Closing Bell - Closing Bell: Overtime: Abercrombie, Five Below CEOs On Holiday Sales; What’s Next For Boeing 01/08/24

Episode Date: January 8, 2024

The averages rallied today with the Nasdaq climbing over 2% and the Dow shrugging off a major drag from Boeing. Barclays Head of US Equity Strategy Venu Krishna breaks down his top ways to play this market. Morgan interviews Abercrombie & Fitch CEO Fran Horowitz and Five Below CEO Joel Anderson from ICR Conference in Orlando; they discuss holiday sales, the state of the consumer and more. HSBC’s Joe Rasco, Global Private Banking & Wealth Chief Investment Officer, Americas, on where his clients are putting money to work. RBC analyst Ken Herbert on the investment implications from this weekend’s Boeing incident; former FAA Administrator Michael Huerta on how the company needs to approach its next few months. 

Well, your scorecard on Wall Street has a lot of green. Winner stays late. Certainly a winning day for most of the market. All the major averages higher, even the Dow being dragged down by Boeing. Welcome to Closing Thought Overtime. I'm John Fort and Morgan Brennan is at the ICR conference in Orlando. Coming up, she's going to be discussing the outlook for consumer spending with the CEOs of Abercrombie & Fitch and Five Below. Boeing had been a high flyer recently, as I mentioned.

It's one of the few big losers on Wall Street today after a door plug on a 737 Max 9 jet blew out during an Alaska Airlines flight. We're going to get both some updates on that. Phil LeBeau just bringing some of those regarding United and updates from an analyst who recently upgraded that stock to a buy. But first, let's break down today's market action. Joining us now is Barclays head of U.S. equity strategy, Venu Krishna. And as always, CNBC's senior markets commentator, Mike Santoli. Gentlemen, good to see both of you. Mike, I just want to set the stage with you a bit on what happened today. Equities did get stronger during the day. We mentioned the Dow being dragged down a bit, but we're still kind of in a bit of

this 47, mid 47 hundreds range, right? Yeah, we have been a little sticky in there, John. I mean, I think that the collective conclusion was last week you had this down 2% after nine straight up weeks. It seems like maybe it was a little more of a stutter step than a true stumble. The big stocks like Apple down 10%. You had a little bit of a chance to get in there and there is always kind of new January money looking to get active in stocks. Maybe that's what we got the benefit of today, along with a little more attention on declining inflation expectations

and confirmation of the confidence in the whole soft landing story. So I think between people feeling as if the market earned itself bull market status further with the fourth quarter rally, and therefore dips are to be bought. I'm not sure that was all we're going to get in terms of a choppy January, but today it certainly was enough to refresh buying interest.

All right, now, Venu, you say this isn't going to be a set it and forget it type of year for the major indices, though. You expect the S&P 500 to be about flat this year. I guess it would be the first time in about nine years that that happens, and maybe means it's a year for stock pickers. So why are you positive on large caps and big tech, given everything we've been hearing about the potential of small caps in this market? Yeah, so I do know that is the small cap trade is linked to this, you to this basic view that the rally is going to broaden. But our view is, if you look at fundamentally where earnings are coming from, it is predominantly from large cap

tech. So if you look at big tech and you look at the earnings from the beginning of last year, their earnings have been devised up almost 22%. At the same time, if you look at tech outside of big tech, the numbers are down 7%. For SFSMP, outside of tech, it's down 5%. So, the point is, from an earning standpoint, the real trade or the real value is being clearly driven by big tech. And due to secular forces which are driving it, which includes, obviously, the expanding adoption of AI and a better spending environment for IT, we continue to remain positive on big tech. Outside of that, predominantly, there is ongoing margin pressure. And we need to see whether the inflection we saw in margins truly sustains and broadens in the upcoming earnings season.

Again, our core view is that small caps are not the way to go this year. We would stick with large caps, especially big tech. And you're particularly negative on industrials, materials, financials, utilities. If things are slowing down, some of those are the more defensive areas that one might normally expect to be stronger. So why negative? Well, industrials are obviously more cyclical, right? And so if the growth is slowing down, then they will get impacted. But really, our call in sectors is a combination of what we think in terms of earnings and what's already priced in. So that combination is what predominantly leads us to be more cautious on industrials and this is precisely the reason why for example we are more bullish on parts of discretionary sector especially services where they which are

