Macy’s warns holiday-quarter sales will come in light

Macy’s flagship store in Herald Square in New York, Dec. 23, 2021.

Scott Mlyn | CNBC

Macy’s on Friday warned its holiday-quarter sales will come in on the lighter side, saying consumers’ budgets are under pressure and that it anticipates that squeeze to continue into this year.

The department store operator said net sales are now expected to be at the low- to mid-point of its previously expected range of $8.16 billion to $8.4 billion. It expects adjusted diluted earnings per share to be in the previously issued range of $1.47 to $1.67.

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For the year-ago period, Macy’s reported revenue of $8.67 billion and adjusted earnings per share of $2.45.

Shares of the company fell more than 4% in aftermarket trading Friday.

Macy’s is the latest retailer to provide clues about the consumer, as investors await holiday results and look for signs of whether demand is holding up as inflation remains high.

CEO Jeff Gennette said Macy’s put up strong Black Friday and Cyber Monday sales and saw strength in gift-giving and occasion apparel, but “the lulls of the non-peak holiday weeks were deeper than anticipated.”

He said in a news release that the retailer, which includes higher-end department store chain Bloomingdale’s and beauty chain Bluemercury, has taken action to prepare for a year that may be tougher. For instance, he said, it has closely managed its inventory so it can stay nimble and has the merchandise that customers want.

Bloomingdale’s and Bluemercury outperformed the rest of the business, Gennette said, and the company expects gross margins for the holiday season will be about in line with expectations.

Total end-of-quarter inventories are on track to be slightly below last year and down by the mid-teens compared with 2019, Macy’s said.

As it orders inventory, Gennette said it is using customer data to pick the merchandise that will sell and caters to customers who are looking for fashionable items and also seeking value.

But the retailer anticipates a more challenging sales environment ahead, Gennette said.

“Based on current macro-economic indicators and our proprietary credit card data, we believe the consumer will continue to be pressured in 2023, particularly in the first half, and have planned inventory mix and depth of initial buys accordingly.”

Macy’s shared a preview of fourth-quarter expectations ahead of the ICR Conference. Gennette, Macy’s Chief Financial Officer Adrian Mitchell and Chief Merchandising Officer Nata Dvir, will participate in the investor conference next week.

The company will report its holiday-quarter and full fiscal-year results in early March.

Markets rally on signs inflation abating look to consumer price data

Tourists are lined up for taking photos by the Charging Bull Statue in the financial district of New York City, United States on August 16, 2021.

Tayfun Coskun | Anadolu Agency | Getty Images

Markets closed out the first week of 2023 on a high note, with the S&P 500 closing up more than 2%, as stocks rallied on fresh signs inflation may be easing.

McDonald’s plans reorganization, job cuts as it accelerates restaurant openings

Noam Galai | Getty Images Entertainment | Getty Images

McDonald’s is planning job cuts and a reorganization as the company refocuses its priorities to accelerate restaurant expansion, CEO Chris Kempczinski told employees Friday.

The fast-food giant said the job cuts aren’t a cost-cutting measure but are instead intended to help the company innovate faster and work more efficiently. As part of the reorganization, the company will be deprioritizing and halting certain initiatives, according to a company-wide memo from Kempczinski. It’s unclear what those projects are.

“Today, we’re divided into silos with a center, segments, and markets,” Kempczinski wrote. “This approach is outdated and self-limiting – we are trying to solve the same problems multiple times, aren’t always sharing ideas and can be slow to innovate.”

Currently, McDonald’s organization is divided into three segments: the U.S., international operated markets and international developmental licensed markets. The company operates in 169 markets across the world.

Additionally, McDonald’s said Friday it will speed up its development plans for new restaurants.

“We must accelerate the pace of our restaurant openings to fully capture the increased demand we’ve driven over the past few years,” Kempczinski said in the memo.

McDonald’s hadn’t previously released a forecast for how many new restaurants it plans to build in 2023, but the company said in November that new units would contribute about 1.5% to system-wide sales growth in 2022.

The company has not decided how many new restaurants it will build yet nor how many jobs will be eliminated as part of the reorganization. Kempczinski said that the company will finalize and begin to communicate decisions on the layoffs by April 3.

Kempczinski also announced a handful of internal promotions, effective Feb. 1, to help the company carry out its new strategy. Global Chief Marketing Officer Morgan Flatley will also oversee new business ventures. Skye Anderson will move from McDonald’s U.S. west zone to global business services. Andrew Gregory’s role as global franchising officer will also include leading global development, and Spero Droulias will transition from CFO of McDonald’s USA to the company’s chief transformation officer.

