Friday 22/03/19

  1. In MACRO NEWS, Brexit gets a tight window and the Bank of England leave interest rates unchanged
  2. In HIGH STREET NEWS, Ted Baker and Next stumble, The Entertainer gains on parental fear as a number of Giraffe and Ed’s Easy Diner restaurants face closure
  3. In INDIVIDUAL COMPANY NEWS, Facebook admits user password sharing and Tencent profits are hit by restructure spend
  4. In IPO NEWS, Levi Strauss has a strong opening and Pinterest edges closer to flotation
  5. In OTHER NEWS, I bring you a warning about office mugs. For more details, read on…



So Brexit gets a short deadline extension and the Bank of England leaves interest rates untouched…

EU imposes new Brexit timetable allowing May last chance for deal (Financial Times, Michael Peel, Jim Brunsden and George Parker) is the leader in today’s FT and says that the 27 EU members (aka “the EU27”) demanded that Theresa May either gets the Brexit deal through in a Commons vote next week (in which case the Brexit date would be moved from March 29th to May 22nd) or “indicate a way forward” by April 12th if it did not go through. Either way, the June 30th date she had floated before is toast. The drama continues as Germany’s Merkel and France’s Macron argued over how much leeway to give Britain, the CBI and TUC wrote a joint letter to May pleading for a Plan B and an online petition calling on the UK

government to revoke Article 50 got over 2 million signatures by yesterday evening, causing the government website to crash. Talk about chaos…

In the midst of all this, Bank of England holds interest rates as Brexit clouds outlook (Financial Times, Chris Giles) tells us that the Bank’s Monetary Policy Committee (MPC) decided to leave interest rates unchanged at 0.75% on Thursday, in a unanimous vote. * SO WHAT? * Virtually everyone expected the interest rate to remain unchanged but some economists have been saying that the rate will rise once we get more clarity on Brexit given recent strength in labour market, retail sales and public finances data. Interestingly, the MPC also published results of a survey designed to give it an idea of what companies are doing as the March 29th deadline approaches. It found that 80% of companies who responded “judged themselves ready for a no-deal, no-transition Brexit scenario” – up from 50% when the Bank asked the same question in January.



Ted Baker and Next stumble, the Entertainer picks up and more restaurant closures are about to hit…

Ted Baker profits fall after founder resigns (The Times, Alex Ralph) highlights trouble at Ted Baker as its profits have fallen for the first time since the financial crisis. The company will also cut its dividend – for the first time since the company floated in 1997 – after a 26.1% drop in profits due to a combination of increased discounting among fashion retailers, department store woes and one-off costs related to the controversy surrounding the eventual resignation of its founder, Ray Kelvin. * SO WHAT? * Ted Baker is usually seen as one of the high street’s “winners” with a distinctive brand identity, swift global expansion and successful online business. However, allegations of “forced hugging” by employees and a “culture that leaves harassment unchallenged” have led to Kelvin’s departure from the business. This is a problem because Ted Baker’s success thus far is very closely associated with the founder himself, who had a very tight grip on the business. Having said all that, the fall in profits was widely expected after the company announced a warning last month. It seems to me that the company has done its best to “kitchen sink” its problems, which should clear the way for management to step up and fill the void left by Kelvin. Let’s hope they are up to the task otherwise Ted Baker could just shrivel up and go the way of other less successful fashion retailers on the high street.

Next profits fall but boss says Brexit not affecting spending (The Guardian, Zoe Wood) highlights Next’s third consecutive year of falling profits due to poor performance in its high street shops. Lord Wolfson, Next’s chief exec and prominent Leave campaigner, remarked that “Our feeling is that there is a level of fatigue around the subject that leaves consumers numb to the daily swings in the political debate. It appears to us that consumer behaviour will only be materially changed if the UK’s departure from the EU begins to affect employment, prices or earnings”. * SO WHAT? * I think that the most interesting bit of its announcement yesterday was the massive difference in performance of its shops (poor) and its online operations, which saw profits storming ahead by 14%. For the moment, it doesn’t seem like Wolfson is angling to close more stores, but it certainly looks like online is more than compensating for offline underperformance.