still benefiting from ongoing strength in consumption for example on the consumer side and big tech like i said is more of a secular theme which you would not want to get off at this point in time so mike uh closing this out for us, some perspective, what are you seeing out there for expectations of what types of stocks define this market? I mean, if not big tech stocks, if they're actually going to continue to outperform, then what is going to be the defining either sector or stock type that we should watch in 24. Yeah, it's interesting, Jack, because it feels as if there's a strong instinct by a lot of investors to wish for

and perhaps play for this continued broadening out, the idea that small, cyclical, and value stocks can play a lot more catch-up to the big growth areas that have driven the S&P 500. To me, it's not clear that it has to be one of those years that it's either one or the other. Necessarily, I think a lot of people are also settling quickly on health care as a way to split the difference here. Health care is almost a comically diverse sector that almost doesn't have value to talk about as a sector. It has like the biggest long shot biotechs

along with, you know, Becton Dickinson selling syringes. So it seems to me like it's the kind of thing where people are able to make their peace within it. For now, it's going to be, I think, a combination of the both. You have Apple goes down 10 percent, buyers come in. NVIDIA does nothing since August 31st. Today it pops because we have some CES excitement. So I don't know if we're going to have to really make that choice as to whether it's going to be only one flavor of stock that works this year. OK, well, I know you'll be here with us all the way. Mike Santoli and Vinu Krishna, thank you.

Mike, we'll see you in just a bit. Bo, you mentioned it earlier. The biggest drag on the Dow today after a door plug blew out on one of its 737 MAX 9 planes during an Alaska Airlines flight on Friday. Now United saying it has found loose bolts on some door plugs as well. Phil LeBeau has been following these developments. We saw the stock take a drop on this news in the last hour. Phil, I take it these bolts are not the sort of thing that get tightened during routine inspection. They're supposed to be tight all the time.

Yes. In the fuselage, they are supposed to be tight all the time. And what United has said, what was first reported about a half hour ago, that there were some loose bolts found during inspections of the door plugs on the 737 MAX-9. Unite is not saying how many, simply that there were instances of bolts that needed further tightening. So this is going to be a story that's going to develop here over the next several hours, no doubt. The focus of the NTSB investigation is the fuselage plug that was ripped off the Alaska Airlines plane.

Pressurization problems were reported on that plane three separate times before that incident on Friday night. The data recorder has been sent to Washington, D.C., where it is going through analysis right now. That will give investigators a better sense, perhaps, of where these pressurization problems were popping up on that Alaska Airlines flight. The fortunate thing here is that nobody was sitting right next to the hole when this happened at 16,000 feet. Otherwise, we could have had a far different situation. There were no serious injuries in this MAX 9 accident. As you take a look at shares of Boeing earlier today, the company sent out what's called a multi-operator message.

Essentially, here's the protocol for inspecting 737 MAX 9s. That was approved by the FAA, yet we haven't seen the inspections begin yet on those grounded MAX 9s because the FAA has to give one more sign-off, if you will, one more piece of paper to say, yes, go ahead. But we know from talking with Alaska and United, they are ready to begin those inspections once that happens. Also take a look at shares of United. We already talked about the loose bolts, finding additional instances of that. They operate 79 MAX 9 planes. And as you take a look at shares of Alaska, they operate 65. Both United and Alaska would love to get those planes back into service, John, because today between the two airlines, they had to cancel more than 350 flights. Why? Not just the MAX 9s where their routes and flights that have been canceled, but the ripple effect on other flights throughout the system.

Wow. Phil LeBeau, thanks for that update and that perspective. And now let's bring in Ken Herbert, aerospace and defense analyst at RBC Capital Markets. He says despite the grounding order, he's still a buyer of Boeing stock. Ken, how? This is terrifying, right? And granted, this is early. We need to get all the information. But if United is finding loose bolts on these planes, even after all of the max issues that Boeing had in the past,

are people really going to want to fly in these things? Yeah, John, I mean, that's obviously a very fair question. I think you're going to see some caution around that certainly in the near term. And I think it's important for Boeing and, of course, the airlines to do all they can to restore confidence in the aircraft. But I think it's important to remember as well that we don't know yet the root cause. There was a bit of a roller coaster today in terms of the stock and the assumptions around the root cause and then what could have been behind this. But they will restore confidence. There has been a number of issues associated with MAX production and performance, certainly recently. And so we need to get more confidence there. But I don't think this, in my view, triggers a significant change in confidence on the consumer and their ability or desire to fly on the MAX, just like we continue to view, obviously, the stock as attractive at Boeing.