Shares of McDonald’s were up more than 2% in late trading Friday. The company is expected to report its fourth-quarter earnings on Jan. 31.

FDA decision on Biogen, Eisai treatment lecanemab

MRI image of brain showing area of Alzheimer patient.

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The Food and Drug Administration on Friday granted accelerated approval for the Alzheimer’s drug lecanemab, developed by Biogen and the Japanese pharmaceutical company Eisai.

The FDA’s approval comes after clinical trial results published in November indicated that lecanemab slows cognitive decline somewhat in people with mild impairment due to Alzheimer’s disease, but the treatment also carries risks of brain swelling and bleeding.

The agency can accelerate approval of a drug to quickly bring it to market if it’s expected to help patients suffering from serious conditions more than what is currently available. Biogen and Eisai, which developed the drug together, applied for accelerated approval in July.

“Alzheimer’s disease immeasurably incapacitates the lives of those who suffer from it and has devastating effects on their loved ones,” said Dr. Billy Dunn, director of the FDA’s neuroscience division, in a statement. “This treatment option is the latest therapy to target and affect the underlying disease process of Alzheimer’s, instead of only treating the symptoms of the disease.”

The decision on lecanameb comes after Congress issued a scathing report last week about how the FDA handled the controversial approval of another Alzheimer’s drug developed by Biogen and Eisai, called Aduhelm. The 2021 approval of that treatment, which experts said did not show a clear clinical benefit, was “rife with irregularities,” according to the report.

The congressional report said the “FDA must take swift action to ensure that its processes for reviewing future Alzheimer’s disease treatments do not lead to the same doubts about the integrity of FDA’s review.”

Lecanemab is a monoclonal antibody that targets a protein called amyloid which builds up on the brain in people with Alzheimer’s. The antibody is administered intravenously every two weeks in doses determined by a patient’s body weight with 10 milligrams given per kilogram.

The clinical trial results, published in the New England Journal of Medicine, found that cognitive decline was 27% slower over 18 months in people who received lecanemab compared with those who did not receive the treatment. The study was funded by Biogen and Eisai.

Cognitive decline was measured using a system called the clinical dementia rating, which is an 18-point scale with a higher score indicating a greater level of impairment. It measures cognitive functions such as memory, judgement and problem solving.

Alzheimer’s disease progressed 1.21 points on average in the group that received lecanemab compared with 1.66 points in the group that did not receive the treatment, a modest difference of 0.45 points.

Nearly 1,800 people ages 50 to 90 years old with early Alzheimer’s participated in the trial, about half of whom received lecanemab and half of whom did not.

Safety concerns

Though lecanemab may slow cognitive decline somewhat, the treatment also carries risks.

Nearly 13% of those who received lecanemab developed brain swelling compared with about 2% in the group that didn’t receive the treatment. However, most of these cases were mild to moderate in severity, did not cause symptoms, and typically resolved within four months.

About 3% of patients who received lecanemab had more serious brain swelling with symptoms that included headache, visual disturbance and confusion.

About 17% of those who received lecanemab had brain bleeding, compared with 9% in the group that did not take the treatment. The most common symptoms associated with the bleeding was dizziness.

Overall, 14% of people who received lecanemab suffered serious adverse events in the clinical trial, compared with 11% of those who did not receive the treatment.

The authors of the study said longer clinical trials were needed to determine the efficacy and safety of lecanemab in patients with early Alzheimer’s disease.

The death of a clinical trial participant in the Chicago area could also possibly be linked to lecanemab, according to a research letter published in the New England Journal of Medicine this week.

The 65-year-old suffered a stroke and was hospitalized four days after their third lecanemab infusion. A CT scan performed after the patient’s stroke found extensive bleeding in the brain. An MRI performed 81 days before the stroke had not found any bleeding.

The patient had also received a medication, called t-PA, used to break apart blood clots that cause strokes. But extensive brain bleeding would be an unusual complication of this medication alone, according to the physicians who penned the research letter.

Researchers involved in the lecanemab clinical trial, in a response letter, argued that the blood clot medication appeared to be the immediate cause of the patient’s death, with the first symptoms occurring 8 minutes after they received an infusion of the blood-clot buster.

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U.S. sanctions Iran over drones used in Russia’s war on Ukraine

A drone flies over Kyiv during an attack on Oct. 17, 2022, amid the Russian invasion of Ukraine.

Sergei Supinsky | Afp | Getty Images

WASHINGTON — The Biden administration on Friday announced a slew of fresh sanctions and additional measures targeting Iran’s aviation and defense sector, as Washington ups the ante in its campaign against Tehran for supplying Moscow with weapons for its war on Ukraine.