Elsewhere on the high street, The Entertainer benefits from parental fears of addiction (Daily Telegraph, Charlie Taylor-Kroll) highlights a strong performance from the children’s toy retailer, with a 31% rise in pre-tax profits and a 22% rise in revenues. Founder and executive chairman Gary Grant said that it had benefited from “parents starting to restrict screen time and encouraging [their children] to interact more with other people through playing with toys”. The Entertainer is another retailer that is experiencing strong performance from its online division – sales from increased by a whopping 38%. Online sales now account for almost 20% of sales. * SO WHAT? * I think that this is a stunning performance from a retailer that doesn’t open on Sundays or sell Harry Potter merchandise (because of Grant’s Christian beliefs – the Harry Potter thing is due to its association with the occult) in an area which has been beaten up pretty badly (just ask Toys R Us, Hasbro and Mattel). It remains to be seen whether it can sprinkle some of its magic The Entertainer fairy dust on its recent Early Learning Centre acquisition from Mothercare, but if anyone can I suspect that The Entertainer can! It’s certainly doing a lot right at the moment.

Giraffe restaurants to close after vote (The Times, Dominic Walsh) heralds the demise of 27 restaurant closures and at least 340 job losses after KPMG confirmed that a company voluntary arrangement (CVA) would go ahead as part of restructuring Giraffe Concepts, the holding company of Giraffe and Ed’s Easy Diner. 20 Giraffes and 7 Ed’s Easy Diners are slated for closure as part of the CVA and Boparan Restaurant Group (BRG), which is the ultimate owner said it will inject up to £10m into the streamlined business to put it back on track. * SO WHAT? * This will be tough to take for employees, but both chains were distressed purchases in the first place – BRG bought Giraffe from Tesco in June 2016 for around £13m and then a few months later bought Ed’s via a pre-pack administration for £8.75m. Since BRG got involved, performance improved but ultimately it wasn’t enough. BRG’s chief exec Tom Crowley observed that “The combination of increasing costs and over-supply of restaurants in the sector and a softening of consumer demand have all contributed to the challenges both these brands face”. BRG also owns Harry Ramsden, Fishworks, Cinnamon and has the UK franchise to Slim Chickens – but none of these are affected by the CVA.



Facebook makes another admission and Tencent’s profits fall sharply…

Just when Facebook thought it was safe, Hundreds of millions of user passwords exposed to Facebook employees (Wall Street Journal, Jeff Horwitz and Robert McMillan) highlights another privacy problem and PR headache for the social media giant. The company disclosed yesterday that it had for years stored passwords for millions of users in a format that was accessible by employees – but it added that no passwords were exposed externally and that it hasn’t found any evidence of the information being abused. The company’s VP of engineering, security and privacy, Pedro Canahuati said that those affected would be notified. * SO WHAT? * As things stand at the moment, this looks more like a headache rather than an outright disaster as no damage has been identified. The thing is, given the criticism that Facebook has been facing over the last year regarding data security, any kind of data-related problem was bound to be jumped on. This is bad news for Facebook, but not insurmountable IMHO.

In Tencent profits plunge 32% as it ramps up restructuring spending (Financial Times, Louise Lucas) we see that China’s second most valuable listed company saw fourth quarter profits fall by a very chunky 32% year on year as it increased restructuring spend following a slowdown in its gaming business. The company is currently trying to wean itself off its heavy reliance on gaming (this division accounted for 36% of revenues in Q4, down from 45% a year ago) and diversify its earnings as it faces increased competition in messaging, livestreaming and social media services. It is trying to up its efforts on serving business customers with cloud computing and data analytics. * SO WHAT? * Tencent has been suffering from a nine-month government suspension on new licences after authorities decided to crack down on the addictive properties of computer games and their impact on kids – so it’s good to see that they are making proper efforts to diversify.



Levi Strauss has a successful float and Pinterest gets closer to its own…

Levi Strauss shares surge 32% in debut (Wall Street Journal, Allison Prang and Suzanne Kapner) heralds a successful first day of trading for the jeans company, but I just wonder about the longer term success of a company that is heavily reliant on one very common product.

Meanwhile, Pinterest steps up planning for IPO, aims to list shares on NYSE in April (Wall Street Journal, Maureen Farrell) highlights yet another company about to jump on the IPO fun bus and take advantage of investors’ seemingly insatiable appetites for flotations.



And finally, in other news…

I thought I’d leave you this week with a warning on your office mugs in 1 in 5 office mugs contain faecal matter – and it’s probably not your own (The Mirror, Zoe Forsey YUCK!