US ISM Services PMI drops to 48.8 in June

The ISM manufacturing index in June was 48.5, slightly lower than the expected 49.2 and the previous value in May of 48.7. U.S. manufacturing activity continued its contraction at the end of the second quarter. Demand was weak again, output declined, and inputs stayed accommodative. The New Orders Index remained in contraction territory, registering 49.3, 3.9 points higher than the 45.4 recorded in May. The New Export Orders Index reading of 48.8 was 1.8 points lower than the 50.6 registered in May, returning to contraction. The Backlog of Orders Index was registered at 41.7, down 0.7 point compared to the 42.4 recorded in May. The Employment Index was at 49.3, down 1.8 points from May’s figure of 51.1. The June reading of the Production Index (48.5) was 1.7 points lower than May’s figure of 50.2. The Prices Index was at 52.1, down 4.9 points compared to the reading of 57 in May.

Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory. Production was down compared to the previous month, likely causing revenue declines, putting pressure on profitability. Suppliers continue to have capacity, with lead times improving and shortages not as severe. In terms of the US stock market, the S&P 500 index maintains a stable upward trend, and we expect the S&P 500 index to fluctuate between 5,400-5,700 points.

In terms of industry，discount retailers continued to beat sales growth expectations, mainly due to consumers seeking value for money in order to ease their financial pressures.

Ross Stores(ROST.US) beat quarterly estimates on steady demand for discounted products. Sales in 1Q24 grew 9% YoY to US$4.9 billion, with comparable sales up 3% YoY. Net profit amounted to US$488 million, up 31% YoY. Operating margin stood at 12.2%, up 205 basis points compared to 10.1% in 1Q23. This improvement was primarily driven by lower distribution, incentive, and freight costs but partially offset by the planned decline in merchandise margin.

The company opened 11 Ross stores and 7 DD’s Discounts during the quarter. As per the Mgt, the company would plan for approximately 90 new stores this year, including about 75 Ross Stores and 15 DD’s locations. As of May 4, 2024, the company operated 1,775 Ross stores in 43 states, the District of Columbia and Guam. It also operates 352 DD’s Discounts stores in 22 states. Ross raised its full-year earnings outlook to US$5.98 per share from US$5.79. Its same-store sales outlook remained unchanged for a 2% to 3% gain. It is recommended to buy at US$141.00, target at US$164.00, and stop loss at US$135.00.

TJX Companies (TJX.US), the leading off-price apparel and home fashions retailer worldwide, reported net sales in 1Q25 of US$12.5 billion, an increase of 6% YoY. Comparable store sales increased by 3% YoY, due to continued growth in customer transactions. Gross profit margin in Q1 stood at 30.0%, up 1.1 percentage point YoY, driven by a benefit from lower freight costs and favorable markup. Net income amounted to US$1.07 billion, up 20% YoY.

In terms of business segment, sales of the Marmaxx division, increased by 5% to US$7.75 billion, accounting for about 62% of total. The home furnishings division increased by 6% to US$2.1 billion. The TJX Canada division was up 7% to US$1.1 billion, while the TJX International division climbed 9% to US$1.5 billion. Looking forward to 2Q25, the Company expects the comparable store sales to be up 2% to 3%, pretax profit margin to be in the range of 10.4% to 10.5%, and diluted earnings per share to be in the range of $0.88 to $0.90. It is recommended to buy at US$108.00, target at US$126.00, and stop loss at US$104.00.