Closing Bell - Closing Bell Overtime: SAP CEO On New AI Partnerships; Why Stocks In India Had Worst Day In Years 6/4/24

Episode Date: June 4, 2024

Major averages closed higher after rallying in the final hour. Vital Knowledge’s Adam Crisafulli and HSBC’s Nicole Inui break down the action, including earnings from HPE, Crowdstrike and PVH. Barclays analyst Saket Kalia breaks down the earnings from Crowdstrike and why he is bullish on the stock. SAP CEO Christian Klein on his company’s new AI partnerships. Guggenheim analyst Robert Drbul on PVH earnings and its DTC plans. Our Seema Mody on a bad day for stocks in India. 

Well, stocks found some support mid-session in a seesaw day for investors, but closing off their best levels. That is the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is on assignment today, and we've got another big hour of earnings coming your way with results from Hewlett Packard Enterprise, CrowdStrike, and Calvin Kleinparent PVH. We can bring you those numbers as soon as we have them. Plus, a key read on software. The CEO of $220 billion market cap firm SAP, Christian Klein, no relation to Calvin, joins us from the sidelines of his company's Sapphire conference with an inside look at enterprise spend and innovation. But first, let's get to today's

action. The major averages closing mostly higher as yields pulled back. The 10-year yield firmly below 4.4%. The Russell 2000 getting hit hard, though, falling more than 1%. Joining us now is Vital Knowledge founder Adam Christofouli and HSBC head of equity strategy, Nicole Inouye. Welcome to both of you. Adam, what's this with the yields being in check, but the Russell not doing so well? That's not what we're used to. Yeah, I think markets are really grappling with, you know, the path forward here where we've had

now for two days in a row, we've had, you know, economic data that is pointing to a slowdown in growth with the manufacturing ISM. Yes, you had the jolt report today. And so yields are falling, which is positive for equities. But I think now investors are grappling with what this means for the outlook on earnings. So cooler growth, disinflation and outright deflation, corporate pricing power starting to wane. So all that creates earnings headwinds. So the headline indices traded well today. But like you said, the Russell was very poor. And then a lot of the big cyclical groups, so capital goods, materials, energy banks, all of them were big underperformers today, suggesting that investors are growing more concerned about the outlook for the economy. You know, we've been used to for the last several

quarters, anytime yields went down, that was kind of an automatic positive for equities. But that narrative is starting to evolve now as investors start to be more concerned with the outlook on growth earnings versus simply focusing on the level of yields. Yeah. Real estate, the best performing S&P sector. Nicole, it's a market that's caught in this range, it seems, reacting to macro still. You don't think inflation is easing enough for us to count on more than one cut this year. Is that dangerous for these markets with the consumer perhaps slowing? Well, you know, we have the call that we expect one rate cut this year. The market's pricing in almost two rate cuts. Again, we've always had the view that the narrative needs to be that

the next move for the Fed is lower, not higher. Yes, I think on the consumer side, we are seeing some pressure. So if you look at delinquency rates on credit cards and auto loans, those are creeping up. They are above pre-pandemic levels. But, of course, they're far from what we saw during the great financial crisis. But we are seeing that creep up a bit. But I think on the economic side, what we need to see is this mixed economic data that we're seeing.

So we're seeing a cooling labor market. We're seeing activity surprises for U.S. growth turn. So they're actually declining. But that's also because expectations for GDP, for growth for the U.S. has risen substantially. So I think what we're seeing in terms of the mixed data on the economic side, inflation, that's sticky, but it's cooling down. We think that will set the stage for one rate cut. We think that's enough for keep the equity markets rallying at this level.

Yeah. Nicole, though, economic conditions are only ever mixed at the macro level. For individuals, for any individual family, it seems like they're pretty defined. And it seems like for the majority of families, if you're facing inflation that's not coming down as quickly as one would hope, but a pinched picture for your discretionary spend, that's not great. So I wonder how much that plays out in PVH. They already warned about their consumer feeling pinched. Are there places where you're looking for signal and ways that investors should play it if this continues to play out as it has?