Well, as a consumer who flies on planes, it certainly is triggering some concerns for me. Like, I'm happy United found this, but I'm trying to figure out, am I going to be checking to see what kind of plane this is? Am I ever going to fly on a plane like this again? So what are the dangers and the liabilities that you're pricing into the stock right now? I mean, are the airlines going to be suing Boeing for the operational issues they're going to have, having to take these planes out of service? Is that something investors should be concerned about? I mean, investors should certainly be concerned about the disruption to the airline schedules, the financial implications that it could have, certainly for the airlines and for Boeing as well. And of course, Boeing's key suppliers that could be involved in this.

So I'm not saying you can't be concerned and you shouldn't be concerned. You certainly should be concerned. But I think until we figure out the root cause, until we can, I think consumers should have confidence that no matter what comes out of this, you're going to see an FAA and an NTSB mandate that will ensure that these planes are as safe as possible. And that's consistently what we've seen. Obviously, we're very fortunate that the situation on Friday night with Alaska wasn't more serious than it was. And I think that, yeah, that's a key part of this as well. What kinds of suppliers should we have questions about at this stage? Well, the most important one is Spirit Aerosystems, ticker SPR. They, of course, make the fuselage for the 737 MAX. They've been a key supplier of this to Boeing through multiple

iterations of the 737. And they're the ones that do the installation of the plug door here. So, of course, Boeing does all the final assembly and responsible for the final aircraft. But Spirit Aerosystems would be the primary supplier of these systems up into Boeing as part of the fuselage. All right. Ken Herbert, thank you. Very serious story affecting a lot of us. Now, we're going to have much more on the government's response to Boeing later when we're joined by former FAA Administrator Michael Huerta.

And now, fresh data. We've just received employment at businesses with fewer than 10 workers. That's a segment that includes more than 13 million people. Employment grew in December after dropping for the two months before, according to Intuit's Small Business Index. The strongest sectors were one, wholesale trade, two, finance and real estate, and three, education and health services. And for a deeper dive into what this means for the economy, let's bring in senior economics reporter Steve Leisman

and small business reporter Kate Rogers. Guys, good to see you. Steve, how does this fit into the context of the data that we just got on Friday, big picture on Jobs Day? Well, we got strong jobs data in December for the overall economy. We had ADP data also showing that small businesses, they look at a slightly larger subset, also grew in December. So it's suggesting to me that businesses hired in anticipation of good retail sales, which is sort of an interesting idea because we're still waiting. Tomorrow, Jonathan, I'm going to get the CNBC NRF retail sales data for the holiday period. So you don't always know if small business got it right. I think Kate is expert in that idea. But the idea being that they hired in anticipation of better holiday sales is going to be very interesting to see if they had it right. Yeah. And Kate, small businesses, especially the smallest businesses, have had less wiggle room to

play with. They really needed to get it right with less access to capital these days, right? Yeah, John, that's right. And I agree with what Steve said. I think it is a really positive indicator about how they feel more broadly about the economy that they were staffing up. You know, the smallest of small businesses don't necessarily have the kind of capital that even a larger small business may have to offer potentially more competitive wages, which is something really key as you're looking to fight for and to keep those employees on staff. So we want to see what kind of a December they had, as Steve mentioned. Also, how they're feeling about the economy heading into this new year means,

will they keep those people that they hired around? And as you mentioned, access to capital and interest rates in particular have been really key. The National Federation of Independent Business has been surveying its membership about how they feel about interest rates over the course of the last year. And the December survey shows that for those who are seeking financing, 80% think that these interest rates are too high. And if you look back in July, the number was closer to 60 percent. So it's certainly having an impact on, you know, their ability to and their willingness to take out capital right now. All right. That's going to be a big thing to consider.

And while we see this uptick continue, Kate, Steve, thank you. Thank you. Up next, Morgan Brennan is going to join us with an exclusive interview with one of the biggest names in retail. Morgan. That's right. One of the biggest names in retail and one of the hottest stocks, too. Abercrombie & Fitch, John. On the other side of this break, I'm going to be exclusively joined and talking to Fran Horowitz, the CEO.

We're going to talk about the updated guidance today, the huge transformation of the company, and so much more. Stay with us. Welcome back to Overtime. The 90s are back. Shares of Abercrombie & Fitch up 6% today to $96 a share after the company updated its fourth quarter and full year guidance. The retail stock has been on quite a run since the beginning of last year. Shares up more than 300%. 2023 marking the company's best annual performance since going public in 1996.

