Tag: ETFs

Couche-Tard takes aim at Slurpee King

Because I grew up in near Winnipeg, the Slurpee Capital of the World, I thought I knew everything the 7-Eleven universe had to offer. Then, I visited Japan and Thailand last year. I realized that I hadn’t seen anything yet. (All figures in U.S. dollars in this section.)

In much of Thailand and Japan (among other places in Asia), the convenience store is a daily touchstone stop. In Tokyo, there are more than 3,000 7-Eleven stores, a large part of the country’s 56,000-plus convenience store locations. While 7-Eleven was a big part of my childhood, it pales in comparison to the role it plays within many Asian communities. 

So, it quickly caught my attention when Canadian corporate darling Alimentation Couche-Tard (ATD/TSX) announced it was making a friendly takeover bid for Tokyo-based Seven & I Holdings Co (SVNDY/NIKKEI). The possible deal is historic for many reasons.

1. The acquisition of Seven & I Holdings Co is the largest-ever Japanese target of a foreign buyer. 
2. It’s the first test of new 2023 takeover rules by Japan’s Ministry of Economy, Trade and Industry (METI), designed to make foreign acquisitions more welcoming and Japanese companies more internationally competitive. 
3. It would likely top Enbridge’s $28 billion acquisition of Spectra Energy Corp back in 2016, to become Canada’s largest-ever corporate takeover.
4. It would combine Couche-Tarde’s convenience store empire of 16,700 stores in 31 countries, with 7-Eleven’s 85,800 stores in 19 countries.
5. By combining ATD’s and 7-Eleven’s U.S. market share, Couche-Tard would control more than 12% of the U.S. convenience store market, with the closest competitor being Casey’s General Stores at only 1.7%.
6. It’s a massive bite to take for ATD, currently valued at about $56 billion, since 7-Eleven is currently worth about $38 billion.
7. The potential acquisition is so large that many analysts believe ATD would have to raise $18 billion in new equity to complete the deal. That would be the biggest stock offering in Canada by a wide margin. It would also be in addition to the $2 billion in cash on hand ATD has, and its ability to borrow about $20 billion. There’s speculation that Canadian pension plans would be a key source of capital in order to get a deal done.

Neither company disclosed the precise terms of the deal, but Couche-Tard described the offer as “friendly, non-binding.” That’s a key differentiator from a “hostile takeover.” (A hostile takeover is when a company tries to purchase more than half of another company’s shares on the free market against the wishes of the targeted company’s management, thus taking over operational control.)

This move is not totally out of the blue for ATD, as the company has taken big acquisitional swings before. The Quebec-based operator has a long history of successfully integrating new acquisitions. Its attempt three years ago to purchase French grocery chain Carrefour for $25 billion was scuttled at the last minute by the French Finance Minister citing food security issues. Similar protectionist governmental instincts could prevent this massive deal from getting done. 

That said, Couche-Tard has been circling (Circle K-ing?) 7-Eleven for over two years now. Perhaps it believes it has what it takes to navigate the new Japanese corporate legal waters and get the deal done.

While there will likely be some nervous customers of 7-Eleven (nobody wants to see change at their favourite corner store), Seven & I Holdings’ shareholders must be happy. Shares were up 22% upon announcement of the proposed acquisition.

1900 vs. 2023 stock markets

It’s always worth keeping the long run in mind when thinking about trends and market forces. When we consider just what an incredible run the U.S. stock market has achieved over the last few years, it’s important to remember that it’s unlikely to continue that outperformance forevermore.

On Tuesday, Statistics Canada stated that the Consumer Price Index (CPI) measured inflation of 2.5% for July. That’s down from 2.7% in June, and is the lowest inflation rate recorded since 2021.

Deceleration in headline inflation led by shelter component , 12-month % change

In fact, if you take shelter out of the equation, we’re getting close to zero inflation. And that’s significant for two reasons:

1. The shelter-inflation rate (primarily a measurement of rent and mortgage expenses) did come down substantially between June and July.
2. As the Bank of Canada (BoC) cuts interest rates, the inflation component of the CPI will inevitably go down as Canadians will have access to mortgages with lower rates.

