The S&P 500 Index (SNPINDEX:^SPX) rallied on Wednesday as new stimulus measures were being negotiated by Congress. While it may take a while for Democrats and Republicans to reach an agreement, further support for individuals and businesses will likely be necessary as the coronavirus pandemic continues to surge in many parts of the country.
The S&P 500 was up 1.25% at market close, with Advanced Micro Devices (AMD 2.44%) and L Brands (BBWI 2.71%) leading the charge. AMD stock surged after a strong earnings report, and L Brands stock soared after the retailer unveiled a cost cutting plan.
Image source: AMD.
AMD's growth driven by PCs and servers
AMD is still far behind rival Intel in the market for PC and server chips, but the company has made an incredible comeback over the past few years. A combination of new chip designs and advanced manufacturing capabilities from Taiwan Semiconductor has allowed AMD to largely close the once-gigantic performance gap between its chips and those from Intel.
AMD's second-quarter results, revealed on Tuesday evening, painted a picture of a company on the rise. Revenue soared 26% to $1.93 billion, driven by strong sales of its Ryzen PC chips and EPYC server chips. Adjusted earnings per share more than doubled to $0.18, aided by a rising gross margin. Both numbers beat analyst expectations.
Laptop chips were an area of strength for AMD in the quarter. The company announced its Ryzen 4000 Mobile line of laptop processors earlier this year, and devices featuring the chips have been launching over the past few months. There are now 54 Ryzen 4000 notebooks available. Notebook processor revenue more than doubled on a year-over-year basis, with both unit shipments and average selling prices rising significantly.
Looking ahead, the third quarter is historically strong for AMD's semi-custom business due to game console companies building up supply for the holidays. Both Sony and Microsoft are launching new game consoles this year, and while a weak economy may have a negative impact on sales, AMD will get a sales boost nonetheless. The company is calling for total third-quarter revenue between $2.45 billion and $2.65 billion, up 42% from the prior-year period at the midpoint.
Shares of AMD were up about 12.6% at market close Wednesday. The hot tech stock has soared roughly 47% so far this year.
L Brands stock explodes on cost cutting plans
Retailer L Brands, which operates Victoria's Secret and Bath & Body Works stores, is being hit hard by the pandemic. The company disclosed on Wednesday that second-quarter sales are expected to be down 20% from last year, driven by a 10% decline at Bath & Body Works and a 40% decline at Victoria's Secret. Direct-to-consumer sales are up for both brands, but that hasn't been nearly enough to offset the impact of store closures.
Despite the dour sales update, L Brands stock surged 35% on Wednesday thanks to the announcement of cost cutting initiatives. L Brands expects to achieve $400 million in annualized cost reductions, partly through changes at Victoria's Secret and partly through decentralizing and streamlining shared corporate functions. The company expects to achieve $175 million in savings this year.
Home office headcount will be reduced by 15%, a move that will affect 850 employees. At Victoria's secret, store-level costs will be reduced via changes to the management structure and labor model. The company is also working to manage inventory more efficiently, looking to reduce merchandise costs and boost margins. L Brands plans to close 250 Victoria's Secret stores this year, and it's talking with landlords about rent relief.
L Brands said it had more than $2.5 billion of cash as of July 24, a number that has been boosted by debt sales in recent months. The company had over $5.5 billion of debt as of May 2, which was before it raised $1.25 billion in June via bond sales.
Like many retailers, L Brands faces unprecedented uncertainty as it attempts to recover from a pandemic-driven sales slump. The stock is now slightly up year-to-date, but it's down around 75% since peaking in 2015.