The Treasury Department imposed sanctions on six executives and board members from Iran’s Qods Aviation Industries, the country’s top defense manufacturer, for producing unmanned aerial vehicles. Tehran has transferred UAVs to Russia for use on the battlefield across Ukraine, according to the Treasury.

The administration also designated Nader Khoon Siavash, director of Iran’s Aerospace Industrial Organization, for his work in overseeing the country’s ballistic missile program. In addition, the Treasury also imposed sanctions on Qods Aviation Industries Chairman Seyed Hojatollah Ghoreishi, managing director Ghassem Damavandian, board members Hamidreza Sharifi-Tehrani, Reza Khaki, Majid Reza Niyazi-Angili and Vali Arlanizadeh.

“The Kremlin’s reliance on suppliers of last resort like Iran shows their desperation in the face of brave Ukrainian resistance and the success of our global coalition in disrupting Russian military supply chains and denying them the inputs they need to replace weapons lost on the battlefield,” wrote Secretary of the Treasury Janet Yellen in a release.

“The United States will act swiftly against individuals and entities supporting Iran’s UAV and ballistic missile programs and will stand resolutely in support of the people of Ukraine,” she added.

People walk past cars damaged during Ukraine-Russia conflict in the southern port city of Mariupol, Ukraine April 21, 2022.

Alexander Ermochenko | Reuters

In recent months, Moscow has carried out devastating missile and drone strikes against what Ukraine said were civilian targets as well as critical infrastructure such as energy facilities. The Kremlin has repeatedly denied that it uses Iranian-made drones in Ukraine and that it targets residential and other high civilian areas.

In a separate statement, U.S. Secretary of State Antony Blinken said, “Iran has now become Russia’s top military backer.”

“Iran must cease its support for Russia’s unprovoked war of aggression in Ukraine, and we will continue to use every tool at our disposal to disrupt and delay these transfers and impose costs on actors engaged in this activity,” the nation’s top diplomat added.

Following the series of punishing drone strikes, NATO Secretary-General Jens Stoltenberg announced that the 30-member alliance would send drone-jamming equipment to Ukraine.

Kyiv has meanwhile invited United Nations experts to inspect what it says are downed Iranian drones in Ukraine.

Some U.N. Security Council members have argued that by providing Russia with drones, Iran has violated a 2015 resolution.

The Security Council resolution, known as 2231, prohibits the transfer “of all items, materials, equipments and goods and technology” from Iran to another nation unless it is approved in advance by the council on a case-by-case basis.

Tehran has rejected this claim.

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Inflation euro zone December 2022 drops as energy costs ease

Inflation in Europe has been impacted by higher energy prices and supply shortages. Analysts question how far central banks will go to bring inflation under control.

Bloomberg | Bloomberg | Getty Images

Inflation in the euro zone dropped for a second consecutive month in December, but analysts do not expect it to spark a change in tone from the European Central Bank.

Headline inflation, which includes food and energy costs, came in at 9.2% year on year in December, according to preliminary data Friday from the European statistics agency, Eurostat. It follows November’s headline inflation rate of 10.1%, which represented the first slight contraction in prices since June 2021.

The euro area economy has come under immense pressure in the wake of Russia’s invasion of Ukraine in February 2022, with energy and food costs soaring last year. In an effort to battle rising prices, the European Central Bank increased interest rates four times in 2022 and said it is likely to continue doing so this year. The bank’s main rate currently sits at 2%.

Despite further signs that inflation is easing, analysts say it is too early to celebrate and do not expect a pivot from the region’s central bank.

Interest rates will “get to 3(%) and probably have to hold that all through the year even as the recession becomes more and more evident,” Hetal Mehta of Legal & General Investment Management told CNBC’s “Street Signs Europe” on Thursday.

It comes after ECB President Christine Lagarde struck a particularly hawkish tone in December: “We’re not pivoting, we’re not wavering, we are showing determination.” She added that the bank has “more ground to cover.”

The ECB cannot and will not base its policy decisions on highly volatile energy prices.

Carsten Brzeski

global head of macro, ING Germany

Speaking earlier this week, ECB Governing Council member and Bank of France Governor Francois Villeroy de Galhau said interest rates might peak by this summer.

The ECB also said in December that it will start reducing its balance sheet in March at a pace of 15 billion euros ($15.8 billion) per month until the end of the second quarter. This step is also expected to address some of the region’s inflationary pressures.

At the time, the central bank forecast an average inflation rate of 8.4% for 2022, 6.3% for 2023 and 3.4% for 2024. The ECB’s mandate is to work toward a headline inflation figure of 2%.

