Friday 19/07/19

  1. In RETAIL NEWS, sales rise, Waitrose cuts, Debenhams asks for more money and Asos has another profit warning
  2. In CIGARETTES & ALCOHOL NEWS, ABInBev lines up asset sales, TDR buys Ei and Philip Morris International invests more in alternative ciggies
  3. In TECH NEWS, Qualcomm gets an EU fine, Microsoft puts in a solid performance, Netflix’s business model gets a buffeting and N26 becomes Europe’s most valuable digital bank
  4. In OTHER NEWS, I bring you a humourous Uber driver…



So retail sales rise, Waitrose cuts, Debenhams begs and Asos suffers…

Strengthening picture for retail sales as shoppers hunt for value (Daily Telegraph, Tim Wallace) cites the latest figures from the Office for National Statistics which show that retail sales rose last month as a tight labour market and wages-rising-above-inflation helped shoppers spend. Families all spent more and secondhand shops did particularly well. Department stores continued to disappoint and online sales fell again, meaning that they have fallen for every month of this year so far. Online sales now make up 18.9% of all retailing by volume and online sales of clothes continued an upward trend, now equating to almost 20% of all apparel sales. * SO WHAT? * Not too shabby given economic uncertainties at the moment! Still, it’s interesting to see online sales growth slowing down.

Waitrose to axe seven more stores putting 700 jobs at risk (The Guardian, Sarah Butler) brings our attention to the group’s second round of closures this year – and three of the seven have been sold to Lidl. Another one in Sandhurst will be sold to an unnamed buyer while outlets in Marlow, Stevenage and a convenience store near Heathrow Airport will just be shut down. This comes only a few months after it sold off five unprofitable shops in March. * SO WHAT? * All supermarkets have been trimming underperforming stores as it appears that only Aldi and Lidl are really grabbing more customers. Waitrose says that it will be concentrating on differentiating its offering, adding better services and new products rather than size. I personally

think that is the way to go – don’t copy something that you can’t! I think that all supermarkets need to focus on the things Waitrose says and cater properly to their target customer.

Elsewhere, Debenhams seeks £50m to ease Christmas trading period (The Guardian, Sarah Butler) sounds rather worrying as the ailing department store is trying to get a £50m cash buffer to help it trade through Christmas. It is scheduled to close at least 22 of its 166 UK stores in January that will involve 4,000 job losses out of its current 20,000. * SO WHAT? * I don’t want to sound hysterical, but surely alarm bells should be ringing here? Debenhams is a business that is out of touch and has no chief executive going into the most crucial stage of its history. Lenders are said to continue to be supportive but this just sounds like a car crash waiting to happen.

Asos issues second profit warning in seven months as shares fall (The Guardian, Zoe Wood and Julia Kollewe) shows how even online retailers can suffer – this time the online fashion retailer blamed IT problems in its overseas warehouses in Germany and the US. Shares in Asos cratered by 23% on the news after the previous profit warning saw its shares dive by 60% in December. Although sales were up by 12% in the latest quarter, growth in Europe and the US was below expectations. * SO WHAT? * These problems sound like they are more with the management rather than anything else, so pressure ratchet up on chief exec Nick Beighton in particular. It may be that he survives for now, but if he doesn’t turn things around by Black Friday, he could be in for the chop.



ABInBev opts for sell-offs, Ei’s pubs are bought for £3bn and Philip Morris puts more into cigarette alternatives…

ABInBev lines up $10bn of asset sales after failed IPO (Financial Times, James Fontanella-Khan and Leila Abboud) shows ABInBev moving quite quickly after it decided to pull a recent IPO of the Asian business. This “Plan B” involves the selling off of brands that could raise at least $10bn, which would help to put a dent in its $106bn debt pile. * SO WHAT? * Some will be questioning the need for doing this as Bernstein analysts think it could pay down $7bn of debt per annum by using the cash generated from selling its products, but maybe the company just wants to do things faster.

