It's been another tough week for the stock market, as a big plunge in retail stocks raised new concerns about the impact of inflation on financial markets more broadly as well as the overall economy. However, Friday brought at least the hope of a bounce. As of 8:15 a.m. ET, futures contracts on the Nasdaq Composite (^IXIC -0.55%) were up more than 1.5% to 12,065, as the index tries to pull itself up from its bear-market drop over the past six months.
It's not surprising to find a tech stock trying to pull the tech-heavy index higher, and Palo Alto Networks (PANW 0.45%) played that role Friday morning as the cybersecurity company confirmed its ability to keep growing even under more challenging conditions. However, that didn't stop the retail industry from having its latest debacle of the day, with Ross Stores (ROST 0.56%) falling sharply. Here are the details.
Palo Alto looks secure
Shares of Palo Alto Networks jumped 12% in premarket trading Friday morning. The cybersecurity specialist reported strong results for the fiscal third quarter that ended April 30, and investors breathed a sigh of relief that it avoided some of the pressure that its peers have faced.
Palo Alto saw revenue rise 29% year over year to $1.39 billion. Adjusted net income rose at an even healthier 38% pace to $193 million, and that worked out to adjusted earnings of $1.79 per share.
Even better, Palo Alto saw a lot of signs of continued strength in its industry. Billings for the quarter jumped 40% to nearly $1.8 billion, and that left Palo Alto with $6.9 billion in remaining performance obligations under its existing client relationships.
Those numbers led Palo Alto to boost its guidance. The company now expects 29% higher revenue in fiscal 2022 of between $5.481 billion and $5.501 billion. Adjusted earnings of $7.43 to $7.46 per share was also an upgrade to previous guidance, and with more than $7.1 billion in billings expected for the full year, Palo Alto sees a lot of margin improvement and free cash flow helping to pave the way toward a complete recovery for the tech stock.
Ross Stores blames inflation
In the retail space, Ross Stores investors prepared for a bad day, with the stock down nearly 25% in premarket trading Friday morning. The discount retailer also reported its latest financial results late Thursday, and investors weren't pleased with the pressures that the company is seeing in the current environment for the industry.
Ross Stores had to deal with declines in key business metrics. Sales were down 4% to $4.33 billion, as the company said that a strong start to the period soon gave way to underperformance later in the quarter. Comparable store sales declined 7%, reversing part of its gains in past years. Net income dropped 29% to $338 million, producing earnings of $0.97 per share.
CEO Barbara Rentler pointed to the worst inflation in 40 years as weighing on consumers, along with further cost pressures on energy from the Russian invasion of Ukraine. In response, Ross cut its guidance, expecting a 4% to 6% drop in comparable store sales in the second quarter and a 2% to 4% decline in comps for the full fiscal year. The retailer admitted that earnings would likely fall from 2021 levels as well, projecting a range of $4.34 to $4.58 per share.
Ross remains confident that its business model can win out in the end, especially given the discounter's ability to serve customers during times of economic stress. However, investors weren't prepared for the extent of the downturn, just as they've been surprised by the impact on consumers throughout the retail industry.