Notably, passenger vehicle prices were down 1.4% in July. Clothing and footwear was also down by 2.7%. Food and gas were up by 2.7% and 1.9% respectively. British Columbia and New Brunswick had the highest inflation rate growth, while Manitoba and Saksatchewan had the lowest.

It’s pretty clear there’s no longer an overall inflation crisis in Canada. It’s now simply a home affordability issue at this point. Economists were widely predicting that this continuing trend of a downward inflation rate would clear the way for continued interest-rate cuts in the coming months. Money markets are now predicting a 0.25% cut minimum on September 4, with a 4% probability that the cut will be 0.50%. Looking further down the road, those same markets are predicting there is a 76% chance we will see a 2% decrease by October of 2025. 

I hope you locked in those guaranteed investment certificates (GICs) or bonds when you could still snag those high rates Check out MoneySense’s list of the best GIC rates in Canada, and my article on low-risk investments over at MillionDollarJourney.com.

A bullseye for Target

Target Corporation posted a big earnings beat on Wednesday and shareholders saw its shares increase in value by 11.20%. The Minneapolis-based discount retailer is the seventh-largest in the U.S.

Same-store sales for Target grew 3% last quarter, after five straight quarters of declining sales. More purchases of discretionary items like clothing were responsible for the positive reversal to the declining sales trend.

Target’s COO Michael Fiddelke had a very cautious tone, though. “While we’ve been pleased with our performance so far this year, our view of the consumer remains largely the same. The range of possibilities and the macroeconomic backdrop in consumer data and in our business remains unusually high.” And Target CEO Brian Cornell cited price reductions and a value-seeking consumer as reasons for increased foot traffic in the quarter.

It was very much a mediocre earnings report for Lowes, though, as it beat earnings expectations decisively but cut its full-year forecast. Shares were down by about 1% on Tuesday after the earnings announcement. 

Lowe’s CEO Marvin Ellison said consumers were waiting for cuts in interest rates before taking on large home improvement projects. Because 90% of Lowes’ customers are homeowners (as opposed to contractors), they are particularly sensitive to movements in interest rates, he shared. Same-store sales were down 5.1% year over year.

The U.S. is set to cut rates—finally

After much speculation about when the U.S. will finally begin cutting its interest rates, the CME FedWatch tool reports a 100% chance that the U.S. Federal Reserve will cut its rates in September. Market watchers are pretty confident, with a 36% chance that the U.S. Fed will go right to a 0.50% cut instead of nudging the rate down. And looking ahead, the futures market predicts a 100% chance of 0.75% in rate cuts by December this year, with a 32% chance of a 1.25% rate decrease. The forecasts became stronger this week as the annualized inflation rate in the U.S. slowed to 2.9%, its lowest rate since March 2021. There are a lot of percentages here, but the gist is people are expecting big interest rate cuts.

Those probabilities should take some of the currency pressure off of the Bank of Canada (BoC) when it makes its next interest rate decision on September 4. If the BoC were to continue to cut rates at a faster pace than the U.S. Fed, the Canadian dollar would substantially depreciate and import-led inflation would likely become an issue.

Here are some top-line takeaways from the U.S. Labor Department July CPI report:

• Core CPI (excluding food and energy) rose at an annualized inflation rate of 3.2%.
• Shelter costs rose 0.4% in one month and were responsible for 90% of the headline inflation increase.
• Food prices were up 0.2% from June to July.
• Energy prices were flat from June to July.
• Medical care services and apparel actually deflated by 0.3% and -0.4% respectively.

When combined with the meagre July jobs report, it’s pretty clear the U.S. consumer-led inflation pressures are receding. As the U.S. cuts interest rates and mortgage costs come down, it’s quite likely that shelter costs (the last leg of strong inflation) could come down as well.

Walmart: “Not projecting a recession”

Despite slowing U.S. consumer spending, mega retailers Home Depot and Walmart continue to book solid profits.

While Home Depot posted a strong earnings beat on Wednesday, forward guidance was lukewarm, resulting in a gain of 1.60% on the day. Walmart, on the other hand, knocked the ball out of the park and raised its forward guidance and booked a gain of 6.58% on Thursday.