It even outdid AI darling NVIDIA. Joining me here from the ICR conference in Orlando, Abercrombie & Fitch, CEO Fran Horowitz. Fran, it's so good to be speaking with you in person. Thank you. Yes, well, thank you for having me. Excited to be here. So you raised fourth quarter guidance today. We did. Stronger holiday season than you anticipated. What propelled it? So it's the culmination, obviously, of a very strong year for Abercrombie. We're thrilled to announce our results this morning. They are honestly the result of lots of hard work over the past several years, focusing on and rebuilding our brands, investments into our technology, rebuilding the company foundationally from top to bottom.

In terms of the state of the consumer and whether it's looking at the Abercrombie & Fitch brand or the Hollister brand, both of these brands that have gone through very distinct transformations under your tenure, what are you seeing in terms of consumer behaviors? Yeah, you know, so the consumer always has a choice on where to shop, and what we're seeing is that they're choosing us in both brands. When you get your product, your voice, and your experience aligned, the consumer votes yes. And that's what we're seeing. We're super excited to see he and she responding in both brands across regions and across channels. And it was a win

across all for the quarter. You had such a strong 2023. You're going to have a high bar to hurdle in terms of the comps for 2024. How do you continue to sustain the momentum? We have to stay close to the customer. That's what we do really, really well. We also were able to get Chase back into our business model this year. That was something in 22 that we hit quite a wall on with all the supply chain issues that were out there. It's really fundamentally how we drive the business. Staying close to that customer, keeping the brands, the product, the voice, the experience aligned is what we do. Yeah. And you've also in your third quarter earnings talked about a 20 percent reduction in inventory.

You're pretty lean and mean. How are you feeling about those levels now? What does it mean in terms of the necessity or maybe lack of necessity to realize discounts? I'm actually very excited where we are. Chasing that last sale, I think, is the biggest learning that we had coming out of COVID, which is you can do a lot more with a lot less. And I think it took a year like that and a really strong lesson to understand how you can manage your business very differently. That's truly what's helping drive the terrific results that we're seeing this year. Where are you taking market share from?

I think there's an opportunity for us, Abercrombie particularly. I think there was just a big white space for us when we aged up the consumer and went to this young millennial consumer. There really wasn't a lot of competition in that space, and so we seized the opportunity. So what does that continue to look like moving forward for Abercrombie? You have women, you have men, you have the athleisure. What are some of the other initiatives that continue to propel that growth? So we've done a lot of franchising, to your point. So YPB, our athletic brand, was something that the consumer actually asked us for, and we delivered, and she and he are responding really nicely to it.

We also have Best Dressed Guest, which is one of our franchises. We've done a tremendous amount of business this year in our franchising between the NFL and Formula One. So lots of exciting ways to continue to grow both of all of those opportunities. How are you feeling about the transformation thus far in Hollister, which is so focused on teens? Good, that was a lot of work heading into back to school this year.

We're happy to see the inflection and we've seen it across now third quarter and fourth quarter and we've seen it globally. So I'm excited about where that's headed. So then what is, I guess, what is next? As you execute on this transformation, you've already realized you're operating margin targets early. You're actually higher now in terms of the target you just put out today. What continues to propel that? And as you see that grow,

what does that mean in terms of a tailwind? So in June of 2022, to your point, we had an investor day and we came out with our always forward plan, which we realized, you know, two years ahead of time. The key to that plan, though, was sustainable, profitable growth. And that's really our goal for 2024 is to prove that we can do it again. If we were to see a recession in 2024, I don't even know if you're baking that into your outlook from a more macro standpoint. What is it? What does it mean? How do you prepare for it? Or you just don't see it in the cards? Yeah, I mean, I think you always have to prepare for it. You have to have a playbook in the event that that happens.

But if you keep your inventory lean and you make sure that you're very agile in your supply chain, you can really manage anything that comes your way. I think we've proven that over the last three or four years with all of the macro instances that we've been managing through. All right, Fran Horowitz of Abercrombie & Fish, thanks so much for joining me here. Thanks for having me.

Thanks, Yara. Exclusively. John, we're going to have much more on the state of the consumer spending later when I speak exclusively with the CEO of Five Below as well. So I'll see you in just a little bit. All right. Consumer results matter so much right now, Morgan. That's something we'll be looking forward to. And up next, what do you buy ahead of potential Federal Reserve interest rate cuts this year?

