Friday 08/11/19

1. In MACRO, TRADE & OIL NEWS, German industrial production weakened, more positive noises re the US-China trade stand-off boosts hopes and Saudi Aramco sweetens its IPO with even bigger dividends
2. In RETAIL NEWS, Gap’s CEO steps down, Sears aims to close even more stores while Sainsbury’s and Superdry’s profits take a dive
3. In CAR NEWS, Toyota delights while Aston Martin disappoints
4. In OTHER NEWS, I bring you a brand new drink made with onions…

So German industrial production slackens, trade talks buoy markets and Saudi Aramco sweetens the deal…

German industrial production slumped in September (Financial Times, Martin Arnold) shows continued weakness in this area taking it to levels last seen at the beginning of 2017. This news comes just one day after the Council of Economic Experts cut its growth forecasts for this year and next and makes a German recession look even more likely. We’ll know for sure when the official GDP figures are announced on November 14th. Germany narrowly escaped recession very recently (recession requires two consecutive quarters of GDP contraction) but things seemed to have worsened in the interim so things aren’t looking great…

US-China trade war: hopes of deal rise after partial easing of tariffs (The Guardian, Phillip Inman) highlights the excited reaction from markets which hit new highs on hopes of an end to the current trade war. * SO WHAT? * A deal is being negotiated between both sides to repeal tariffs in stages and although there have been many false

dawns before, the IMF actually commented, on this occasion, that it could revise up its global growth forecasts for next year if tensions were eased. Conclusion: it looks like a deal might actually happen this time! Although markets have been trending up on this I think that developments have fallen apart so many times that when something DOES actually happen they will still shoot up.

Saudi Aramco bankers dangle prospect of bonus payouts (Financial Times, Simeon Kerr and Anjli Raval) looks at the latest efforts to tart up the much-hyped listing of oil mega-company Saudi Aramco. It had talked about guaranteeing a minimum annual dividend payout of $75bn over the next five years but bankers for the deal have now mooted the possibility of that floor being raised to over $100bn, depending on the oil price, to sweeten the deal for shareholders even further. The Bank of America report said that “Aramco management has stressed the possibility of additional distributions to shareholders above and beyond the minimum dividend pledge”. * SO WHAT? * Apparently, Crown Prince Mohammed bin Salman has softened his expectations of a valuation of $2tn for the company and domestic demand has been strong (helped by the fact that many wealthy Saudis have been pressured into investing!) but not all foreign institutions have been looking on it favourably given concerns over governance, potentially too much involvement by the state and the security of its production facilities following the recent drone attack.

Gap’s CEO departs, Sears targets more store closures while Sainsbury’s and Superdry see their profits plummet…

Gap CEO Art Peck to step down (Wall Street Journal, Micah Maidenberg) highlights Peck’s sudden departure from the troubled retailer. He will be replaced on a temporary basis by Robert Fisher, the son of the company’s founders. The company disappointed yet again in its quarterly results yesterday, talking about weak sales and lowering full year targets and its share price fell by 7% in after-hours trading. * SO WHAT? * The company has been having a tough time for a while now and Art Peck announced in February that the company would split into two and become separately traded companies in 2020. The Old Navy budget brand – whose sales are now higher than the original Gap brand – would go it alone and the other part, comprising of Gap, Banana Republic and Athleta would continue under Peck’s stewardship. Although Peck is now essentially being erased from Gap, the company said that it will continue with plans to split into two. Such drastic action is clearly needed as the one-time clothing retail titan struggles to keep up with consumer migration to fast fashion chains and online competitors.

In Sears owner says it will close an additional 96 stores by February (Wall Street Journal, Suzanne Kapner) we see that the troubled department store chain’s woes are continuing as it announced more Sears/Kmart closures in the near term. Five years ago, the chain had almost 2,000 locations – and in February this year it had 425! After the latest closures, it will have 182 remaining. * SO WHAT? * Sears Holdings filed for bankruptcy protection last year and the stores have continued to limp on in the face of consumers increasingly shopping on line and with competitors. Talk about death of a thousand cuts! It is a shadow of its former self and I just can’t see it getting any

better. Under normal circumstances you’d expect competitors to benefit from a rival’s misfortunes, but they are all suffering from the same problems. As I keep saying, I think that the retailers who really focus on exactly who they are selling to and provide the best experience will be the ones who can survive long term.

Meanwhile, back in the UK, Sainsbury’s profits dive more than 90% as store closures cost £200m (The Guardian, Sarah Butler) shows that Sainsbury’s is still struggling post its failed attempt to buy Asda. The country’s second biggest grocer took a 90% hit to profits in the six months to September thanks to a one-off property write-down and redundancy costs. This announcement comes only two months after it said it would close up to 70 stand-alone Argos stores and replace them with units within its supermarkets. Even if you strip out the one-off costs, profits were still down by 15%. * SO WHAT? * I said this at the time, but I really thought that the Sainsbury’s/Asda merger had the whiff of a merger of weaklings and that, if it went ahead, it would just be a massive cost cutting exercise that would potentially just buy them both time to sort out their operations. Companies who merge from a position of weakness seem to use it as an excuse for lacklustre subsequent performance (they say that it will take time to see merger synergies etc.). Given that “Sasda” DIDN’T go ahead, the weaknesses could not be papered over and we are now seeing the reality. Christmas trading is important to ALL retailers – but Sainsbury’s in particular will be praying hard for a Christmas miracle.

Superdry reports steep sales drop after founder retakes helm (The Guardian, Zoe Wood) shows that the return of co-founder Julian Dunkerton to the company in April has done next to b*gger all for its fortunes so far. He is trying to move the company away from discounts and promotions and back to its design-led roots. A recent hire of former Nike exec Phil Dickinson is hoped to bring back the “cool factor” but that is going to take time. In the meantime, the company said that it was “cautious about the challenging market conditions over the peak trading period”.

Toyota motors while Aston stalls…

Toyota shares rise on $1.8bn buyback and record profits (Financial Times, Kana Inagaki) highlights some rare good news for a vehicle manufacturer these days as the company saw its first half profits climb to an all-time high in a notably strong performance versus its competitors. Sales grew in all of its key markets including Japan, the US, Europe and Asia including China. * SO WHAT? * This performance is particularly notable given that competitors including Mazda, Subaru and Ford have cited slowing sales in the US and China behind their own poor performances.

Investors were further cheered by the announcement of a 50-50 R&D joint venture on electric vehicles with Chinese carmaker BYD next year and a $1.8bn share buyback. 

I’m desperately disappointed: Aston chief on 78pc share loss (Daily Telegraph, Alan Tovey) shows further disappointing performance from Aston Martin as it announced yet another quarterly loss in the three months to September. Given all the misfires since it floated at £19 last year it is now trading at 424.9p so this is just the latest bad news. The company really needs its forthcoming DBX 4×4 to do well in order to make up for all the losses, profit warnings, downgrades and potential additional capital raisings. On the plus side, Aston Martins will feature in next year’s Bond film – so that should at least help sales a little bit.

And finally, in other news…

I thought I’d leave you today with the idea for a new drink that you never knew you needed in Japanese crowdfunding underway for bottled Onionade, just like mom used to make (SoraNews24, Master Blaster https://tinyurl.com/y4vgubfa). OMG 🤢 Emily – if you’re reading this it must be your worst nightmare 😜