Walmart Chief Financial Officer John David Rainey told CNBC, “In this environment, it’s responsible or prudent to be a little bit guarded with the outlook, but we’re not projecting a recession.” He went on to add, “We see, among our members and customers, that they remain choiceful, discerning, value-seeking, focusing on things like essentials rather than discretionary items, but importantly, we don’t see any additional fraying of consumer health.”

Same-store sales for Walmart U.S. were up 4.2% year over year, and e-commerce sales were up 22%. The mega retailer highlighted its launch of the Bettergoods grocery brand as a way to monetize the trend toward cheaper food-at-home options, and away from fast food. 

Mixed results for Magnificent 7 

The narrative around the Magnificent 7 mega-cap technology stocks has become mixed, even in the face of mostly positive earnings news.

Microsoft stock sold off on Tuesday even after the company narrowly beat Wall Street expectations for its fiscal fourth-quarter results and handily surpassed results from a year ago. Investors have been scrutinizing figures for AI operations in particular; Microsoft’s Intelligent Cloud revenue rose 19% year over year and contributed 8 percentage points of growth to its Azure and other cloud services revenue, which grew 29%. Evidently, that wasn’t enough.

Facebook and Instagram owner Meta Platforms, by contrast, easily bested analyst forecasts for the second quarter. It boosted net income by 73% over the same quarter last year and is gaining advertising market share over archrival Alphabet. Compared to its Mag 7 peers, Meta has been a stock-market laggard since 2022 but undertook a cost- and job-cutting campaign that now appears to be paying off.

Apple likewise surpassed expectations for revenue and earnings, posting particularly strong results in its iPhone and iPad divisions. Cloud services, computers and wearables were in line with estimates.

Amazon was punished after missing the analyst consensus for revenue, even though it beat estimates for earnings. Though Amazon Web Services performance was strong, the company’s core retail and advertising businesses disappointed.

The U.S. Fed stands pat for now

There were no assassination attempts or presidential nominees dropping out of the race for the White House this week. The news out of Washington, D.C. on Wednesday, however, was just as closely watched by markets. 

The U.S. Federal Reserve elected to hold its overnight lending rate at 5.5%. In a statement, the central bank’s Open Market Committee acknowledged signs of a slowing economy but said it would not cut rates “until it has gained greater confidence that inflation is moving sustainably toward 2%.” The market continues to pin its bets on a rate cut in September, which would be the first since 2020.

That leaves the Bank of Canada, which has cut rates in both of the last two months, a full percentage point below the U.S. Fed. The Canadian dollar nonetheless gained slightly against the greenback, at USD$0.72485, in the wake of the announcement, suggesting the policy decision was expected.

Biden’s withdrawal soothes bond market, deflates “Trump trade”

Compared to the way U.S. President Joe Biden’s decision not to run for a second term shook the political world, the markets seemed nonplussed—on the surface, at least. 

Biden’s U-turn took some air out of the “Trump trade” in stock, bond and cryptocurrency markets. Stock markets overall rebounded the day after the announcement, with mega-cap technology stocks leading the way. But oil and gas stocks and cryptocurrencies—foreseen to fare better under a Donald Trump administration—retrenched. 

The Republican nominee is seen as a bigger deficit spender than whomever the Democrats might settle on, so a Trump/Vance administration is expected to usher in higher inflation. That recently translated into a steeper yield curve for bonds as polls showed him ahead of Biden. However, that expectation of Trump as an inevitable shoo-in has now deflated and bond yields have flattened somewhat.

However, Kristina Hooper, chief global market strategist at Invesco, warned investors to stay braced for more short-term volatility, “as the significant uncertainty about the new Democratic ticket might not be resolved until the party’s convention in August.” She also suggested that investors should pay closer attention to the U.S. Federal Reserve moves with respect to interest rates. (More on Canada’s recent rate cut below.)

Something for Canadians and investors to ponder: As a senator, Vice President and Democratic front-runner Kamala Harris voted against the U.S.-Canada-Mexico trade agreement (USMCA), the successor to NAFTA (North American Free Trade Agreement) that was concluded by the Trump administration in 2020. At the time, she cited the lack of environmental protections for her decision.