Sure, sure. On the consumer confidence side, we saw a dip in April. We saw it coming back a little bit in May. We're seeing mixed commentary from companies. So you're seeing some companies saying that they're seeing improvement in discretionary categories. You're seeing other companies that are saying that the consumer's wallet is still pinched and that you're seeing some consumers trade down. So what we see in terms of the consumer side, we do like consumer discretionary and consumer staples stocks. But what we've always said is that you need to be selective. I think that the high end consumer

continues to do well with equity prices very high, loan prices very high. Most of them are in these fixed rate mortgages. So, you know, those sort of stocks that play to the high end consumer and even on the low end consumer where we are seeing pressure. I think what you're seeing is some of the middle income consumers trading down. And so what you're seeing is some of these consumer companies actually seeing the ability to gain share in those markets. So these are kind of the consumer you want to be positioned in on the equity side. Okay, let's get to some earnings. Steve Kovach has Hewlett Packard Enterprise. Steve? John, and shares are up here after beats on top and bottom lines. Let me go over the results here. EPS was a beat, 42 cents adjusted. Street was looking for 39 cents. Revenue is also a beat, $7.2 billion versus the 6.82 expected.

They're also raising their full year and EPS and revenue guidance. And also Q3 guidance is pretty much in line with estimates as well. And then on the AI front, they're saying cumulative sales since back in Q1 2023, for AI has reached $4.6 billion. So caught up with CEO Antonio Neri on these results. And he told me that profitability on AI revenue is solid. I kind of pressed him on that a little bit. Sounds kind of the opposite of what we heard from Dell last year or last week, rather. But he told me he wouldn't expand what the margins actually are there for artificial intelligence. We see shares up about 10% now, John. Yeah, it's a nice move. Also, it looks like CrowdStrike results have crossed. We'll get you those as soon as we're ready with the details. Adam Crisofulli, HPE, not necessarily a bellwether

in this space, but there's been concern about enterprise demand. We're going to talk to SAP's CEO about that in just a little bit. How important is enterprise software for this market, particularly the larger companies, given that the smaller ones have been struggling? No, it's definitely been a key area of debate in the last two weeks with the workdays and sales forces of the world talking about how they saw at least a shift in the macro environment in the last couple of months. It's unclear kind of what's happening. Is this budget shift towards AI and away from non-AI types of products? So if you

don't have a lot of critical AI products in your portfolio, then you're going to suffer. Is it just kind of a very modest normalization versus some overheated purchasing patterns? You know, it's unclear at the moment. HPE came into this quarter, you know, it has a relatively low multiple, so that helps it with these earnings reports. Dell did it a little bit of a favor by knocking expectations down. You know, I'll have to go through the details of it. There are pieces of its portfolio that, you know, presumably are big beneficiaries of the AI data center boom. You know, other parts of its Other parts of the portfolio are going to suffer. It's just kind of a question of how all that plays out. But on the surface, it looks like a decent print from HPE. And then you'll have to look

at the details of CrowdStrike. But certainly we've had two weeks of relatively underwhelming software updates. I think Oracle is a name everyone's really waiting to see how they come in. Your SAP interview will be interesting as well. It's obviously another big software bellwether, but it does seem to have been a shift at the margin on the negative with regards to enterprise software spending. For sure. Looking forward. I'm looking forward to that as well. My interview with the SAP CEO. Adam, thank you. Nicole, thank you as well. Now

let's bring back senior markets commentator Mike Santoli for a look at the falling yields you were just talking about. Hey, Mike. Hey, John. Yeah, in fact, 10-year treasury yields falling to perhaps some significant levels right here. It's remarkable how often the narrative switches from the economy is going to have no landing, reacceleration, overheating, maybe bond yields go back to 5% where they were back in the latter part of last year, to now breaking below 435. Again, 435 was a somewhat significant level. You see it was sort of the dividing line between sort of the upper end of that range when we had that October sell off in bonds, which was also when we got the correction in stocks and somewhat more normal levels.

I did want to bring it all the way back, though, to 2022, because back then, 435 was a very problematic level. In other words, it was the high for the cycle. Stocks couldn't deal with it. We still thought the Fed was going to have to really choke off growth. And it shows you that over time, the stock market can learn to handle different levels of yields if it happens slowly and it happens for the right reasons, along with the economy hanging in there. Now, take a look at stocks relative to bonds. This is just the S&P 500 against the aggregate, Berkeley's aggregate bond index. So it's stock prices relative to bond

prices. And it's obviously been a story of massive outperformance of stocks against bonds until recently. And so you see this roll over here. And that's what we've been observing this week, which is bonds rallying, therefore yields lower and stocks not really collectively being able to make much of it. So underperforming bonds right here, maybe a significant deal kind of resetting back to those levels from a few months ago. But I do think there's just a lot of air under this measure. We'll see how the relationship plays out from here in terms of how equities respond to any further declines in yields, John. Mike, I don't drive stick, but there seems to be this moment where you're in danger if you're trying to drive a manual car of stalling out, right? And stagnate that that stagflation term. I know that means a lot more than what we've got here, but there's this concern maybe at this moment that growth isn't quite there enough, but also inflation hasn't come down enough.

