Here are five things you need to know this morning.
Lululemon stock falls to four-year low: Lululemon shares have fallen to their lowest level since May 2020 as the athleisure brand halted sales of a new product line it was banking on for future growth. The yoga chain says it is pausing its Breezethrough yogawear line that the company and analysts said would be key to boosting sales in the latter half of this year. But the launch has been plagued by problems, including product allocation to stores, pricing, fit and comfort levels. Lulu made the announcement on Thursday and the shares lost 9.1 per cent. That brings the loss for the year to more than 50 per cent.
As I write this, Lululemon shares are trading below what they were going for in February 2020, before the pandemic was declared, when the rush to work from home caused a surge of demand for comfortable and stylish high end yoga gear that is the brand’s (keto-friendly and free-range) bread and butter.
Three quarters of Toronto condo investors are cash flow negative: That’s the main takeaway from an eye-opening report from CIBC and data firm Urbanation, which found that 77 per cent of mortgaged investors of newly built condos in the city are upside down on a monthly basis as of the end of last year. That’s up from a little over half two years ago, when mortgage rates started to rise — and if anything it’s gotten worse in 2024, rising to 81 per cent as of the end of June.
Being cash flow negative means the income from rent isn’t enough to cover the expenses of owning such as the mortgage, condo fees and other ancillary costs. The average monthly gap has risen to $597 a month, with is almost triple the $220 clocked a year earlier. Much like a business, an investment can survive being cash flow negative at least temporarily, but in the case of a condo, an investor is banking on the gains when selling to be enough to offset the mounting losses.
The signs aren’t pointing in that direction right now, with resale prices down 12 per cent from their pandemic peak and new units down 5 per cent. The situation has prompted a flood of new listings, with the surge in supply exacerbating those forces.
Sales of new units have fallen to their lowest level in 27 years, Urbanation said in a separate report last week. Interest rates have started falling at least, which in the aggregate is bound to help on the demand side, but time will tell by how much. Definitely a situation worth watching in Canada’s largest housing market.
Shorts upping their bets against Canada’s big banks: Speaking of the housing market, weakness and concerns over home loans is making selling Canadian bank shares a profitable trade this year, which isn’t normally the case. Shorts are up $243 million this year on bets again the Big Six, according to Bloomberg.
With short-term wins like that, short sellers are upping their bets accordingly. To be fair, the short positions are still small as a percentage of the total float, but they’re growing. Short interest in Laurentian is now at 4.7 per cent, up from 3.4 per cent in April. And CIBC sits at 3.8 per cent, up from 3.3 per cent.
Canada’s housing market comes into the crosshairs of investors from time to time, but historically the trend has not been their friend.
“Canadian banks and Canadian housing, betting against those two things has been like a pretty heavy widow maker over the past decade,” Hedgeeye analyst Drago Malesevic said in an interview with Bloomberg.
MEG Energy launches dividend: Canadian oil company MEG Energy has implemented an inaugural 10-cent quarterly dividend, as the company’s earnings showed broad strength. The company said its revenue rose to $1.37 billion and earnings per share came in at 50 cents, both beating expectations.
The company pumped out an average of 100,531 barrels per day of oil during the quarter, also ahead of estimates for just under 99,000. One reason for the company’s strong performance was the opening of the TMX Pipeline Expansion, which allowed companies like MEG to secure higher prices for their product.
Rain helping Jasper firefighting efforts: Rain has come as welcome relief to firefighters, officials and residents of Jasper, Alberta, after a wildfire tore through the town and still threatens the area. The region got as much as 15 millimetres of rain last night, according to Jasper National Park.
The fire that is believed to have been caused by a lightning strike was first identified roughly a week ago and has been dubbed Utopia but has been anything but for the tourist hotspot town. It’s hard to get a clear picture of the situation, but it’s been estimated that at least half the town has been impacted by the flames.
Most of the damage seems to be on the residential western side, while officials have had modest success protecting the eastern half of the town including critical infrastructure such as the hospital, emergency services building, schools, the activity centre and wastewater treatment plant. The Trans Mountain Pipeline passes through the region and it, too, seems to be unscathed so far. CN Rail closed its rail line through the area as a precaution but it has since been reopened.
