In Walmart explores sale of Japanese supermarket chain (Financial Times, Kana Inagaki and Leo Lewis) we see that there is speculation that Walmart is about to continue to reshuffle its international business focus by exiting from the Japan market after 16 years via the sale of its struggling Seiyu supermarket chain, which it bought for $60bn in 2002. This is still in the early stages, but some believe it could be snapped up by a private equity buyer as there
is increased interest in Japan as a source of deals from these types of firms. Having said that, Seiyu might prove to be tricky, as an anonymous PE punter observed that “When you look at the list of failures by foreign retailers in Japan, it is quite tough to imagine bringing in someone to manage a great turnaround story for Seiyu. If Walmart cannot do it, you know it is tough”. * SO WHAT? * Walmart, for its part, has denied that it is in discussions with potential buyers, but it would be fair to say that it has had a bumpy ride since it made the purchase. Japan has been the graveyard of many a retailer in the past – Tesco pulled out in 2011 after 8 years and French retailer Carrefour pulled out after only five in 2005 (and I also remember how Boots tried and failed in the late 90s/early 2000s because I was involved in the launch!) – and Walmart has made some headline-grabbing moves of late in terms of shifting around its international business interests. It sold off a majority stake in its Brazilian business last month, merged Asda with J Sainsbury in April and recently announced its purchase of a $16bn stake in Flipkart in India. Selling off Seiyu sounds like it would make good strategic sense, but the buyer is going to be in for a rough ride methinks.
Asos investors take fright over sales (The Times, Deirdre Hipwell) highlights the 10% drop in Asos’ share price as investors panicked despite
the firm announcing a very healthy 22% increase in sales. The thing that spooked investors was the company’s announcement that full-year figures would be at the lower end of its previously announced range of 25-35% sales increase, citing slower overseas growth. The company even maintained the profit outlook for the year, but this couldn’t stop the rout. * SO WHAT? * Asos was founded in 2000 and has surfed the wave of online retailing ever since with a few blips here and there, notably overtaking M&S in terms of market value back in November last year (although it has fallen back since then). I would be inclined to agree with the conclusions in Asos: friction fiction (Financial Times, Lex), that this is a short term aberration and that the company is well placed to take full advantage of the continued growth of online retailing. It has been a victim of its own success as it keeps overachieving (hence the punchy valuation), so any disappointment tends to get magnified.
Elsewhere in the world of UK retailers, DFS and Dunelm blame the heat for bad sofa sales (The Guardian, Julia Kollewe) gives the companies’ respective excuses/explanations for their poor performance with DFS announcing its second profit warning in just over a year and Dunelm cutting its profit forecasts after issuing a profit warning in May. DFS, which also owns Sofology, Dwell and Sofa Workshop said in a statement that “in the fourth quarter to date, exceptionally hot weather, including over key trading weekends, has led to significantly lower-than- expected order intake”. * SO WHAT? * Some analysts are saying that this is all weather-related and not much to get concerned about, but it’s worth saying that these companies can also be seen as a sort of proxy on confidence in the economy as they sell big- ticket items. Sales generally correlate to the housing market as buying a sofa generally tends to happen when people move house. If that is the case, I would argue that sales could stagnate for even longer given our current political and economic turmoil, along with Brexit being around the corner.
Meanwhile, the weather has been GOOD for others, as per Paddling pools make a summer turnover splash for B&M (Daily Telegraph, Rhiannon Curry), where the discount retailer has sold an impressive 250,000 paddling pools, 200,000 water pistols and 50,000 patio sets this summer! The company had its best summer season yet and its overall revenues were up by 21.3%. Sales at its German brand Jawoll were up by 6.9% and revenues from Heron Foods, the convenience store it bought last August, were also solid. The chain is continuing to expand and intends to make a push in southern England.
UK CONSUMER SPENDING
In news on UK consumer spending, credit card defaults are on the rise and first-time buyers power mortgages…
Rise in credit card defaults stokes fears of a UK downturn (Daily Telegraph, Iain Withers) cites the latest findings of the Bank of England’s credit conditions survey that there was “a significant increase in default rates on credit card loans” between April and June this year, which would imply that consumer budgets continue to be tight. * SO WHAT? * Credit card spending is something that that the BoE has been keen to crack down on, and an increase in defaults is worthy of note because it can often be a leading indicator of an economic downturn.
Lenders have continued to cut the amount of unsecured credit they make available to customers for the sixth quarter in a row although overall demand for unsecured credit has remained unchanged.
Sharp rise in first-time buyers boosts home lending (The Guardian, Angela Monaghan) cites the latest data from UK Finance, a lobby group for the financial services industry, which showed that the number of first-time buyers increased in May whilst the number taking on new buy-to-let mortgages fell. Interestingly, the average first-time buyer in the UK is 30, has a gross household income of £42,000 and takes on a loan of £142,452 at a loan-to- value of 85%. Jackie Bennett, director of mortgages at UK Finance observed that “the mortgage market is seeing a pre- summer boost, driven by a rise in the number of first- time buyers and strong remortgaging activity. Meanwhile, purchases in the buy-to-let market continue to be constrained by regulatory and tax changes, the full impact of which have yet to be fully felt”.
MERGER & ACQUISITION
In merger and acquisition news, Broadcom’s big deal goes down like a lead balloon…
Following on from the story in yesterday’s WIFI about Broadcom buying CA
Technologies, Broadcom shares sink as latest deal puzzles Wall Street (Wall Street Journal, Ted Greenwald and Miriam Gottfried) shows that Broadcom’s shares tanked by 14% in trading yesterday as investors collectively thought “WTF did they go and do that for?”. Chief exec Hock Tan has a rep for doing deals as part of building the company into a chip powerhouse, but it seems that investors weren’t up for his latest wheeze as everyone thought it was a bit random. He’s really going to have to make this work otherwise this could be his downfall!
…And finally, in other news…
Fed up of the duckface, fish gape or squinch?? Well there’s a new selfie pose in
town that’s causing a kerfuffle: ‘Migraine pose’ is the new Instagram trend celebs love – but it’s making people very angry (The Mirror, Courtney Pochin https://tinyurl.com/y7zoy93l). Oh dear. Something tells me that people who dream these things up have FAR too much time on their hands!
As always, thank you for reading the WIFI!