We're going to take a look. And as we head to break, here's a look at a trio of S&P 500 stocks hitting all-time highs today. NVIDIA, Arista Networks, and Amgen. Overtime, we'll be right back. We have a news alert on Microchip. The company warning it sees third quarter revenue down about 22 percent compared with its previous guidance of down 15 to 20 percent. The company citing a lower level of shipments due to a weakening economic environment for its customers and distributors. Microchip says it will provide its full financial results for the quarter on February 1st.

The company's CEO in a statement saying many customers also had extended shutdowns or closures at the end of December as they managed their operational activities. The impact of these and related factors was that certain backlog that we had planned to ship when we provided our guidance on November 2nd did not ship to customers before the end of the December quarter. Stocks down, let's see, almost six and a half percent, right around six and a half percent right now in overtime. Overall, though, stocks closing in the green today as the market tries to recover from a rocky start to the new year. Meanwhile, Atlanta Fed President Rafael Bostic said the Fed is close to reaching its 2 percent goal, but it's too early to declare victory. So when will we see rate cuts and how should investors put their cash to work ahead of those cuts?

Joining us now is Jose Roscoe. He is a chief investment officer at HSBC Global Private Banking and Wealth. Good to see you. Happy New Year. So starting with fixed income, if you will, what should investors do here after 2023? That was a bit different than many expected. Yeah, absolutely. First of all, happy New Year to you and yours. And, you know, we view it pretty basically, if you look at the fundamentals, that we feel the Fed paused in July. And as a result, we feel there is an opportunity. We've seen the peak in rates. So we have been telling clients to extend duration in terms of the treasury markets. And when you look at what

happens when the Fed pauses, usually in the next 12 months, you get some real movement at the short end of the curve, and you even see movement in the middle of the belly of the curve. So we think extending duration, locking in those rates for a longer period of time makes sense. And in the credit markets, we're very focused on quality, right? There's no question that last year's 2% to 2.5% growth, 2.4, whatever it ends up being. Definitely the high watermark for a bit because the Fed raised rates and the delayed response we will see in the economy from that. So we see slower growth this year. And as a result, we think companies will struggle. And not only that, you've got a credit availability problem where we think clearly, you know, smaller companies in particular may struggle. So we're

focused on it. We were just talking about that with the smallest businesses in these latest Intuit numbers. Now, a lot of investors are tempted in these days to go for international stocks toward international markets. But you're saying you prefer U.S. stocks. Why? Well, our number one call is the U.S. market, our number one overweight on the energy, on the on the equity side, rather. And the reason is stability of growth and earnings. We see growth at about basically trend growth the next two years, 1.7 and 1.6, 1.5, I believe, for 2025. And if you look at the forecast for earnings for the next two years, 10 to 12 percent range. You know, we think the Fed has won the battle on

inflation that will continue to manifest itself. And remember one thing that very few people are talking about this. There's a couple of secular trends for I would point to that really suggest there are some underlying trends and underlying tailwinds in the economy. And all four of them are heavily deflationary. So I think that's going to help in producing an environment where the inflation environment stays benign. And as a result, profitability margins and profitability look pretty good. OK, you also expect China stimulus to have an impact this year. Yeah, we look that they have. If you look at the forecast, we see declining growth rates this year and next. And not in terms of zero, but declining from the peak of last year and slower growth in China.

The government's going to have to interrupt you for a second. We've got some breaking news from the Fed. Our Steve Leisman has the details. Steve. John, thanks very much. One of the Fed's most hawkish members, Fed Governor Bowman is sort of throwing in the towel. She says in a speech at this time, she's delivering at this time, that her view has evolved, that further inflation decline she now sees as possible without additional rate hikes. Back in late November, the last time she spoke, she had said that her baseline forecast was for an

additional rate hike. She says the current stance of monetary policy appears to be, quote, sufficiently restrictive. That is not a term, by the way, used by the chairman. It is one of the first times that's been used by a Fed official, actually probably the second time it's been used, but certainly by a Fed governor. She says she's going to remain cautious to considering future changes to the funds rate, says it will eventually be appropriate to lower the policy rate, but she says not yet, and also adds this caveat that she is willing to raise the funds rate should inflation progress slow and or reverse. Her concerns about upside inflation risks include geopolitical influences, the possibility of food and energy inflation coming back, easing financial conditions, and high core

services inflation. But she does say the slowing of the job market gains we've seen may be an indication of better supply and demand balance. John, we technically knew this because no Fed official called for an increase in their funds rate, which was different from the prior forecast. But now we have Bowman coming forward and saying, you know what, she doesn't see any additional rate hikes potentially as needed. And even talking about the possibility of rate cuts, John. All right. It sounds different when you actually

