The Week Ahead on Wall Street
Today, the National Association of Home Builders index for September is released, which tracks sentiment among homebuilders in the United States. In August the index fell 5 points to 75. While a reading above 50 is positive, 75 was the lowest reading since July. If it improves in September it could be a sign the problems in the housing market such as tight labor, rising material costs, and a lack of inventory are starting to ease.
Tomorrow, housing starts for August are due. This tracks the number of new residential homes that begin construction during the month. In July construction of new homes declined 7% after two months of increases, which was steeper than what economists were expecting. A lack of inventory and higher material costs have been hurting builders’ ability to construct new homes, which is driving home prices up. It will be interesting to see if that trend continued into August. The Federal Reserve’s two-day meeting also begins tomorrow.
On Wednesday, Federal Reserve Chairman Jerome Powell makes a statement after the Federal Reserve’s meeting. The Fed is paying close attention to unemployment and inflation as it determines when to begin easing its pandemic emergency bond-buying program. Investors will be looking for any commentary on tapering and where the Fed thinks interest rates are heading.
Thursday, be on the lookout for initial unemployment claims. The number of people looking for work has been steadily falling despite rising cases of COVID-19. While the number of initial unemployment claims ticked up last week, it is still near pandemic lows. Investors will be paying close attention to this weekly reading to get a sense of whether or not the economy is recovering. Also Thursday, the Markit manufacturing and services PMIs are released for September.
Finally, on Friday, new home sales for August are released. This metric tracks how many consumers purchased a newly constructed home in the month. In July sales declined 27.2% year-over-year as the price of new homes jumped 18.4% from one year ago. New homes sales account for about 10% of the real estate sales in the US. A lack of inventory and rising home prices has prevented scores of people, especially younger shoppers, from buying a home. Investors will be paying close attention to see if the trend continued into August.
On Monday, Cognyte (CGNT) reports quarterly earnings. The security analytics software company, which was recently spun off from Verint (VRNT), is off to a strong start as a standalone enterprise. Revenue in its first quarter jumped 12% year-over-year while gross profit increased over 18%. The company said in June it was seeing strong demand for its services. Investors will be paying close attention to see if the momentum continued into the second quarter.
Tomorrow, be on the lookout for home builder Lennar (LEN) to report quarterly earnings. Despite low interest rates and surging real estate demand, Lennar and other home builders have been hampered by rising material costs and labor shortages. With that said, Lennar announced earlier this month it plans to release over 1,000 homes on the market before the end of 2021. Investors will undoubtedly will want to hear more about those plans.
On Wednesday, General Mills (GIS) reports quarterly earnings. The food products maker is facing rising materials and transportation costs and a tight labor market, which is expected to weigh on its bottom line. General Mills has already raised prices to offset some of the costs, but Wall Street may expect more action. Investors will be paying close attention to what General Mills has to say about the supply-chain and labor issues when it reports.
On Thursday, Rite Aid (RAD) releases its latest results. The drugstore chain announced earlier this week it is moving its headquarters to Philadelphia in an effort to foster more in-person collaboration and company gatherings. The headquarters will have space for teams across the drugstore chain to meet and collaborate. Investors will likely want to hear how this office move will help the bottom line.
Also Thursday, be on the lookout for earnings from Nike (NKE). The sneaker and apparel maker is facing manufacturing slowdowns in Vietnam as cases of COVID-19 rise. One analyst estimates Nike is down 40 million pairs of shoes for the past two months. Investors will be paying close attention to how Nike is dealing with the production shutdown and what its backup plan is to ensure it has enough product during the holiday shopping season.
The Week Ahead at SoFi
This week’s sessions include discussions on recharging your career, developing a home buyer’s checklist, becoming a first-time manager, and understanding the FAFSA®. Save your seat!
Goldman Sachs Spends $2.2 Billion on BNPL Startup
GreenSky Goes for a Premium
Goldman Sachs (GS) is getting into the buy-now, pay-later market, spending $2.2 billion to purchase GreenSky (GSKY) in an all-stock deal. GreenSky provides loans for one-time large purchases such as cosmetic surgery or home improvements. The company has deals with thousands of merchants.
Goldman Sachs is paying a 55% premium for the company, despite GreenSky’s struggles since it went public in 2018. At that time it was valued at around $4 billion, but missed payments from customers and a lack of interest from banks to purchase the loans hurt its business. Since its peak, shares of GreenSky have fallen by about 70%.
BNPL Market Heats Up
GreenSky is among a crop of BNPL startups which are offering consumers interest-free installment payments at checkout. The market for these payment systems has taken off, ushering in a lot of dealmaking. PayPal (PYPL) recently paid $2.7 billion for Paidy, a Japanese BNPL startup. That deal comes on the heels of Square (SQ) acquiring Afterpay for over $29 billion and Amazon (AMZN) striking a deal with Affirm (AFRM) to let customers make installment payments on purchases of $50 or more. GreenSky is different from the other BNPL startups in that most of its loans are sold through physical retailers and home-renovation contractors.
This deal has been a long time in the making. Goldman Sachs had held talks about buying GreenSky two years ago but nothing came of them until the two sides resumed talks earlier this year.
By purchasing GreenSky, Goldman Sachs can beef up its consumer finance unit and expand beyond just serving wealthy investors. Goldman said the deal increases its customer base and gives it access to GreenSky’s network of over 10,000 merchants.
For decades, Goldman Sachs has been managing money for some of the world’s wealthiest individuals. Now it wants to help consumers renovate their homes via installment loans. It will be interesting to see if its initiative is successful and if other Wall Street firms will follow suit in the red-hot BNPL market.
Direct-to-Consumer Pioneers Bet Growth on Physical Stores
Warby Parker and Allbirds to Open More Stores
Warby Parker and Allbirds, two high-profile direct-to-consumer brands going public, are staking their future growth on physical stores instead of online sales. It is an interesting twist for two well-known direct-to-consumer brands.
Warby Parker and Allbirds have made names for themselves selling eyewear and eco friendly sneakers online. The two companies are among a growing list of startups to adopt this model, in which direct-to-consumer brands cut out the middleman (like department stores) and sell their products directly to shoppers with little to no brick-and-mortar stores. Now, however, Warby Parker and Allbirds are gearing up to pour money into breaking that model and opening more retail stores. They see it as a way to drive growth and become household names.
Allbirds Sees a Big Opportunity
Allbirds, which is going public via an initial public offering, said in a recent Securities and Exchange Commission filing that it sees a big opportunity to open stores in the US and elsewhere. As of the end of June it had 27 stores across the world. The company anticipates the new stores will be very profitable and will allow its growth to accelerate. The sneaker-maker said its store expansion will also position it to take advantage of the retail sector’s eventual pandemic recovery.
To underscore the positive impact retail stores can have, Allbirds said consumers who shopped in-store and online spent 1.5 times more than customers who went online or to a store only.
Warby Parker to Increase Pace of Store Expansion
Warby Parker shares the same sentiment as Allbirds. The eyewear company, which is going public via a direct listing, said the stores are a valuable marketing tool and helpful in building repeat business. As of the end of June Warby had more than 145 stores. It plans to open an additional 30 to 35 by the end of this year, and anticipates the pace of new store openings will increase annually in 2022 and beyond. Of its net revenue in 2020, 60% came from online sales while 40% from in-store purchases.
Direct-to-consumer is taking on new meaning as two of the pioneers gear up to go public and open more physical locations. Investors now have to decide if physical stores are the best way to take the direct-to-consumer market to the next level.