Friday 11/10/19

1. In MACRO NEWS, Trump/China talks get markets tingling, BoJo and Varadkar make positive Brexit noises and the UK is on course to avoid recession
2. In RETAIL NEWS, Walmart’s US CEO resigns, Hays/Thomas Cook faces a challenging future, Dunelm’s sales rise, Dunkerton says he’s saved Superdry’s Christmas, HMV makes positive moves and N Brown turns things around
3. In INDIVIDUAL COMPANY NEWS, Samsung Display invests $11bn, Philips has a profit warning and Dyson gives up on its own cars
4. In OTHER NEWS, I bring you questionable running attire and some Jesus shoes…

So excitement builds as Trump gets involved in China trade talks, Brexit talks take a positive turn and the UK looks like it’ll avoid recession…

Trump to meet with China for talks aimed at ending trade war (The Guardian, Dominic Rushe) shows that Trump’s 13th round of talks in a 15-month trade battle has got markets all a-flutter as he tweeted “Big day of negotiations with China. They want to make a deal, but do I?”. Trump has thus far put tariffs on over $360bn worth of Chinese imports and is on track to add another $160bn-worth to that on December 15th. * SO WHAT? * There have been many false dawns before and anything that sounds positive – like a Chinese official telling Bloomberg that the country was open to a “partial trade deal” – seems to be balanced out with things that will irk the Chinese, like the US decision to crack down on 28 Chinese tech firms because of the way the country treats Uighur Muslims and Muslim ethnic minorities. The devil is always in the detail, but the fact that Trump is on hand with the negotiations (rather than leaving it to his flunkies) would suggest that concrete progress COULD be made this time. The US-China trade war has been a real drag on global trade generally, so anything to ease the current logjam would be taken very positively by the markets IMO.

Boris Johnson and Leo Varadkar see ‘pathway’ to a Brexit deal (Financial Times, George Parker, Arthur Beesley and Jim Brunsden) would seem to signal a big shift in

sentiment given all the recent negativity as the Irish PM said that a withdrawal treaty could be agreed by the end of the month. Michel Barnier, the EU’s chief Brexit negotiator, will decide today whether these talks could lead to an actual breakthrough. * SO WHAT? * Sterling strengthened 1.5% against the dollar on hopes that we’re nearing some kind of deal, but again, there’s going to be a whole lot of to-ing and fro-ing going on as negotiations continue to develop. Separately, Brexit tariffs jeopardise entire Nissan Europe business model (Financial Times, Peter Campbell) shows veiled threats by Nissan that a no-deal Brexit could put its Sunderland plant in danger – but again, my impression is that this is all noise. Car sales are down globally, Nissan is in a right state at the moment with its leadership etc., and I think Brexit is just an easy excuse to blame everything on.

Meanwhile, UK on track to avoid recession despite Brexit chaos (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistics which show that GDP has actually gone up by 0.3% in the three months to August, which was higher than market expectations. Given the nightmarish political and economic backdrop, this is actually quite impressive and would imply that Britain could well avoid a technical recession – which is defined as two consecutive quarters of contraction – for now. Given that GDP had contracted in the previous quarter somewhat unexpectedly, many economists will be breathing a sigh of relief. The services sector GDP (which accounts for around 80% of the UK’s GDP) grew over the period, but manufacturing continues to look sluggish.

Walmart loses its US CEO, Hays Travel has its work cut out, Dunelm announces decent sales, Superdry gets ready for Christmas, HMV marches forward and N Brown puts in a solid performance…

Walmart’s US stores chief to quit retailer (Wall Street Journal, Sarah Nassauer) highlights the departure of the retailer’s US chief, Greg Foran, who is leaving to become CEO of Air New Zealand. He’ll stay until January 31st and be replaced by John Furner, who has been running the Sam’s Club warehouse chain for the last couple of years. * SO WHAT? * I think this is significant given that Foran became head of Walmart’s biggest division in 2014 and led a major turnaround in the US by cutting down on new store openings and investing in improvements. Walmart has seen four years of rising sales and it gets two thirds of its annual revenues from its US stores. It sounds like Furner has got big shoes to fill at a very crucial time for the company as it continues to battle with intense competition from its offline and online peers.

