Home sales in a slump
With mortgage rates back over 7% and home prices rising around the country, buyers have stopped coming to the table. 2023 was the housing market’s worst year for sales in almost three decades, and the trend has continued into 2024 with contract signings in April slumping to their lowest level in four years. The median home price rose 4.3% in May from the prior year, causing listings to pile up as buyers are getting priced out of the market.
Prospective buyers were hopeful for rate cuts earlier this year, but strong economic growth caused delays. While a cooler housing market is a normal symptom of ‘higher for longer’ monetary policy, the combination of high prices and high mortgage rates cannot last forever. As supply continues to supersede demand, prices will start to drop, and eventually rate cuts will trigger more sales across the country.
Amazon expands Grubhub partnership
Amazon plans to increase its stake in Grubhub from 4% to 18% by 2029 and has expanded its partnership to allow U.S. users to order takeout directly from Amazon’s website. In 2022, Amazon offered its Prime members free delivery from Grubhub as a temporary perk, but they will now receive a free Grubhub+ membership, which includes free delivery indefinitely.
The partnership will help Grubhub acquire new customers through the millions of Prime members, while also helping Amazon retain its subscribers. Customers of a subscription service want to believe they are earning the most value, and free Grubhub delivery will add to the slew of perks that keep Prime members from switching to competitors like Costco or Target. The news is no surprise with the high volume of partnerships in 2024, as consumer-discretionary companies are seeking creative ways to grow in an environment where the cost to acquire a new customer is increasingly high.
Gap earnings beat
Gap’s stock was up ~28% on Friday after beating its first-quarter revenue and earnings per share expectations. The retailer, which also owns Athleta, Banana Republic, and Old Navy, reported net income of $158 million versus an $18 million loss in the year-earlier period. The CEO also noted that this was “the first time all four brands reflected positive comps in many years.” Management has a positive outlook and updated its operating income guidance from low-to-mid teens growth to the mid-40% growth range.
While other consumer brands may be slowing, Gap dramatically turned around its earnings with the challenge of an unfavorable macroeconomic backdrop. The company increased average selling prices and maintained leaner inventory levels. Repositioning the brand to increase appeal and applying better marketing through storytelling have also been huge wins. Retail companies tend to struggle in inflationary periods, but Gap spun the narrative, proving the importance of strong management and operational efficiency.
Disclosures:
As of the date of publishing, AMZN is a holding in Titan's Flagship strategy.
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