hear it, Steve Leisman. Thanks. Right. Jose, I want to get back to you on this. Jose Rasco, you know, a hawk retracting talons perhaps here. What does that mean for the market? Well, and it was Bostic earlier today, right? I think if you look, we felt the Fed was on pause. But remember, it's easy to pause on the funds policy because you're still restrictive when you look at real rates and when you look at quantitative tightening. So from the Fed, if you are hawkish at the Fed, pausing Fed funds hikes makes sense at this point. Let's see what happened. And more importantly, you're still restrictive, so you can go to sleep at night. But I think clearly the economy is showing signs of

slowing employment. And we're beginning to see those signs already. And the key is, will they be there to help on the other side of this, which is when we see the growth rates slowing like a 94-95 scenario? Will they be as quick to move to cut rates? Looking forward to seeing if there's a bond market reaction tomorrow to all of this. Jose, thank you. Thanks for being with us. Jose Rasco from HSBC. Up next, former FAA Administrator Michael Huerta on what the government needs to do to make sure Boeing 737 MAX 9 jets are safe following a door plug blowout during a flight on Friday. Overtime will be right back. Welcome back to Overtime. Shares of Boeing fell 8% today after the FAA ordered airlines to ground dozens of 737 MAX 9 aircraft for inspections

after a piece of the aircraft blew out during an Alaska Airlines flight. Joining me now to discuss is former FAA Administrator Michael Huerta. Michael, thanks for joining. So last hour, we got this information from United about finding loose bolts on some of their planes that are grounded. I know it's still early, and I know we don't want to try to draw conclusions before these investigations have been completed, but what's your initial reaction here? Because for the flying public, this is scary stuff. Well, the incident that happened last Friday night was obviously very concerning. And I think the flight deck crew and the in-flight,

the cabin crew did a great job of dealing with the emergency situation. I think that the FAA did exactly the right thing. They took very prompt and decisive action to ground the fleet because there was a concern about safety, and safety always has to come first. Now, they've been working with Boeing, and just today, they published inspection instructions for very comprehensive and thorough inspections. And as evidenced by the recent reporting, what they're finding is perhaps some additional information that's very helpful. It is really important to give the investigators the time and the space to do their work. And based on that, I'm confident that once the inspections

and the work are completed, that the FAA will do a very thorough evaluation before the aircraft is returned to flight. What's your recollection of a time when loose bolts have been an issue in the past, not being in this area and certainly not having insight into incidents and issues that don't reach the headline level. I'm just wondering how common that is. Well, this is a very rare event, but there have been reports of manufacturing defects in the past. And I think that that was why it was important for the FAA to mandate that these inspections take place to help identify what is the scope of the issue that's out there. Again, we're in early days in the investigation. One of the things that I learned

when I was administrator was often what you hear early in an investigation is incomplete. In some instances, it might be wrong, but you have to let the investigators do their work. And I'm quite confident that the NTSB, working with their partners at the FAA, will get to the bottom of this and will make some appropriate recommendations. If indeed this is an assembly issue, manufacturing issue, however we should put it, that's found here, What are the corrective measures that the FAA would put in place in a case like this? How do you find something like this before it's a problem in the future? Well, one of the things that the FAA will be looking at

is what are Boeing's processes to ensure quality control, to ensure that all of the appropriate standards are being met throughout the entire process. And as part of the evaluation, they will be looking at, are those controls as effective as they need to be? Might they need to be changed? Do there need to be much more robust and detailed inspections at different stages in the process? Again, it's early days, but there are a lot of things that the regulator will be looking at in order to ensure the safety of the flying public. All right. We won't rush to judgment, but we will watch closely. Michael Huerta. Absolutely. Thank you. Thank you. Breaking news now on Unity Software. Pippa

Stevens has it. Pippa. Hey, John. Unity Software announcing just now that it will cut 25 percent of its workforce, which is about 1,800 workers. The company said that the move comes as it restructures and refocuses on its core business, as well as to position it in a better position for the long-term and profitable growth. Now, Unity said that they, at this time, they cannot reasonably estimate the costs and charges in connection with this reduction, but it does expect that it will be substantially incurred in the first quarter of 2024.

Once again, Unity Software cutting 25% of its workforce. John? 25% is just an enormous cut. Pippa Stevens, thank you. Look for more information on that. Coming up, Mike Santoli is going to look at whether we could see an increase in better-than-expected earnings reports when earnings season kicks off at the end of this week. Overtime will be right back.