Following on from yesterday’s news, there is some interesting comment on whether Hays Travel has bitten off more than it can chew in Is it too many Cooks for Hays (Daily Telegraph, Michael O’Dwyer) as stats from the Local Data Company show that 49 of the 555 Thomas Cook stores Hays Travel bought yesterday are within 100m of an existing Hays Travel (33 of these are within 50m) and 76 are within 1km. Interestingly, Hays Travel’s MD, John Hays, said that he was “aware” of the overlap and that one of the reasons why he got the go-ahead to buy the store estate was because he took the whole lot on rather than cherry-pick the ones he wanted. Interestingly, Scottish travel agent Barrhead Travel (which is owned by US company Travel Leaders Group and has 6,000 outlets worldwide) said yesterday that it would open up to 100 stores in the UK and hire former Thomas Cook employees. If you want more information and background on the deal and the background, you should definitely read Will Hays and Thomas Cook be the perfect package deal? (Daily Telegraph, Michael O’Dwyer). * SO WHAT? * I am really pleased for the Thomas Cook employees on this as this gives many of them hope. However, I am much more circumspect as to whether this venture can be a true long-term success for the company itself without cutting LOADS of stores and, ultimately, jobs given a) the massive store overlap and b) the continued viability of travel agents in their current form. Hays supporters will say that it’s worked out well so far and that we should have faith in its management which, incidentally, wants to preserve as many jobs as it can. Sceptics will say that buying a ton of high street shops was one of the main reasons why Thomas Cook slid down its slippery slope in the first place as the company was left wearing physical outlets when customers were moving online. Good luck to Hays, I say – but I just hope that it hasn’t bitten off more than it can chew in an evolving market place.

Dunelm shares slide despite rise in sales (The Times, Elizabeth Burden) shows the continued success of Britain’s biggest homeware and soft furnishings retailer (because all

the others have gone bust!!!) as it unveiled a 7.5% year-on-year rise in sales for the latest quarter. However, it tempered investor enthusiasm by saying that the homeware market was wavering and that the weakening pound will impact its margins as material costs will effectively get more expensive. * SO WHAT? * Yes, OK, so the shares fell by a chunky 10% after its downbeat comments, but TBH I think they have been doing pretty well considering that the market has been falling around their ears for the past few years. Mind you, the company could do with activity in the housing market picking up because this boosts sales when people move abode.

Then in Dunkerton says has ‘saved Christmas’ at Superdry (Financial Times, Jonathan Eley) we see that returned Superdry founder Julian Dunkerton is talking a good game as he stated yesterday that he’d done enough to take the company through Christmas since being reappointed head honcho earlier this year. He has been cutting costs and making sure that the company had enough new products to get them through the crucial final quarter. * SO WHAT? * Let’s hope his talk can be matched with actions as the company has had three profit warnings this year – so it could definitely do with some Christmas cheer! The share price has fallen by 25% since he returned as chief exec following a dramatic boardroom bust-up as investors remain sceptical about a turnaround – so he’s got a lot of convincing to do. Given he’s still got 18% of the shares in the company, he’s clearly incentivised to do a good job 😜

HMV bets on vinyl revival with new flagship store (Daily Telegraph, Laura Onita) brings us up to speed with what’s going on in the record shop chain that Canadian chain Sunrise Records bought for £883,000 in February. It is now opening a store called the Vault, a 25,000 sq ft site in Birmingham’s city centre, which it says will be one of Europe’s biggest entertainment shops. Fun fact: the site used to be occupied by Ikea. * SO WHAT? * It’s great to see someone with the balls to go against the flow – and Sunrise CEO Doug Putman is doing just that by pushing vinyl and keeping physical stores open. So far he’s kept 114 of HMV’s 127 stores open for the moment, but will be reviewing the estate after the Christmas trading season. Given Putnam grew Sunrise from five stores in 2014 to 84 stores today, he does at least have a track record of success in this area so although I think that the world is against him, I really hope he succeeds. Christmas will be crucial (although it is for ALL retailers).