At what point does that become a real significant concern? I think that's the market's inherent concern here in terms of whether things are improving enough on both fronts, on the inflation front and also staying at least steady on the growth front. Look, we just had the real time Atlanta Fed GDP estimate revised down from like two eight down to one seven in a few data points. So I think there's some sensitivity here. I will point out the S&P still like less than two percent from a record high. And we're talking about this anxiety as if it's a major thing. It's much more about asset prices have built in a good scenario and we're having to test the premise under which we've been operating to get prices there all year.

All right, Mike, thanks. And in the meantime, we have those crowd strike earnings we were waiting for. It went from way negative to now slightly in the green. Contessa Brewer has the numbers. Contessa. Yeah, well, maybe we investors are starting to go through this because what we see is a beat on the top and the bottom line, John. The crowd strike earnings per share comes in at 93 cents adjusted versus the 89 cents the street had expected. And revenues coming in at 921 million versus the street expectation of 905 million. Not only that, but forward guidance looks good as well. The revenue guidance for the second quarter, $958 million to $961 million versus the consensus expectation of $954 million. And the earnings per share guidance of $0.98 to $0.99 versus the expectation of $0.91. So why did we see this negative reaction here? When we're looking at this full year guidance, it looks like most of that momentum

is coming from the first and the current quarter, and that there may be just the intimation of caution around the second half of the year. We're diving in here, guys. We'll send it back to you as the shares are off by about a 1.5. Yeah, it does look like the revenue guide with the midpoint being right about at four billion is just in line with what the street was looking for. But we also know these CEOs don't like to put too much on the back half of the year and we're still barely into the first quarter. We'll see. Thanks, Contessa. What the CEO has to say, because Jim Cramer has got an exclusive interview with George Kurtz, CEO of CrowdStrike, at 6 p.m. on Mad Money. And now we've got much more on all of today's after hours action ahead.

Up next, we're going to break down CrowdStrike's quarter with an analyst before the call at the top of the hour. And shares of software giant SAP have had a strong run this year up about 20 even as many other names in the space have pulled back we're going to talk to sap ceo about his read on the software landscape if he's seeing signs of slowing spend how he's We've got some news on Intel. Christina Partsenevelis has the details. Christina. Intel confirming it is entering a joint venture with Apollo Management related to a fab in Ireland.

Apollo will invest $11 billion to acquire a 49% stake in the joint venture. The move is part of Intel's smart capital strategy that they've talked about over the last few years. It creates more financial capital and flexibility. Recall just back in 2022, Intel also signed with Brookfield Infrastructure. They invested $15 billion in an Arizona fab for a 49% stake in that joint venture.

So very similar move that we're seeing with Apollo. Today's deal with Apollo expected to close in Q2 of 2024. Intel expects net income attributable to such non-controlling interest to be limited in the first two years, but to increase thereafter as the factory ramps to full capacity. The new sending shares about 1% higher in after-hours trading. This is interesting, Christina, because a big piece of what investors are concerned about with Intel is the cost of manufacturing, especially when it comes to its strategy to be a foundry, to make chips for others. And what Intel has been trying to do is get investment from some others outside to put up

the money for these fabs up front so that they can then reap some of the profits down the line, but it helps them manage some of that cash flow in the near term. This is a time when chips are front and center in the minds of many, but Intel stock is down near the 12-month lows, right? It hasn't been participating like AMD and NVIDIA. Yeah, and you saw just today with his keynote at Computex, and you didn't really see a positive reaction in the stock despite talk of AI PCs, the Gaudi 3 chip being cheaper. To your point about the foundry business, it's good in the near term because they're getting help from outside companies, but that does give up control to these outside companies. 49% stakes

in these joint ventures, especially when the foundry business, and if I remember correctly, is losing $7 billion with only those costs expected to increase this year, so $7 billion last year. So that is a concern for a lot of investors at the moment. Intel really has a lot riding on this foundry business, turning itself around, and that's why Pat Gelsinger has been pushing it so much. But yeah, to your point, 1% higher, which is a strength. But given Computex news, you didn't really see the reaction like we saw with AMD and Nvidia. Well, Intel does maintain control with 51%. Correct, yes.