Earlier this week, data out of Germany showed inflation dropping from 10% in November to 8.6% in December.

Carsten Brzeski, global head of macro at ING Germany, said these numbers “are not a relief, yet, only a reminder that euro zone inflation is still mainly an energy price phenomenon.”

Energy costs have dropped in Europe in recent months. Natural gas prices, for instance, traded at around 72.42 euros per megawatt hour on Friday — sharply lower than their peak of 349.90 euros per megawatt hour in August.

Among inflation components, energy continued to represent the biggest driver in December, but came off from previous levels. Energy costs dropped from 34.9% in November to an estimated 25.7% in December, according to the latest figures.

“The ECB cannot and will not base its policy decisions on highly volatile energy prices. Instead, the central bank will, in our view, hike interest rates at the next two meetings by a total of 100 basis points,” Brzeski said in a note.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, also said in a note this week that he sees “little relief” in the inflation data, “which will keep the ECB on alert at the start of the year.” He expects two rate hikes of 50 basis points in the first quarter.

In terms of national breakdown, the Baltic nations once again registered the highest jumps in inflation, with a rate of about 20%.

S&P Global Market Intelligence: Fears of soaring inflation and energy crunch alleviating

Nonfarm payrolls rose 223,000 in December, as strong jobs market tops expectations

Employers added 223,000 jobs in December, signaling a healthy job market

Payroll growth decelerated in December but was still better than expected, a sign that the labor market remains strong even as the Federal Reserve tries to slow economic growth.

Nonfarm payrolls increased by 223,000 for the month, above the Dow Jones estimate for 200,000, while the unemployment rate fell to 3.5%, 0.2 percentage point below the expectation. The job growth marked a small decrease from the 256,000 gain in November, which was revised down 7,000 from the initial estimate.

Wage growth was less than expected in an indication that inflation pressures could be weakening. Average hourly earnings rose 0.3% for the month and increased 4.6% from a year ago. The respective estimates were for growth of 0.4% and 5%.

By sector, leisure and hospitality led with 67,000 added jobs, followed by health care (55,000), construction (28,000) and social assistance (20,000).

Stock market futures rallied following the release as investors look for signs that the jobs picture is cooling and taking inflation lower as well.

“From the market’s perspective, the main thing they’re responding to is the softer average hourly earnings number,” said Drew Matus, chief market strategist at MetLife Investment Management. “People are turning this into a one-trick pony, and that one trick is whether this is inflationary or not inflationary. The unemployment rate doesn’t matter much if average hourly earnings continue to soften.”

The relative strength in job growth comes despite repeated efforts by the Fed to slow the economy, the labor market in particular. The central bank raised its benchmark interest rate seven times in 2022 for a total of 4.25 percentage points, with more increases likely on the way.

Primarily, the Fed is looking to bridge a gap between demand and supply. As of November, there were about 1.7 job openings for every available worker, an imbalance that has held steady despite the Fed’s rate hikes. The strong demand has pushed wages higher, though they mostly haven’t kept up with inflation.

December’s wage data, though, could provide some encouragement that the Fed’s efforts are impacting demand.

“There’s some indication that things are moving in the right direction. We’re seeing the impact of the blunt tools of monetary policy take effect,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office. “I don’t think this is going to sway the Fed from a few additional raises going forward, but it no doubt is encouraging to see a moderation in wages.”

The drop in the unemployment rate came as the labor force participation rate edged higher to 62.3%, still a full percentage point below where it was in February 2020, the month before the Covid-19 pandemic hit.

A more encompassing measure of unemployment that takes into account discouraged workers and those holding part-time jobs for economic reasons also declined, falling to 6.5%, its lowest-ever reading in a data set that goes back to 1994. The headline unemployment rate is tied for the lowest since 1969.

The household count of employment, used to calculate the unemployment rate, showed a huge gain for the month, rising 717,000. Economists have been watching the household survey, which has generally been lagging the establishment count.

The U.S. heads into 2023 with most economists expecting at least a shallow recession, the result of Fed policy tightening aimed at tamping down inflation still running near its highest level since the early 1980s. However, the economy closed 2022 on a strong note, with GDP growth tracking at a 3.8% rate, according to the Atlanta Fed.

Fed officials at their last meeting noted that they are encouraged by the latest inflation readings but will need to see continued progress before they are convinced that inflation is coming down and they can ease up on rate hikes.

As things stand, markets are largely expecting the Fed to increase rates another quarter-percentage point at its next meeting, which concludes Feb. 1.

