lot lately, here’s why. According to ABC Fitness’ Wellness Watch report:

    • Traditional gyms saw a 60% bump in check-ins in the first quarter of 2024 compared to 2023.

    • Fitness studios and boutiques experienced a 22% rise in check-ins.

    • Check-ins are nearly double pre-pandemic levels, with Gen Z making up 29% of new members.

    The report also highlights that people increasingly use the gym as a “third place” to build a community. Sorry, bro, we don’t lift — just here to make friends.

    Survey time: May is almost over, so it’s time for our monthly market sentiment survey. Are you feeling bullish or bearish going into June? (Results coming on Monday.)

    📈 Bullish

    📉 Bearish


    CONSUMER

    Nineties Nostalgia and a Brand Overhaul Has Sent Abercrombie’s Stock Up Over 500%

    Since its humble beginnings as a hunting gear company back in 1892, Abercrombie & Fitch ($ANF) has ebbed and flowed between the epicenter of tween and teen culture — to finding itself at the bottom of the discount rack.

    Abercrombie has tried on several outfits throughout its journey: bankruptcy and takeover threats in the ‘70s and ‘80s, followed by a stint as an American staple for the “cool kids” in the ‘90s. However, the aftermath of the Great Recession saw 11 consecutive quarters of sales decline, leading to the exit of controversial CEO Mike Jeffries. But now, Abercrombie is making a comeback, energized by an unexpected force.

    Aber-comeback: Under CEO Fran Horowitz’s leadership since 2017, Abercrombie revamped its image, ditching the “cool kid” vibe and overhauling its product lineup. This reinvention has turned the tide, pulling Abercrombie out of its decade-long sales slump — even thriving during the pandemic. The company saw surprise profits, opened new stores, and grew double-digit revenue while the fashion industry struggled.

    • In the first quarter, Abercrombie reported record-breaking earnings, with sales soaring by 22% year-over-year to $1.02B — surpassing the 16% increase in 2023.

    • Its accelerating sales and outlook have helped push $ANF up over 500% in the last year, ranking it among the top performers.

    Just like new

    Abercrombie’s resurgence can be attributed to a revival of ‘90s fashion trends embraced by nostalgic Millennials and curious Gen Zers. Morning Consult data reflects a surge in the brand’s popularity to record levels — signaling promising growth ahead.

    • In its latest report, Abercrombie raised its sales forecast for 2024 — anticipating a 10% rise compared to the earlier projection of 4-6% growth forecast at the end of 2023.

    • The company also plans on opening new stores in the US, Germany, and the UK while testing out new business segments like wedding attire.

    Exercising discretion: Abercrombie’s improved outlook aligns with upbeat sentiments from other consumer brands like Target ($TGT) and Walmart ($WMT), which found that discretionary spending accelerated in the latest quarter. Companies like American Eagle ($AEO) and Dick’s Sporting Goods ($DKS) have also shared optimistic outlooks in their earnings reports yesterday. If this trend persists, it could signal the end of a torrid year for consumer brands.


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    LARGECAP RECAP

    🛒 Temu’s Owner PDD Buys Its Way To Become China’s Most Valuable E-commerce Firm

    After spending years behind global peers, Chinese stocks have entered a bull market this year on the back of rounds of government stimulus. This has greatly benefited PDD Holdings ($PDD), the parent company of the shopping app Temu. PDD’s stock has risen nearly 40% since March, surpassing Alibaba ($BABA) to become China’s most valuable e-commerce company. But even after surging almost 500% from its 2022 lows, the company still looks cheap, with revenue doubling and earnings tripling in the recent quarter.

    • According to Bloomberg, $PDD is trading at 13x its projected earnings for the next 12 months — nearly half the valuation of the Nasdaq 100 and the largest discount ever for PDD compared to the index.

    • Goldman Sachs analyst Ronald Keung recently upgraded PDD, stating, “China e-commerce is emerging as one of the more undervalued sub-sectors within China.”

    Eyes on Temu: Keung notes that geopolitical risks have dragged down the company’s stock. After conquering the wallets of Americans, Temu is making a strong push into Europe. However, the company’s aggressive business practices have landed it on the naughty list of the European Consumer Organization — which filed a complaint, accusing Temu of using “manipulative techniques” to encourage more spending.

