May 6, 2024
The Copenhagen, Denmark based jewelry brand, Pandora, has skyrocketed over the past 6 months and is up ~18% year-to-date. Last quarter, gross margins reached 79%, and the company raised forward year sales guidance to 8-10% growth. Pandora’s positive results are largely tied to the recent surge in popularity of lab-grown diamonds, as sales for these specific stones rose 87% last quarter.
While natural diamonds are formed over billions of years below the earth’s surface, lab-grown diamonds are formed over just six weeks in a controlled, pressurized environment. Customers are drawn to both the lower price tag and the fact that the synthetically-made diamonds are considered ethical and sustainable. The cost-friendly option has been a popular choice recently, but we expect the trend will continue. The lab-grown diamond industry is projected to grow to $15.9 billion by 2027 and could be a powerful tailwind for well-positioned jewelry companies.
After a few months of unwanted growth in the employment market, the April 2024 jobs report indicated signs of cooling. The U.S. added 175,000 jobs, still more than the Fed would like, but fewer than was expected. Wage growth, which had previously increased, slowed to 2.4% and unemployment rose to 3.9%.
Earlier this year, markets were pricing in rate cuts for June, but a few discouraging inflation prints quickly shifted expectations. The Federal Reserve has a dual mandate for monetary policy: achieve maximum employment and stable prices. They are keenly focused on the latter, which you could argue is functioning at the expense of the former. A hot jobs market can keep price gains high, and the central bank’s key focus is to stabilize prices. Higher unemployment is a positive sign, but the trend will need to continue with a lower inflation print on May 15th before rate cuts are part of the Fed’s conversation again.
Apple released quarterly earnings results, and investors were pleasantly surprised that revenue had declined by less than they expected. iPhone sales, an important revenue source, have been sluggish in China because of the tough competitive landscape, as Huawei’s smartphone sales rose 70% and Apple’s iPhone sales fell 19% year-over-year. The iPhone’s overall revenue was about $46 billion, dropping ~10% from the previous quarter.
Apple depends on markets around the world to uphold profitability and revenue growth. The iPhone’s potential to compete in “Greater China” depends on several factors, like its ability to integrate AI, but some are difficult to control. For example, pandemic sanctions in China slowed growth in 2019 and more recent laws banned iPhones in Chinese government workplaces. In the face of sectoral challenges, Apple will need to heavily lean into its mission of innovation as it enhances the iPhone to organically win back market share.
Disclosures:
As of the date of publishing, AAPL is a holding in Titan's Flagship strategy.
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