If the whole enterprise is as successful as Intel hopes, having to share those profits won't be that much of a concern. We'll see how it works out. Christina, thank you. Thank you for correcting me. Thanks. CrowdStrike Q1 numbers were out just moments ago. The company raising its revenue guidance for the second quarter. And the stock is moving higher, about 2% right now.

Joining us now is Saket Kalia, Barclays software analyst. He's got an overweight rating and a $400 price target on CrowdStrike. Saket, welcome. Got to go straight to the guide here, particularly the full year guide based on the way they've tended to guide and the fact that we're looking at a Q1 report. How do you interpret what some might be seeing as conservatism here? Sure. Thanks for having me on, John. So the full year revenue guide, I think, just reflects the upside that we've seen in net new ARR. That stands for annually recurring revenue, as you know.

And frankly, the revenue guide here, I think, has historically been very much of an underpromise and overdeliver. And particularly as that net new ARR continues to show upside, it actually beat our estimate this quarter. You see the revenue follow that going forward. So I agree with the idea. Remember, this is only the first fiscal quarter for CrowdStrike. This team is no stranger, again, to under-promising and over-delivering. And so I do agree with that point on conservatism here. What are some of the factors that you see affecting the way CEOs are giving that guide? We're about four quarters since there was a real demand question in cloud and in a lot of enterprise software. We have the hyperscalers talking about customers looking to save money versus this AI boom now that it's exciting, but you wonder how

strong it's going to continue to drive these transformation dollars? Sure, it's a great question. I mean, I think that the two things that we hear consistently from across our management teams are, first, just in this type of budgetary environment, you know, that incremental dollar spending still gets plenty of scrutiny, particularly for big deals. And CrowdStrike can sign some big deals. I think the second thing that we hear is, you know, as AI becomes just moves up the list in terms of spending priority, that's going to take away an incremental dollar from other areas as well. And so I think that I think a previous speaker was just talking about some of the mixed performance in some of the software companies that reported

this quarter. You know, that might be one of the factors that's contributed. So I could finally, is this dangerous for some other cyber names? CrowdStrike has been a consolidator. It is one of these platform plays that's making the argument, hey, why buy from all of these disparate vendors? Get it all from us. If they're being conservative, do investors need to be concerned about what other cyber names, smaller ones, will do? You know, I mean, no question that CrowdStrike is becoming more and more of a bellwether for the security industry. I think it's going to really depend on what George and Bert and the team at CrowdStrike sort of say as they characterize the environment. But listen, I think at the end of the day, these guys beat their net new ARR commentary. You know,

they're raising revenue in EPS guide. I definitely want to call a spade a spade. And I thought this was a good quarter. And I think that's what you're seeing in the stock. I think, again, this team has been very conservative, right, and very prudent in how they guide. And I think that will be the other message that we hear on the call. Yeah, you see it there up 3%, perhaps pulling a couple of peers a little higher as well. Saka, thank you. Thanks for having me, John. Up next, more software. SAP CEO is going to join us from the sidelines of the company's Sapphire conference, where it just unveiled AI-focused partnerships with AWS, Meta, and Microsoft.

We'll be right back. Welcome back to Overtime. SAP announcing a number of AI partnerships as the company seeks to drive disruption and innovation across the business. Joining me now to discuss from SAP's Sapphire Conference in Orlando is SAP CEO, Christian Klein. Christian, thanks for joining me here on Overtime. Okay, I got to start with AI here. Here's my question, because you guys have so much software that so

many big companies use. As an example here of what AI is going to do, you use success factors, which is used to manage people, perhaps being able to make an argument for why somebody should or shouldn't get a raise using Gen AI. You mentioned other examples of SAP being able to suggest these salespeople with these products will help you make a sale. How close is that to reality? How important is that to driving demand? John, actually, this SAP business AI is not only anymore a vision, it's the reality.