Fears that £3billion swoop will call time on traditional pubs (Daily Telegraph, Oliver Gill) heralds the acquisition by buyout giant TDR Capital of Ei (which used to be known as Enterprise Inns) which has the country’s biggest pub estate at 4,000 pubs. The price was at a near 40% premium to the price before the bid, which is great for shareholders but not so good for those who fear the demise of the traditional British pub. TDR-owned Stonegate, which owns pub chains including Slug & Lettuce, said it will write to the

Competition and Markets Authority to get permission for the deal. * SO WHAT? * TBH, pubs are dying out anyway – some research says that 14 shut every week. If they can be saved by a big company willing to invest, then surely that is a good thing? Purists will bang on about how they are the heart of the community blah blah but these are probably the same people who moan about the death of the high street and that their local Debenhams shouldn’t close down. Fair enough, but there’s a reason why these things collapse – if you wanted to save your department store, don’t shop at Amazon – and if you don’t want your pub to close down, stop buying alcohol from supermarkets and drinking at home! Simples! No doubt there will be some closures involved if this deal gets past the CMA.

Marlboro maker bets $100m more on alternative cigarettes (Financial Times, Alistair Gray) highlights Marlboro-maker Philip Morris International’s efforts to get people to use their cigarette alternative IQOS by earmarking another $100m to accelerate innovation in this product. * SO WHAT? * Competition is intensifying in cigarette-alternatives and PMI clearly wants to stay ahead of the curve. Critics say that these new products are just a way of introducing nicotine to a new generation whereas the company itself will say that it is doing “the right thing” in weaning people off cigarettes. Alternatives would appear to be the lesser of two evils, so it’ll be interesting to see who wins out in this arena. PMI certainly has a lot of money to throw at it!



Qualcomm gets an EU fine, Microsoft posts decent results, Netflix has a lot to think about and N26 become Europe’s most valuable digital bank…

I spoke earlier this week about Amazon getting investigated but EU hits Qualcomm with €242m fine over pricing (Financial Times, Madhumita Murgia and Alex Barker) shows that European Competition Commissioner Margrethe Vestager continues to clamp down on Big Tech as she heads into the final strait of her tenure. Qualcomm was fined for abusing its dominant market position, marking the end of a nine year case. This comes one year after the company was fined €997m for paying Apple billions of dollars to use its products exclusively in its iPhones and iPads, shutting out any competition. Qualcomm is, unsurprisingly, going to appeal.

On a lighter note, Microsoft’s cloud business drives record sales (Wall Street Journal, Asa Fitch) highlights the strong performance in the company’s cloud-computing division this quarter, with both revenues and profits coming in above Wall Street estimates. Revenues in cloud-computing business Azure shot up by a whopping 39% as companies continue to shift away from buying applications towards paying subscriptions and renting computer power. * SO WHAT? * The company is pretty bullish about the full year as well, so it seems that its transition from its previous business model of selling Microsoft Windows is working well.

I spoke about Netflix losing subscribers in yesterday’s Watson’s Daily but Netflix: house of cards (Financial Times, Lex) makes some interesting observations – that the cost of finding and retaining subscribers is increasing, that making proprietary content has higher upfront costs and that the ability of punters to binge watch means that more and more content is required to keep them from leaving. At the end of the day, this is just one weak quarter, but the fact that it comes just before a slew of powerful competitors launch their own offerings will give many investors who bought in on hope a reality check. It concludes that if Netflix wants to keep bumping up the subscriber numbers, it either needs a massive smash hit show or to cut its prices.

N26 most valuable digital bank in Europe (The Times, Katherine Griffiths) sounds like the answer to a pub quiz question but N26, which launched in 2015 and hit these shores only nine months ago, has just reached a record valuation as its latest funding round raised $170m. This now implies a valuation of the company of £2.8bn, versus Monzo’s of £2bn and Oaknorth at £2.2bn. The company is still loss-making if you take into account the investments it makes in its growth, but if you strip that out (and, let’s be honest, you can’t!) it is profitable according to Will Sorby, its general manager in Britain. Hahaha – he’s not biased at all, noooooo. * SO WHAT? * Fintech valuations are getting pretty punchy these days, but it’ll be interesting to see how well they do in a Brexit downturn. As Warren Buffett once said “You never know who’s swimming naked until the tide goes out”. I have a feeling that some of these companies will have one eye on the clock in terms of making sure that they can make themselves some swimming trunks before the Brexit tide goes out!



And finally, in other news…

I thought I’d leave you with An Uber driver made a hilarious ‘ride menu’ for his passengers, offering everything from ‘life lessons’ to complete silence (Insider, Ian Burke I suspect that a lot of people will want Uber to make this standard practice!

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Some of today’s market, commodity & currency moves (as at 0849hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,493 (-0.56%)27,223 (+0.01%)2,995 (+0.36%)8,20712,228 (-0.92%)5,551 (-0.38%)21,467 (+2%)2,924 (+0.79%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)