Bank of Canada cuts rates again

Speaking of monetary policy, on Wednesday Bank of Canada (BoC) governor Tiff Macklem announced a second quarter-point cut to interest rates in as many months bringing the overnight lending rate down to 4.5%. Further, Macklem hinted there would be more cuts to come this year; provided inflation continues to subside towards the Bank’s 2% target. The country’s Consumer Price Index (CPI) increased 2.7% year-over-year in June, down from a 21st-century high of 8.1% two years earlier.

The rate cut was widely expected by markets. 

The BoC is forecasting 1.2% GDP growth this year, 2.1% in 2025 and 2.4% in 2026, which sounds OK until you consider population growth is currently running at 3%. Regardless, the rate cut provides some relief to mortgage holders and support for bond markets.

Inflation continues to fall as temperature rise

As we’re moving through summer’s dog days and heat records are being broken around the world, Canadian inflation is moving in the opposite direction. Statistics Canada released that the year-over-year Consumer Price Index (CPI) increase cooled to 2.7% in June. As inflation continues its downward trend, it generally indicates that the Bank of Canada’s monetary policy is working.

The business and individual sentiment surveys point to decreasing inflation expectations going forward, and are significant indicators that the Bank of Canada (BoC) has succeeded in curbing the scariest runaway inflation scenarios. The early 1980s saw the rise of denim and ultra-high interest rates. While ’80s fashion might be back, it’s pretty clear that the era’s monetary policy isn’t.

Decreased inflation is welcomed news by many Canadians, but it’s probably cold comfort to those with mortgages due for renewal this month. The country as a whole might be happier that demand-pull inflation is down, but that just really means: “People have way less money to spend on most things because their mortgage or rent payments just went through the roof.”

The lower inflation rates and decreased inflation sentiments should empower the BoC to continue to slowly but surely cut interest rates in the coming months. It would be shocking if the BoC didn’t lower interest rates by 0.25% when it makes its decision next week.

To check out the effects of inflation rates right now, use this table. 

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Read more: Canada’s inflation rate falls to 2.7% in June, driving hopes for July rate cut

Netflix subscribers must be nostalgic for TV commercials

Earnings day went largely as predicted for Netflix last Thursday, as earnings and revenues were quite close to the company’s guidance last quarter.

Netflix sold more memberships than was predicted (277.65 million versus 274.40 million). The bulk of that subscriber growth was in its advertising-supported platform. The markets seemed to take the news in stride, as share prices were largely flat in after-market trading.

Netflix co-CEO Ted Sarandos highlighted the company’s focus on ads going forward, saying that the streamer would no longer partner with Microsoft. Instead, it’s investing in its own platform. He also mentioned that Netflix’s push into live sports would attract more ad dollars, specifically mentioning the NFL games on Christmas Day as important opportunities. He summed up the company’s push into live sports saying, “We’re in live [TV] because our members love it, and it drives a ton of engagement and a ton of excitement… and the good thing is advertisers like it for the exact same reason.”

With Netflix up over 43% this year, and at a price to earnings (P/E) ratio of over 44, one could make the argument the stock is priced appropriately, and that it will have to expertly execute future growth plans to have any chance of justifying that high price tag.

Are U.S. rate cuts on the way?

While Canada’s inflation rate is obviously at the forefront around decision making for the Bank of Canada (BoC) in setting the key interest rate, inflation below the border is also a major consideration. Arguably, policymakers are loath to devalue the Canadian dollar beyond a certain level. Consequently, if U.S. inflation stays high—and U.S. interest rates correspondingly stay high—it will likely impact just how quickly the BoC can cut our interest rates.

“The Canadian and American economies are very closely intertwined, especially when it comes to the cost of borrowing. Historically the BoC and the Fed have mirrored each other in terms of monetary policy (the act of cutting, holding, or hiking their benchmark interest rates).”

—Penelope Graham, mortgage expert

Markets were mostly flat on Thursday after the U.S. Bureau of Labor Statistics announced that headline CPI was down 0.1% from May, and the 12-month inflation reading was now 3%.

Overall, the down-trending inflation rate, as well as Fed Chairman Jerome Powell’s comments about holding interest rates too high for too long this week, both seem to indicate a probable rate cut in September. CME Group’s FedWatch tracker uses futures contracts to predict the likelihood of interest rate movements, and it currently shows a strong likelihood of two interest rate cuts before the end of 2024. There is even a 40% probability of three cuts before year end.