When you are an end user of SuccessFactor today, you're going to see that many, many tasks, what you're doing each day, will be managed already today by our co-pilot, Shul. And by the end of this year, 80% of the tasks, what employees and HR professionals are doing with success factors will be as well managed via Juul. On top, when you do HR, workforce analytics, Juul does this for you. It will provide proactive recommendations around how to actually put the best workforce together in your industry. It will help you also to manage your people business end to end. This is here now. This is reality reality and so what is the financial impact of that a lot of people got excited a few quarters ago when microsoft said hey we're planning to charge an extra 30 bucks a month for ai capabilities on top of what we

already offer on office is this more of a retention driver at this stage or are you confident enough in the value it delivers that you can charge more? John, we are running the world's most mission-critical business process, not only in HR, in supply chain, in finance, in CX, and also now for ESG. And in the future, we're going to embed AI into the business processes of our customers. And for very standard AI scenarios like machine learning and some predictive use cases, we will currently also only charge out the subscription fee today. And for more high value tasks, for example, in the generative AI use case, we're going to charge a premium. But again, it really correlates with the value what our customers are seeing. And it will be always embedded in our solutions, in the business

processes of our customers. How should we expect to see that ramp? Just last week, I think it was last week, we got those Salesforce results, and there were concerns about the top-line growth after Mark Benioff had said AI is going to be driving our sales from here. So when do we see, and perhaps in what product categories most prominently, should we expect to see those AI impacts being driven in a tangible way? I mean, John, when you would see here the wipes here at Sapphire, when the people walk across the show floors, you see the momentum around our overall portfolio. And when you have seen our Q1 earnings, again, we accelerated our current cloud backlog now to 28 and again

ai is pulling our whole portfolio up and will accelerate growth for all our categories if you would ask which categories are benefit the most definitely we see a huge bump in the supply chain area when we talk about manufacturing absolutely this is an area of generative AI. And then, of course, our co-pilot, Shul, which will span across our solutions, is, of course, also of high demand. Now, it used to be that people would notoriously, I mean, you know, a while ago, people would complain about the amount of time it took to do an upgrade to the latest versions of SAP. We're in a SaaS era now and I wonder to what extent you're feeling the impact of people doing data transformation to get ready for the AI that they want to be able to implement for their business down the line. How does that play out in the systems that SAP provides that are often so critical to how companies can run their business? Oh John, I mean SAP transformed over the last four years.

Our core business is moving to the cloud. And here at Sapphire, I had Microsoft, I had Amazon, I had Apple on stage. They're all great partners, but they all run on SAP in the cloud. And the times of lengthy upgrades, of costly upgrades are over. As with Wise with SAP, we are not only lifting and shifting ERPs to the cloud, we are transforming business modules. We are simplifying business process.

We modernize the stack and then we run it as through SaaS so that we can infuse innovations like AI always every quarter into the business processes of our customers. Finally, you've got a partnership with NVIDIA. A lot of companies are talking about partnership with NVIDIA. I wonder how you measure the value of that that the customer gets compared to others

because the costs are clear, right? They're showing up in NVIDIA's results, but how do you measure the relative value? I mean, when you look at the NVIDIA news today, Jensen and I talked two years ago and said, how can we use Gen AI to really make an impact on business? And the idea we came up with, which is now reality, is our co-pilot, Shul, is now also available for developers and consultants.

And you just mentioned it, ERP upgrades. Now the co-pilot can really manage the process design, can really take a lot of custom code out and can auto generate code on our business technology platform. So we can massively accelerate the move to the cloud ERP. And given that we have 6 million consultants and developers working in the SAP ecosystem,

you see how massive this JNI use case is for our ecosystem. All right. We await the further news from Sapphire. Christian Klein, the CEO of SAP, thanks for joining us here on Overtime. Thanks a lot, John. Meantime, PVH and Variant Systems earnings are out and Contessa Brewer is back with those numbers. Contessa. John, PVH, the parent of Calvin Klein and Tommy Hilfiger, announces revenue that is just slightly higher than expectations. This quarter, the revenue of, let's see here, we're looking at, I've got it in front of me, $1.95 billion versus $1.93 billion

in earnings per share here of $5 adjusted versus 216. That prompted PVH to raise full year expectations on EPS as well. The company says it saw growth in its direct to consumer lines and it's reaffirming its second quarter revenue is expected to decrease six to seven percent. Separately, they sent out a release saying that the CEO of Tommy Hilfiger and PVH Europe, Martin Hagman, is leaving the company and they're searching for a replacement. Okay, update here on Verint, which offers cyber intelligence and customer engagement tools. Beats on the top and the bottom line, revenue coming in at $221.3 million. The street expected $214.5 million. And EPS, so we've got 59 cents a share adjusted against the street expectations of 54 cents. Guidance in line with estimates. There