Welcome back to Overtime. Mike Santoli is back with a look at earnings expectations. And, Mike, after Microchip's revenue warning on inventory this hour, Unity's announcement that it's cutting a quarter of its workforce, this dashboard takes on a different urgency. Yeah, we're definitely on alert, John, for any holes that are going to get punched in the forward earnings forecast. Now, on a 12-month basis, things are still pretty much falling into place. So this is the S&P 500 here in blue against

the forward 12-month S&P 500 estimate. And what you see is it's obviously turned up, right? We had a decline, and it has created that base and has turned higher. That's positive. I wouldn't get too caught up in exactly where these lines are in relation to each other. That's sensitive to the scales on the Y axis. But what always happens happened again, which is the market went down before earnings went down and vice versa. We had the upturn in stocks anticipating the fact that earnings were troughing and heading higher. Now, on a nearer term basis, look at what's in store for the fourth quarter. Those are the numbers that are about to start coming through at the end of this week. And you see a big decline during the quarter.

So the three months of the quarter itself, you saw analysts cut their estimates by some 6.8 percentage points. So it was supposed to be 8 percent annual growth. Now it's looking less than 2 percent annual growth. So it lowers the bar for sure for lots of companies to beat. But it also shows a little bit of play in those numbers, some slackening of perceived demand, things like that. It is interesting, though, it's about the same declines we saw there in the second half of 2022. And if you remember, that's where stocks bottom. That's basically where expectations kind of essentially

reached their low point, rock bottom, and took off to the upside. You can also see a pattern of analysts being too optimistic at the start of the quarter, having to trim away. That's the norm. And this is EPS, Mike. So I guess the question here is, are they going to make these EPS numbers whatever they are on higher sales or because they've got to cut costs in order to save the bottom line? Sales growth is definitely moderated, both reported and anticipated. But the thing is, like there's earnings leverage embedded in pretty much all big successful companies. So you don't necessarily need a proportional increase in sales to get the numbers flowing to the bottom line. But your question is the correct one. I think it's going to be a little bit more of an uneven, lumpy earnings reporting season because you do have the big winners that

have massive, massive gains and steady top line growth. The majority of companies are going to struggle to actually get the revenue growth line moving. Yeah, we'll see how much demand was pulled forward perhaps when we hear about the guidance. Mike Santoli, thank you. Well, it's a 4% down day for five below, even though the retailer reported strong holiday sales growth and a fourth quarter revenue guidance. CEO Joel Anderson is going to discuss those results and the outlook for consumer spending when Overtime. Retailer 5 Below shares under pressure today, down almost 4%, despite saying it expects Q4 sales to come in at the high end of its guidance.

And that comparable holiday sales increased at 3.6%. The stock is down nearly 10% in 2024. But joining me now here at the ICR conference in Orlando is 5 Below President and CEO Joel Anderson. Joel, it's great to speak with you. Thanks for being with me. Thank you, Morgan. Great to be here. So you did put out this holiday quarter guidance. Your take or your takeaway, I should say, on the state of the holidays and how consumers gravitated towards Five Below and, by the way, Five Beyond. Yeah. Look, I think from the consumer's perspective, value really mattered. We guided the original at the beginning of the quarter at two to three comp, came in at 3.6.

So from our perspective, it was a really good holiday for us. And we saw it from our customer. They were very discerning on what they bought. But it was a broad spread, you you know win across all categories. So as we look forward one of the other things that really put out were your targets including the fact that you've got some pretty aggressive store growth in the cards for Five Below. Lay it out. Yeah it's it's real simple we call it the triple-double. We're gonna triple our number of stores by 2030. We're gonna

double our earnings per share and our sales by 2026. And that's what we laid out in particular for everybody today. And from the growth side of things, we're going to open 800 stores in the next three years. So we got a lot of growth in front of us. We're really excited about that. So when you talk about that type of growth and what that means from an earnings growth standpoint, How much of that is a result of the scale that you will enable by opening all these stores? How much of that is also the fact that we're in a disinflationary cycle? And I would imagine that that is helping costs within your own company. Yeah, look, we definitely have just gone through probably the biggest

inflationary cycle that we've seen in the last 50 years. So clearly prices are starting to come down. And that certainly, you know, bodes well for us from both a merchandising standpoint, but also in terms of opening new stores. But I think the big story today was the fact that our growth pipeline of new stores is back intact. And, you know, this year alone, we'll open almost 230 stores. Consumers are coming. I guess when you look at five below, and then I'm going to get to five beyond, but when you look at five below, is it the same sort of consumer that's been coming, or given the fact that consumers in general are a little more price conscious,

you're seeing more trade down? Yeah, the biggest part about our Q4 announcement was that the 3.6% comp was traffic driven. So we're seeing actually a lot of new customers coming in. So it wasn't driven by ticket, like raising prices. It was really driven by traffic and new customers coming into our stores. So five beyond. Yes. Let's talk about that because five below, most everything in the store is $5 or less. Five Beyond goes beyond that price tag but still offering value to consumers.