Obviously this is welcome news to indebted Americans, but also to Canadian consumers who want to see interest rates come down here sooner rather than later.

—Kyle Prevost

Pepsi’s revenues taste flat

Beverage-and-snack behemoth PepsiCo released lukewarm earnings news on Thursday. For those who aren’t familiar with Pepsi’s corporate structure, it long ago ceased to be a single-beverage entity. With brands ranging from numerous snack and soft drink choice to breakfast cereals, Pepsi is a diversified food conglomerate, including FritoLay and Quaker.

The company cited a declining demand in North America as the main factor in slowing revenue growth. Company executives explained that North American consumers were becoming more price conscious after failing to “push back” on significant price increases over the last few years. Low-income shoppers were highlighted as being the most willing consumer group to shift to cheaper private-label options. As well, increasing agricultural commodity costs were cited as an increasing operating expense. It’s worth noting that some market watchers believe weight-loss drugs, such as Ozempic and Wegovy, may curb demand for snack foods in the North American market.

FritoLay’s North America sales were down 4% year over year, while North American beverages were down 3%. Those sales declines were offset by international revenue increasing by 7% year to date. Management highlighted that this was the 13th straight consecutive quarter with at least mid-single-digit organic revenue growth for international operations.

Prediction: Tesla will finish the year down 30%

Let’s wait and see how this one goes. If I wrote this column a week ago, I would have said Tesla looked like an excellent bet to be down 30% by year end. But shares jumped more than 10% this week on its positive second-quarter news. Despite the high numbers for vehicle deliveries, it has been a volatile year for Tesla shareholders, with prices down 42% at one point. Our central thesis was that decreased profit margins and increased competition would lead to lower profit projections. That still feels solid to me. 

Prediction: Crypto might be volatile, but could finish 2024 up 50%

This one hit the bullseye. After going on a tear in February, bitcoin was down almost 20% between mid-March and the beginning of May. 

Overall, bitcoin only has to go up slightly over the next six months to meet that 50% return prediction. Of course, I believe the asset will be ultimately worth very little in the long term. Admittedly, I’m quite skeptical about crypto.

Prediction: U.S. election in November will be chaotic

We also predicted that this election year would be more chaotic than most, even though U.S. election years are historically quite positive for U.S. stock markets. We shied away from making too many specific predictions about how a Biden/Trump victory would impact stock-market prices, but said many market-watchers would be cheering for a split government. 

Well, it’s certainly been chaotic in the headlines. As the rest of the world watches in disbelief, the 2024 U.S. election has so far proven to be the most volatile campaign in recent memory—and maybe of all time. At this point, betting markets think it’s a coin toss as to whether Biden even makes it as the Democratic Party nominee. Ordinarily, a political candidate running against a convicted felon would be an easy win. Then again, ordinarily, a candidate running against an incumbent whose own party isn’t sure he’s still right for the job would be an easy win as well.

Given all the variables, we don’t even know how to measure the degree of accuracy of this prediction. We did reluctantly predict a very slim Biden victory, and that doesn’t look like such a great prognostication now that Trump is a fairly strong betting favourite. However, our strong feeling was that a split government would lead to a robust end of the year for U.S. stocks. That scenario could still be very much in play. We’re going to wait to fully assess this one.

What’s left of 2024?

After a very accurate round of 2023 predictions, we were statistically unlikely to repeat the feat in 2024. While we may have called it wrong about U.S. tech, I think there’s a good chance we’re going to get the big picture stuff right—by the end of the year. Despite a ton of negative headlines and general “bad vibes” over the last six months, one of my big takeaways is that the world’s stock markets (and especially America’s) should continue to reward patient Canadian investors.

Read more about investing:

About Kyle Prevost

Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.

If the summer heat doesn’t get you, inflation will

Canadians hoping for interest rate relief will likely have to wait a bit longer. The Consumer Price Index (CPI) reading for May came in at 2.9%, according to Statistics Canada. 

The money markets predict a 45% chance that the Bank of Canada (BoC) will cut rates at its July 24 meeting. Lowering interest rates after a month of renewed inflation worries would carry a large credibility risk for the BoC, after it raised rates so quickly to restore faith that it would tame inflation over the long term.