you see the stock react strongly up almost, well, 6.5% now. John? Another beat with inline guidance, similar to CrowdStrike, but this time the stock, at least for the moment, is higher decisively. Contessa, thank you. Well, let's get a CNBC News update now with Kate Rooney. Kate? Hey there, John. Just days after the White House said it had given permission for Ukraine to strike targets just inside Russia with American weapons, the New York Times reports that a member of Ukraine's parliament confirmed the use of a U.S. rocket system to strike Russian targets in the Belgorod region just across the border, if verified it would be the first public acknowledgement by Ukraine of such a move. Meanwhile, the trial for one of a dozen people charged with using flaming torches

at a white nationalist rally in Virginia began today. The case against Jacob Joseph Dix will be the first test of a 2002 law in the state that makes it a felony to burn something to intimidate and cause fear of injury or death. Prosecutors say Dix was one of several hundred that carried torches on the University of Virginia campus in 2017 to protest the removal of a statue

of Confederate General Robert E. Lee in downtown Charlottesville. And the FDA will soon decide whether the mind-altering drug MDMA can be used as a post-traumatic stress disorder treatment. The agency brought together experts today to review research that shows it can help relieve PTSD when combined with talk therapy. Back over to you guys. All right. Okay, thank you. Well, coming up, Mike Santoli is going to come back and look at one under-the-radar industry that's been riding the AI hype wave

but might be showing signs of cooling down. Speaking of riding the wave, check out Carnival Cruise Lines finishing at the top of the S&P 500 today. The company says it's folding in its Australia cruise line under the flagship Carnival brand. Cruise stocks also likely benefiting from the recent drop in oil prices. Overtime will be right back.

Welcome back to Overtime. Mike Santoli back with me with a look at a part of the market getting caught up in the AI hype. Might be starting to come off the boil. Mike, what is it? Yeah, John, electrical components is a sub-industry of industrials. And I wouldn't say it's all AI hype, but certainly part of the story. This idea of a power shortage out there, we just don't have enough infrastructure. And electrical components in the ISM manufacturing survey has been in shortage for almost four years. So clearly there's something behind this, but it's an interesting correction in this very strong trend.

Still up 33 percent of a one year basis. But this pullback has actually taken you back, you know, call it three months in terms of that upside. People are questioning just how much growth has been built in here. The valuations in a lot of these stocks are pretty much at historic highs. But one of them, one of the leading names, Eaton, has also pulled back slightly after a great run. But it really is a substantial-sized company right now. Here's the market cap of that company relative to AT&T. It's over $120 billion. They're very close next to each other in the S&P 500. AT&T has like, I don't know, five times the annual revenue of Eaton. But clearly,

the profitability and the growth expectations are there for a company like Eaton, which has been around a long time, mostly usually described as sleepy, John, but not acting that way any longer. Mike, we seem to continue to fall back into these periods where investors are questioning what's going to happen with various segments of the market, except for NVIDIA. Nobody's got questions about that, even though maybe they should. No, you're right. It's remarkable how people have tried to find these, you know, kind of, I call them bank shot plays on AI and the ones that will be the followers that will also benefit from the trend,

whether it is in the electrical kind of chain, you know, ecosystem or something else. And, of course, there could be some substance to that. I just feel as if it's not as targeted. You don't have as high a conviction. It might not be as near term. And you have to ask the question, whatever this wonderful AI future people are expecting or projecting, is there going to be a ton of sustainable profitability for the people who make the connectors and the wires and the utilities and all that? And who knows if that's how it's going to go? That's exactly the kind of thing I was trying to get out with Christian Klein. Even in software, how much of it is initial excitement?

How much of it is going to be a steady move higher? Mike Santoli, thank you. Well, still ahead, India shares seeing their worst day in years. That's stocks connected to the MSCI India ETF as an example. After results in the country's election, we're going to talk about the potential longer-term impact on investors. And check out shares of Bath & Body Works taking, well, a bath today. That's not a good thing. Doesn't smell good. Down almost 13%.

Worst performing to S&P after issuing weak second quarter guidance. Over time, we will be right back. Welcome back to Overtime. PBH, the parent company of Tommy Hilfiger and Calvin Klein, posting a beat on the top and bottom lines moments ago. Stocks about flat right now in overtime. Joining us now is Bob Durble from Guggenheim. Bob, I think you're relatively optimistic about this stock. Help me understand why, because based on just what I'm seeing out there, I can understand the pessimistic case. These are brands you often see in department stores that mainstream consumer has been