    🛒 Big Name Brands Are Feeling the Squeeze From Grocers’ Private Labels

    What’s in a name? A lot of extra cost. Shoppers are ditching branded goods for cheaper store brands — a shift driven by years of rising food prices. This trend reflects consumers feeling the financial squeeze and changing their shopping habits.

    • National brands still dominate 78% of US food and beverage sales, but store brands are catching up, claiming 22 cents of every grocery dollar spent last year — a record for private labels.

    • Store brands are growing fast: pet food sales are up 7.5%, pasta and grains are up 7.9%, while national brands have seen a 15.2% drop in baking supplies.

    Brand(less) wars: According to a Food Industry Association survey, 65% of shoppers prefer private labels for lower prices. Facing this shift, established brands like McCormick ($MKC) and Mondelez ($MDLZ) are under pressure to defend their market share as over half of retailers expect private-label goods to drive growth this year, per an NIQ survey. This creates a brandless competition between store brands like Walmart’s ($WMT) Bettergoods and Target’s ($TGT) Good & Gather. Aldi plans to nearly double the pace of its private label footprint by 2028, suggesting that the next big brands might come courtesy of your favorite store.


    JOE’S MARKET PULSE

    🔗 Marathon Oil / American Airlines

    Meet the Italian menswear brand that’s redefining fashion: Luca Faloni is the luxury Italian menswear brand built on the principles of slow fashion and Italian craftsmanship — combining luxury and comfort by using only the finest natural materials from the most respected Italian producers. Discover Luca’s timeless styles →*

    Markets & Economy

    HubSpot ($HUBS) eyed by Alphabet ($GOOG): For the second time in recent weeks, an analyst suggested that Google’s parent company might offer to buy the $33B marketing software company — which would be Google’s biggest deal ever. [Read]

    World’s largest mining company walks from $49B deal: Australian mining giant BHP Group ($BHP) abandoned plans to acquire competitor Anglo, a deal that would’ve consolidated two of the world’s largest metal miners. [Read]

    DEI battle continues: Former Trump advisor Stephen Miller declared war against diversity, equity, and inclusion policies in courts, but corporations are fighting back, indicating the DEI battle may never end. [Read]

    Business & Wealth

    AST SpaceMobile ($ASTS) secures Verizon ($VZ) partnership: Weeks after announcing a deal to provide cellular coverage in remote areas with AT&T ($T), the satellite company partnered with its biggest competitor — boosting its stock by 69% on Wednesday. [Read]

    Rise of the restaurant offer: Chipotle’s Chicken al Pastor, IHOP’s blue raspberry pancakes, Shake Shack’s swicy and savory menu — American chains and restaurants are rolling out limited-time offers to attract customers (and it’s working). [Read]

    Starbucks’ ($SBUX) staffing struggles forge longer waits: 8% of Starbucks customers wait 15-30 minutes for their orders. Employees, in union negotiations, blame understaffing — exacerbated by the company’s labor algorithm. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


    CHART


    DIGIT OF THE DAY

    Cannabis Daily Use in the US Climbs, Overtaking Alcohol with a 15x Increase Since 1992

    As the smoke settles, it’s clear — cannabis is the new king of daily consumption, leaving alcohol a bit hazy. For the first time, daily marijuana users have surpassed daily alcohol drinkers, driven by increasing legalization and acceptance by younger generations. Despite this, alcohol remains more mainstream among Americans.

    • A recent Carnegie Mellon University study found that by 2022, around 17.7M people were using marijuana daily or nearly daily — surpassing the 14.7M daily alcohol consumers.

    • This represents a 15-fold jump in daily cannabis users since 1992, when only 900K Americans reported such frequent use — a far cry from the 8.9M daily drinkers.

    Joint efforts: Marijuana stocks like Canopy Growth Corp.($CGC) and AdvisorShares Pure US Cannabis ETF ($MSOS) have surged 75% and 15% this year. This growth is driven by the Drug Enforcement Administration’s plans to reclassify marijuana, boosting investor confidence. With fewer young adults reaching for booze and the rising availability of non-alcoholic alternatives, traditional beverage companies are facing a crucial need to rethink their strategies. The shift towards marijuana threatens beer sales, prompting the alcohol sector to explore strategic mergers, investments, and acquisitions in the cannabis market to defend market share and mitigate declining sales.


    EXTRA JOE

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