We’re sure the BoC was hoping for inflation to be closer to 2.5%, which would allow it to justify cutting interest rates and point to a stronger downward trend for inflation. Continuing to balance long-term growth and full employment versus controlled inflation isn’t going to get easier anytime soon for BoC governor Tiff Macklem and his team. 

For now, savers will continue to benefit from higher interest rates, like those of guaranteed investment certificates (GICs) and high-interest savings accounts (HISAs), while borrowers keep hoping for relief sooner rather than later. And, of course, to read about how to invest in a high-inflation world, see our article on the best low-risk investments at MillionDollarJourney.com.

FedEx delivers, Nike just doesn’t do it

It was a tale of two extremes in U.S. earnings this week as FedEx shareholders became quite happy, while Nike investors were down in the dumps.

Nike finance chief Matthew Friend found himself in an odd position on his earnings call with analysts on Thursday. On one hand, Nike’s effort to reduce costs by shedding 1,500 jobs is paying off, and earnings per share came in substantially higher than experts predicted. On the other hand, declining sales in China and “increased macro uncertainty” were cited as reasons for a predicted sales drop of 10% in the next quarter. Investors chose to see the half-empty part of the glass, as shares plunged more than 12% in after-hours trading.

Friend attempted to put the downward forecast in perspective: “While our outlook for the near term has softened, we remain confident in Nike’s competitive position in China in the long term.” Nike highlighted running, women’s apparel and the Jordan brand as growth areas to watch going forward.

FedEx had a much better day, as shares were up more than 15% after it announced earnings on Tuesday. Future earnings projections were up on the news of increased cost-cutting efforts that will save the company about $4 billion over the next two years. FedEx announced possible increased profit margins as a result of consolidating its air and ground services.

Cash-strapped consumers pinch Couche-Tard

Canada’s 13th-largest company, the gas and convenience store empire known as Alimentation Couche-Tard, announced its earnings on Tuesday.

We’re building more houses—and prices are down!

On Monday, the Canada Mortgage and Housing Corporation announced housing starts rose from 241,111 units in April to 264,506 units in May: good for a 10% increase. The pace was highest in Montreal, where starts were up 104%, and in Toronto, they were notably up 47%. That’s a pretty good clip, considering how high interest rates are at the moment.

While it would be statistically correct to say that this level of housing starts is near historically high levels, that doesn’t quite tell the whole story.

To get a more accurate historical perspective, we should consider the housing starts per capita over the years. After all, Canada’s higher population should mean more capital, carpenters, electricians and other factors of production that go into housing creation, right?

Perhaps we’re moving in the right direction, but we’ll need a major uptick in housing starts before we have proportionately the same housing creation numbers as we did back in the heyday of the 1970s. Many young Canadians are hoping recent government incentives will spur more housing development sooner rather than later.

While there is more housing supply on the way, it appears that high interest rates continue to affect the current market. This week, the Canadian Real Estate Association released data that revealed total Canadian home sales were down nearly 6% in May on a year-over-year basis. The average home price slipped to $699,117, down 4% from May 2023 and about 14.4% from its peak in February 2022.

While the small interest rate cut earlier this month may spark some renewed appetite in the real estate market, it’s notable that the number of newly listed properties has jumped 28.4% from this time last year. As more mortgage renewals start to come up, it will be interesting to see which force is stronger: the increase in demand as mortgage rates decrease, or the continued softening of the market as more folks are forced to list houses they can no longer afford (as well as more new units being added).

What does the average Canadian buy?

Each month, Statistics Canada produces  an inflation report based on the consumer price index (CPI), a representative “basket” of goods and services across eight categories (food, shelter, transportation, etc.) whose prices are tracked over time. Most of us simply accept that the CPI is a good measurement to go by, while others think it’s out of touch with reality. This week, the CPI got its annual update, after the Statistics Canada team looked at how average consumer preferences have changed over the last 12 months. 

The CPI can’t stay the same from year to year because what we buy changes significantly over time. Consequently, measuring inflation with exactly the same goods from years ago doesn’t make much sense. For example, compact discs and videocassettes would have been part of the CPI basket back in my childhood—probably not so much today. Here are some of the more notable changes:

It appears the rising AI tide continues to lift all boats in the U.S. tech sector.