struggling lately. It's the discounters who have been doing better. Why is this story going to improve? Thanks for having me, John. I guess a couple of points I would make. First of all, we can continue to be constructive on the stock. It's a very cheap stock. So, you know, $11 was our estimate going in. Think about it, you know, at this price. And then, you know, the valuation is one of the cheapest apparel names in the group. And then your point around department stores and what's winning, what's not, what's happening at PVH is they're really focused on their DTC as well as their wholesale business. And I think in this quarter, you've continued to experience good results in DTC on a global basis. The wholesale business is struggling in a lot of different markets in a lot of

different countries and I think that's they're performing better their sell-through was improved but those markets and those channels remain very difficult. Well it seems to me then it's important that they find the right person long term to head up Tommy Hilfiger if that DTC is going to be such an important piece. Is there an analog to this? Other business in the category, I don't know if it's Levi's or something else, that's been doing the DTC piece pretty well and has managed to position brands well at a time when, I don't know,

the 90s are back in, right? That shouldn't be too bad for them. Right. No, and on the DTC, your point, I mean, Levi's has really leaned in on DTC with their new CEO, Michelle Goss. And PVH has really been focused on DTC over the last few years under Stefan Larsson. And ultimately, I think it's a good path to go. It's early days in terms of what they're trying to do. They still do a fair amount of business in the department store channel, but they're executing. There's a lot of

macro uncertainty and for these guys to sort of beat the numbers a little bit more than we anticipated, the guidance for the year goes up a little bit, a little bit of tax, a little bit of interest. But overall, I think status quo from what we thought 90 days ago. And, you know, there's a lot of room ahead for this company on a global basis. Yeah. Talk to me about that uncertainty, because we've got back to school coming up in the next three months. And for a company like this, that strikes me as probably an important period, particularly when it comes to inventory. And we've got these inventory issues with some of the global disruptions and companies having to make bets now about what they're going to need

in Q4. If the macro picture isn't great for that mainstream consumer, how much danger is a company like PVHN if they don't make the exactly right inventory bet? Well, a couple of points on the inventory piece. They're down 22% in inventories at the end of the quarter. And I think the channel itself and a lot of the wholesale manufacturers are also really clean in inventory. So this year sets up to be a margin recovery story. And in the current quarter, their gross margins were up all-time high, up 350 basis points, better than we anticipated. So I think the way to manage the current quarter, their gross margins were up all-time high, up 350 basis points, better than we anticipated. So I think the way to manage the environment is keep clean inventories, work on sell-through. And if you can get a little bit better top line, take it, but really manage for the brands and for the margin recovery.

And that's really what we saw out of this first quarter, and I think what we expect to see for the rest of the year from these guys. All right. That's the optimistic case. You made it. Bob Durble, thanks for joining us. Thanks, John. Up next, we're going to look at why India's stock market is falling in the wake of that country's election and what it means for other emerging markets. And because you love overtime so much, you want even more. We got a QR code for you. I know, shocking. A QR code in overtime, but where is it? There it is. You can follow us on LinkedIn. Scan that with your phone, with the camera. We post exclusive content there. You're going to love it. Overtime will be right back. Welcome back to Overtime. Stocks in India having a very rough day as election results show a smaller than expected margin of victory for Prime Minister

Modi's party. Seema Modi joins us with the details. Seema. Well, John, it's seen as a setback for the pro-business leader. I was speaking to a former government official who said that he now, without a single party majority, will have to strike deals for everything, use persuasion and negotiation tactics versus dictating. Now, under a coalition, two important economic reforms tied to land and labor will likely be harder to pass, policies that would have made it easier to acquire real estate and hire and fire workers. The prospect of a less robust economic agenda under Modi sent Indian stocks sharply lower, the lowest level since 2021.

Indian banks falling 10 percent. The MSCI emerging market ETF, which has India as its second largest weighting, sold off as well. The election results shouldn't change U.S. corporate expansion plans. Efforts to near shore certainly still remain. But there are questions that are being raised as to how the government will stick to its goal of making India the third largest economy by 2027. It's currently the fifth. A longtime emerging market investor, Rahul Sharma at Schaefer Cullen, who manages $6 billion in assets under management, tells us that Modi's lackluster results could soften his nationalist rhetoric that could ultimately

prove to be a long-term positive. He says right now stocks there are trading at around 23 times. They should be at around 18 to 19 times based on these results. This strikes me as one of the most important, if not the most important ground for global business over the next couple of decades because of the size of the population, the youth of the population and the potential. But here's my question. I forgive my pronunciation here. The nationalist attempts that Modi made in Uttar Pradesh, the largest region, seemed to have backfired here. And there's been this pushback among Dalits and among Muslims against the way he's put himself forward. How important is it for India to figure out how it's going to handle some of those civil rights issues,

