Markets continue to hold near record levels as investors turn their heads toward company conference calls, with earnings season heating up. The Dow Jones Industrial Average dropped 0.27% for the week, while the S&P 500 and Nasdaq posted gains of 0.54% and 2.36%, respectively.
But what a week for massive headlines -- let's dig into three big moves and developments from this week.
A no-good, terrible week
Poor investors of Chipotle Mexican Grill, Inc. (NYSE:CMG) can't catch a break when it comes to food-safety concerns. Shares of the once phenomenal growth stock -- and still a huge winner for long-term investors -- are still trying to recover from the food-safety debacle of 2015.
Back then, Chipotle consumers in Washington state contracted E. coli, followed by far more consumers who got sick with norovirus, and then even more contracted salmonella in Minnesota. More instances popped up around the country after that, and it caused Chipotle to go into damage-control mode and rethink its food-safety procedures.
This week, diners at a Dallas location shared a video of mice falling through the roof in one of the company's restaurants, while reports of a norovirus outbreak came from a location in Sterling, Va. And while the rat incident has been said to be "an extremely isolated incident," the outbreak in Sterling was reported to affect more than 100 people, according to iwaspoisoned.com. The news has sent shares of Chipotle down nearly 13% this week, to its lowest level in four years.
This is more of a brutal blow to investors than the decline suggests, because signs that the company was turning things around had appeared promising, with comparable-store sales guidance in the high single digits this year, compared with a staggering 20% decline in 2016. It's simple: These food-safety problems are a direct hit to the core principle that Chipotle serves a premium product with higher-quality food. For now, it's best to hold off on knee-jerk reactions, but investors do need to hear what management says during its second-quarter results on July 25 to better understand the immediate impact.
Shares of Netflix (NASDAQ:NFLX) had a polar-opposite week to those of Chipotle, trading roughly 13% higher this week after a strong second-quarter result. Netflix exceeded management guidance in nearly every aspect, starting with domestic streaming subscriber numbers. That number reached 51.9 million, beating guidance of 51.5 million. The number of international streaming subscribers, meanwhile, checked in at 52 million, ahead of guidance of 50.5 million.
Revenue of $2.79 billion compared edged out guidance of $2.78 billion, with operating margin coming in 20 basis points higher than guidance of 4.4%. Net income and diluted earnings per share were in line with guidance calling for $66 million and $0.15, respectively.
But perhaps the big story is Netflix's free cash flows, which were negative to the tune of $608 million during the second quarter because of the cash expenses involved in producing original content. Some of that new content includes Bright, the Will Smith movie that could become Netflix's first blockbuster film. The trailer for that $90 million movie, one of Netflix's most ambitious projects yet, hit San Diego's Comic-Con this week. It also paid over $100 million for Martin Scorsese's movie The Irishman, which begins shooting shortly.
This is an incredibly intriguing stock to follow as it tries to flip the Hollywood way of opening on the big screens first before filtering to streaming devices and other media. But this week's 13% increase sends a signal that investors are willing to let cash burn as Netflix tries to flip the script on the traditional film industry ways.
An unexpected partnership
After years of struggling shares, Sears Holding Corp. (NASDAQOTH:SHLDQ) had a small reason to be excited this week, following two notable developments. First, shares moved higher Monday, after the company received a $200 million cash infusion from CEO Eddie Lampert's hedge fund, ESL Investments. But that cash came at a serious cost: The line of credit has a 151-day maturity and a hefty 9.75% interest rate.
Then things got a little more interesting when Sears announced that it had struck a deal with Amazon.com (NASDAQ:AMZN) to sell Alexa-enabled appliances, including the Kenmore brand, on Amazon. That news initially sent the stock surging roughly 15%. It even caused shares of Lowe's and Home Depot to decline at the time by the mid-single digits.
To call the partnership unexpected might not do it justice. These two companies couldn't be any different in terms of success and relevance. This easily marks Sears' broadest distribution of its Kenmore brand outside its own stores, but in a way it's also an admission of defeat that Sears can no longer survive without the help of an outside e-commerce network.
Whether this is merely a small story before Sears trudges into bankruptcy or some weird first step in a long-term strategy for Amazon's path to global dominance remains to be seen -- but it's definitely a story to watch.