Then there’s good news in N Brown in the black as online sales grow (The Times, Elizabeth Burden) as the company that owns the Jacomo, Simply Be, Figleaves, JD Williams and High & Mighty brands not only returned to profit, but did it in the same half of the year where it closed all of its shops to focus purely on online sales. Profits were up by a whopping 169% for the first six months although sales fell slightly. * SO WHAT? * I think this is really impressive and shows that even when your back is up against the wall, it is possible to overcome with laser-focus. I would suggest that the company has a real niche in plus-size and clothing for mature customers and simplifying the channels will really help to cut costs on an ongoing basis. Going purely online is quite dramatic to my mind as I’m a fan of getting balance between offline and online, but actually in this case, it looks like the decision to change has worked.

Samsung invests, Philips has a profit warning and Dyson walks away from cars…

Samsung Display to inject $11bn into next-generation screens (Financial Times, Song Jung-a) heralds a chunky investment for the world’s biggest display maker in next-generation tech as it aims to stay ahead of local competition LG Display and Chinese rivals. It aims to build a production line in South Korea to make large OLED TV panels (over 65″) in 2021 and will accelerate the transition of its LCD production lines to OLED production. * SO WHAT? * This is clearly a significant amount of money, but I guess it has to be done given the competition breathing down its neck in this space.

Philips blames trade war as it warns on profit (Financial Times, Sarah Provan) highlights problems at the Dutch electronics/healthcare tech conglomerate as the US-China trade war continues to bite. The company’s share price fell by 10% on news of the profit warning and the outlook doesn’t look too great either. Chief exec Frans van Houten bemoaned that “All businesses are affected by the tariffs. The amount depends on your manufacturing footprint. Where you source and where you sell. We export from China to the US and export from the US to China so we are hit on both sides”. Tough times.

Dyson cancels electric car project (Financial Times, Peter Campbell and Michael Pooler) heralds a very swift end to Dyson’s ambitions regarding its efforts to break into the automotive industry. It said yesterday that it will wind down its electric vehicle (EV) project as it failed to find buyers for its designs and that its plans to build a car from the ground up in Singapore just weren’t possible any more. It will try to absorb the 523 employees involved in the project elsewhere in the company in its first big commercial failure since it tried to make washing machines. * SO WHAT? * Given that Dyson employs 14,000 worldwide with 4,500 in the UK, 523 employees doesn’t sound too disastrous (unless you are one of the employees losing their job), but I actually think that this departure is a GOOD thing for the company as newbies moving into electric vehicle manufacturing are having a terrible time as they realise the whole thing is just a massive money pit. Although this is an embarrassing development given the fanfare to which the project was announced a couple of years ago, I think it is way better to cut now than throw more money down the pit never to be seen again. If it still wants a piece of the EV action, I think the company would be far better served to divert its efforts into battery technology and sell to other car manufacturers (or at least work with them so some of the R&D costs can be underwritten).

And finally, in other news…

I thought I’d leave you with a couple of unusual things as we head into the weekend. Hikers left ‘uncomfortable’ after encountering man jogging in pink thong (The Mirror, Courtney Pochin https://tinyurl.com/y23r7ea6) recounts an unusual sight, but the fact that the protagonist said ‘Sorry girls, sorry girls, sorry girls’ as he jogged past would suggest that this was either a) a bet or b) something that he did for himself rather than wanting to elicit reactions from others! Then there was news of the sale of some unusually-customised footwear in $3,000 Jesus Shoes filled with holy water sell out in minutes (The Independent, Sabrina Barr https://tinyurl.com/yxkjhhsx). What??? Have a great weekend y’all (but keep covered up if you go jogging 😜)!