frankly, connected to the growth that investors hope come in the economy down the line. Well, this is a great topic because it really hits on the fact that Modi cannot just rest on the promise of an economic dream and ignore some of the social issues that are taking place on the ground, including the treatment of minorities, where there's been a lot of criticism about how he's handled certain issues related to Muslims and their rights across the country. So clearly, folks showed up to this election. They voted. And that even though he will retain power, the fact that he's not able to have the majority, it shows that he may not need to now change the way he governs and manages not just Hindus,

but all religions as well, people who are living on the ground there. This reminds me of what we just saw out of South Africa with the ANC losing its dominant majority for the first time. A lot of questions there about what coalition government is going to look like. I guess India, in a way, has more of a history of that perhaps to draw on. Yeah, and unfortunately, the history isn't great. That when a coalition party does rule, we've actually seen a slower than expected outcomes when it relates to economic policies. So that's why there is a little bit of fear right now in the market, as we saw overnight in Indian markets, this idea that even with Modi a pro

business leader, the fact that he will have to now align himself with smaller parties to create this coalition, how does that impact the agenda, the economic story, the infrastructure reforms that are in place, that remains to be seen, and we'll be covering it. Such an important dynamic, Seema, thank you. Thank you. Well, Lululemon is headlining another big day for retail earnings tomorrow. Up next, the key numbers that investors need to watch.

And here's something else to watch tomorrow. Hopefully, Boeing's Starliner space capsule is going to try again another launch wednesday after being scrubbed once again over the weekend it's like the the little rocket that perhaps could and don't forget you can catch us on the go by following the closing bell overtime podcast on your favorite podcast app we'll be right back Welcome back. Let's check on some overtime movers. Green across the screen right now. HPE getting a big boost, up 12% after beating on the top and bottom lines.

The full year earnings outlook was above prior guidance as well. CrowdStrike topping estimates. It's now up 7%, topping estimates on bottom lines. The full year earnings outlook was above prior guidance as well. CrowdStrike topping estimates. It's now up 7%. Topping estimates on both lines. CEO George Kurtz is going to be on Mad Money tomorrow. Earlier I said today. I'm told it's tomorrow to talk more about the quarter. And Varon Systems is jumping up about 5.5% after a beat on earnings and revenue.

That company also raised its full year outlook. Check out Guidewire software. It is popping up about 7.5% after the results doubled. FactSet estimates strong revenue. The earnings results doubled. FactSet estimates strong revenue as well. And the earnings parade is going to march on tomorrow with a lot of clues about the state of consumer spending. Before the bell, we'll get results from Campbell Soup, Brown Foreman, Dollar Tree, and closeout retailer Ollie's. And in overtime, we're going to be all over the numbers from Lululemon, Five Below, and Victoria's Secret.

Now, for more to what to expect, let's bring in CNBC's retail reporter, Gabrielle Fonrouge. Gabrielle, starting with Lululemon, we just got these PVH results today and PVH not doing well, revenues down, switching out a leader in Tommy Hilfiger. But it seems like Lululemon, even more than Nike right now, is the DTC champion of the world, especially in the premium end. What do you expect to see? What do we need to see from them? So Lululemon owns DTC in a way that other retailers have not. PVH can actually learn a lot from Lulu. You're able to keep control of your entire brand experience.

You've got higher margins. And you don't have so much exposure to department stores, which we all know aren't doing so great. But they're doing great when it comes to DTC. But North America is starting to stagnate. That's something that investors are going to want to pay attention to tomorrow, last quarter. You know, they're doing great when it comes to DTC, but North America is starting to stagnate. That's something that investors are going to want to pay attention to tomorrow. Last quarter, you know, they're still growing a lot. We've got to keep in mind this is a best-in-class retailer.

But is this growth story winding down? Let me sneak in a quick one, quick answer on Dollar Tree. With a pinch consumer, is it actually good for them? It is good for them if they're willing to come, but it's not great for Dollar Tree because they're not buying the higher-margin discretionary items. They're going there for milk and eggs. Okay. Yeah. Milk and eggs entirely aren't going to get you there. Maybe, I mean, they don't do online like Walmart either, so they're not going to benefit there. Well, all right. That's going to do it for us on overtime. Fast money is going to begin right now. Continue tracking that earnings action.

Here we go.