Delta plans to offer free Wi-Fi starting Feb. 1

Delta CEO announces free in-flight Wi-Fi

Delta Air Lines will offer travelers free Wi-Fi starting Feb. 1, after years of studying the possibility.

About 80% of Delta’s domestic fleet will offer the service next month, but it will become available on more planes each week, CEO Ed Bastian said during a presentation at the Consumer Electronics Show in Las Vegas on Thursday.

Delta said in a release later Thursday that its free Wi-Fi, which is through a sponsorship from T-Mobile, will be available on more than 700 planes by the end of 2023 and on international and regional aircraft by the end of next year.

“It’s free. There’s no fine print,” Bastian said. “We have invested over $1 billion to create this.”

Delta’s plan to make internet access free will ramp up pressure on rivals as airlines compete for customers in the travel rebound following the Covid pandemic slump nearly three years ago. Delta executives have repeatedly said that the airline is aiming for higher-paying customers and that revenue from premium cabins like business class has outpaced revenue growth in standard coach.

The passenger cabin on a Delta Boeing 737-900ER is shown while landing in Salt Lake City, Utah.

Mike Blake | Reuters

Travelers will access the free internet service by logging in with their Delta SkyMiles frequent flyer account information, Bastian added. Though passengers will need a SkyMiles account, it’s free to become a member.

Delta last March said it was outfitting more of its planes with fast Wi-Fi from Viasat and made it available for a $5 flat fee. The carrier already offers free messaging.

Most airlines charge for Wi-Fi: United Airlines charges $8 for members of its frequent flyer program and $10 to other customers, and Southwest Airlines charges $8. It’s free on JetBlue, which has some corporate sponsorships for the service, and Hawaiian Airlines is planning to offer free internet with SpaceX’s Starlink this year.

American Airlines‘ Wi-Fi service starts at $10 and varies depending on the route, though last April, the carrier and its provider, Viasat, started trialing free Wi-Fi for some customers.

Airline executives have been hesitant to offer free Wi-Fi service until it is more reliable.

Delta also said Thursday it will unveil new in-flight entertainment systems, starting this summer. Passenger preferences “will travel with you from flight to flight, and even remember where you left off on a movie,” the airline said in a release.

The company is working with Paramount+ for passenger entertainment, as well as American Express, Delta’s partner in its lucrative co-branded credit card line, and the card company’s reservations platform Resy as the airline banks on personalization and partnerships outside of flights, from food to ground transportation.

The airline has loyalty partnerships with Starbucks and Lyft, among others.

Sell-offs hit UK equity funds hardest in 2022 as ESG gained

People walk along Waterloo Bridge past the City of London skyline, the capital’s financial district. U.K.-focused equity funds saw record outflows in 2022.

Sopa Images | Lightrocket | Getty Images

LONDON — Investors ditched U.K. stock funds at a record rate last year, according to new research, with the selling outpacing that in other major markets.

Funds network Calastone reported Thursday that there were total outflows of £8.38 billion ($9.95 billion) from U.K.-focused equity funds in 2022 — the worst in its eight years of recording the data. Equity funds are grouped investments that predominantly focus on shares of companies.

That compared with £2.65 billion in outflows from other European stock funds, £1.17 billion from North American funds and £1 billion from Asia-Pacific funds.

Three quarters of equity fund losses were in the third quarter, the company said, which was timed with a particularly turbulent period for U.K. politics as former PM Liz Truss launched a controversial “mini-budget.” But overall investment fund flows were the worst in at least eight years amid soaring inflation, uncertainty over the war in Ukraine, and central banks’ sharp pivots from monetary easing to tightening.

Meanwhile, passive equity funds, which track a stock market or market sector, saw their first year of net outflows on its records.

Bright spots were global environmental, social, and corporate governance equity funds, which added £6.35 billion, and emerging market funds, which added £647 million.

Edward Glyn, head of global markets at Calastone, said interest rate hikes had “turned asset markets upside down” and sent investors fleeing to cash and perceived lower risk fund categories.

“Sentiment has improved markedly in recent weeks, but there is enormous uncertainty over the future course of interest rates and economic growth around the world and we may yet see the bear roar again before the bull market cycle can begin anew,” he said.

However, he said this positivity had not reached U.K.-focused funds due to predictions that the country will suffer the worst recession among major economies.

Separate research published this week by State Street Global Advisors found Europe-based exchange traded funds had shown resilience in 2022, with $88 billion in net inflows driven by equities chiefly into “global developed” and U.S. “large-cap” funds. Investors favored higher quality exposures and energy stocks, it said.

But it also noted investors had shunned broad European stocks amid the war in Ukraine, high inflation and stronger monetary tightening than initially expected.