How is that consumer profile different than the other? Well, in many ways, they're the same. Okay. Because what's not different about Five Beyond versus Five Below, it's all about value. So for the longest time, we've been your stocking stuffer headquarters at Holiday, but now we're also able to be the main gift. But in both cases, the customer coming in our store is looking for value, so it's up to us to make sure that Five Beyond delivers the same value they see in Five Below.

And that's the focus on both Five Below and Five Beyond. How would you assess the competitive landscape, whether it's the dollar stores, whether it's the big box retailers like Walmart and Target, or even some of the e-commerce players? I realize e-commerce is not really your focus. Yeah. But some of the e-commerce players,

including some of these Chinese discount e-commerce, e-tailers as well that are increasingly coming into the U.S. market? Well, look, with our eight worlds in our stores, you know, we study all competitors. And if you're asking me about this recent holiday and as sales come out for the year, I think unless you offer value, some sort of value, and it can be high-end value or low-end value, that you needed to offer value to have a really successful holiday season this year. And I think that's what we did so well during holiday 2023. So what is your outlook for 2024 and the health and state of the consumer?

Yeah, look, if you'd asked me a year ago, I think we all would have thought that we were going to see a recession in 23. I think as this continues longer and longer, it gives us the opportunity for more of a soft landing. As for us specifically, we guided and gave direction of roughly about a 2% comp and a slight leverage on earnings per share. So that for us is signals to you that we aren't seeing a recession.

We still feel the customer is resilient, but they really need that value. And that's what we deliver. Do you think investors fully appreciate the story that you're delivering here, given the fact the stock was down today? Yeah, I don't. And I think as we've had our messaging out today and we start to talk to more of our long term investors, they're really going to appreciate that the pipeline of growth is truly back and that there's a long runway of success for Five Below. But I don't think they've appreciated it yet, and that'll come in the days and weeks to come. I can't live on a one-dayer. All right. Joel Anderson, Five Below CEO, thanks for joining me.

Thanks, Morgan. Great to be here. I'll send it back over to you, John. All right, Morgan, thanks. Certainly the flip side of Abercrombie for the consumer they're going after, but that story of price sensitivity, really interesting. Up next, not exactly over the moon. Why America's first attempt in five decades to land a spacecraft on the moon is not going as planned. We'll be right back. Well, welcome back to Overtime. We have an update to bring

you on the lunar mission that launched early this morning. It was United Launch Alliance's first flight of the new Vulcan Centaur rocket. That was successful. It was also the launch of the first attempted lunar landing by the U.S. since the Apollo era, so in five decades. Now, this was a commercial lunar lander. It is a commercial lunar lander. Unfortunately, the robotic lander, which is owned by startup Astrobotic, suffering a mishap in space, a propulsion system anomaly. Astrobotic saying it's using the lander's, quote, existing power to do as many payload and spacecraft operations as possible. It's unclear, though, John, what's going to happen next, but the issue putting a soft landing on the moon for this particular spacecraft

at risk and threatening the mission as it was originally laid out. Yeah, that's a tough break, certainly, for the space industry, at least one segment of it. Morgan, you covered a lot, everything from the store racks to rockets up in space this hour. And then in between, we got this news about Unity cutting a quarter of its workforce. Sounds like cutting it down to around fifty four hundred i was just looking unity at around four thousand employees at the end of twenty twenty so uh... this is certainly appearing back but but uh... i wonder what that says about the overall industry and economy uh... that it's going to be a key once watch because we have started to get john's your

point some announcements about job cuts. What is that going to look like? Is that going to accelerate? If it does, does that put a soft landing at risk? We're not there yet. We know that the jobs market overall is still very strong right now. But to your point, how is this going to play out, especially as earnings season ramps up and you do potentially start to get some more cost levers being?

We'll see. For now, that does it for overtime.