Deal-seeking customers power Dollarama

It was a quiet week for Canadian earnings announcements, with Dollarama (DOL/TSX) being the only large company to release quarterly results. Some Canadian investors might not realize that this humble dollar store is actually the 33rd biggest company in Canada, making it larger than Telus, Rogers or Fortis.

Comparable store sales were up 5.6%, and there are plans to add 60 to 70 new stores to the list of 1,551 existing Canadian stores. 

“As anticipated, we are seeing a progressive normalization in comparable store sales, with growth primarily driven by persistent higher than historical demand for core consumables and other everyday essentials.”

– Neil Rossy, Dollarama CEO 

Despite the positive news, share prices dropped on the heel of news for an aggressive expansion under the Dollarcity subsidiary in Latin America. The $761.7 million investment grows Dollarama’s total equity from 50.1% to 60.1%. 

“We look forward to preparing for entry in Mexico in the near term, a large and dynamic market with untapped potential in the value retail space, guided by the same careful and disciplined approach as with our successful entries in Colombia in 2017 and in Peru in 2021.”

– Neil Rossy, Dollarama CEO 

Long-term Dollarama shareholders are probably quite happy despite the pullback, as the stock is up a scorching 26% year to date, and 42% over the last 12 months.

Read: “Dollarama earnings report and upcoming growth”

Stock splits for Nvidia and Canadian Natural Resources

If you were recently looking at the stock prices of Canada’s sixth largest company, Canadian Natural Resources (CNQ/TSX), and the world’s third largest company, Nvidia (NVDA/NASDAQ), you might be alarmed to see steep price declines. No need to panic; this is simply the result of stock splits. (Read: “What does Nvidia’s stock split mean for Canadian investors?”)

Early this week, CNQ executed a 2-for-1 stock split, and Nvidia executed a 10-for-1 stock split. (Broadcom also announced that it too would be undertaking a 10-for-1 stock split in the near future.)

“The Big Cut”

While The Big Short film is a riveting watch, “The Big Cut” may be even more enthralling. 

The Bank of Canada (BoC) made the decision to cut its key interest rate to 4.75% on Wednesday. It’s the first rate cut since March 2020. With about $700 million worth of mortgages coming up for renewal in Canada this year, “The Big Cut” is going to affect a lot of Canadians.

“We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the 2% target has increased over recent months.”

– BoC Governor Tiff Macklem 

Macklem also said: “Total consumer price index inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.”

However, in the tradition of central bankers the world over, Macklem was also careful to speak using neutral language, pointing out that the BoC was going to take things “one meeting at a time.” He added “We don’t want monetary policy to be more restrictive than it needs to be to get inflation back to target. But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made.”

While the BoC was the first G7 country to begin cutting interest rates, the European Central Bank followed suit on Thursday, cutting its key interest rate from 4% to 3.75%. Market experts are speculating that the BoC will cut interest rates three or four more times in 2024. (There are four announcements left on the BoC interest rate schedule).

The BoC (as well as many other central banks) have taken a lot of flak over the last couple of years. But if they manage to cut interest rates, get the economy growing again, and avoid resurgent interest rates, then they deserve a hand. Such a Goldilocks scenario would certainly qualify as a “soft landing” by most economists’ definitions.

If the BoC manages to slowly cut interest rates, while managing to get the economy growing again—all without supercharging inflation—that would certainly qualify as a “soft landing” by most economists’ definitions. 

Lululemon stops its share price slide, Nvidia skips past Apple

It was a relatively slow week for earnings news, but Canadian retailers Lululemon and the North West Company let investors know how they did last quarter. Note: Lululemon releases its earnings numbers in U.S. dollars, while the North West Company releases its earnings in CAD. You might remember the North West Company from your history textbooks, as the Winnipeg-based grocery chain is significantly older than Canada (1779 versus 1867).

Lulu shared a mostly positive earnings report and saw its share price rise 8% on Wednesday. This was welcome news for shareholders who have watched the stock go down over 36% year to date. Shares of the North West Company were flat the day after announcing earnings that were in line with expectations. (Read more about Lululemon’s earning report.)