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Peloton (PTON) Misses Big, Gap (GPS) Beats & Raises

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It was a give-back day in the markets this Thursday, just as it had begun shaping up ahead of jobless claims at Q2 GDP revision data this morning. The S&P 500 and the Nasdaq were both coming off 5-day winning streaks and multiple record-high closing prices; the Dow was up 4-straight and within 1% of its own record closing high. Stocks in all three indexes closed near session lows.

Down -0.54% on the day, the Dow swung to a negative from today’s opening bell. Analysts may consider today’s weaker trading (on still-lighter trading volume, owing to the late weeks of summer) as something of a hesitation ahead of tomorrow’s Jackson Hole summit address from Fed Chair Jerome Powell. Nasdaq had reached a new intra-day high before sliding back under at the bell. The S&P had gained around 20% year to date; it was time for a small early harvest.

Peloton (PTON - Free Report) shares are getting hit hard in the aftermarket today, missing on its fiscal Q4 bottom line by a wide margin: -$1.05 per share versus -46 cents expected (and -27 cents per share reported in the year-ago quarter). Revenues of $937 million did surpass the $925.2 million in the Zacks consensus. Gross Margins reached 27%, which was lower than the 35% anticipated.

Shares are down more than -13% in late trading on the news, particularly on a newly announced price cut to its bike. This, following shrinking gross margins (which are now guided lower for the full fiscal year), looks to have sent many investors out of the stock. Although Connected Fitness Subscriptions grew +114% in the quarter to 2.33 million, paid digital subscriptions were lower than expected, as well.

Zacks Rank #2 (Buy)-rated The Gap (GPS - Free Report) , on the other hand, easily toppled expectations on its Q2 top and bottom lines Thursday afternoon, with earnings of 70 cents per share far outshining the 47-cent estimate. Sales of $4.21 billion in the quarter improved over the expected $4.17 billion, up roughly +30% year over year. This is The Gap’s highest Q2 sales in more than a decade.

Further, we see comps up +12% from the same-store sales from 2019, the last reasonably comparable quarter. Gross Margins were better than expected at 43.3%, with second-half guidance strong on the performance of Old Navy and Athleta. Guidance for full-year earnings is raised to $2.10-2.25 per share from the Zacks consensus $1.81 per share, with revenues expected to grow +30% year over year.

It’s the final days of calendar Q2 earnings season, and it is unlikely any company’s numbers yet to come will have the impact on the market that tomorrow’s Jackson Hole speech from Fed Chair Powell might. Next week brings in our final 5-day trading sequence before Labor Day, which is a week from this coming Monday. We hope markets can remain at or exceed current levels based on their absorption of Fed policy indications tomorrow.

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