Friday 31/05/19

1. In TECH NEWS, Dell’s revenue growth slows, Huawei cuts out US employees and EE launches 5G in the UK
2. In RETAIL NEWS, Costco’s sales rise, Gap suffers and Majestic looks more likely to sell all of its stores
3. In TRANSPORT-RELATED NEWS, Uber posts $1bn loss for the first quarter and First Group looks at selling its UK business to concentrate on the US
4. In INDIVIDUAL COMPANY NEWS, German media group Axel Springer looks at going private, we look at challenges facing the FCA/Renault merger and the advent of CBD ice cream
5. In OTHER NEWS, I bring you a four seasons umbrella. For more details, read on…

So Dell’s revenues disappoint, Huawei’s US employees get the cold shoulder and EE launches 5G…

Dell revenue growth slows (Wall Street Journal, Patrick Thomas) shows that although the PC maker was profitable for the first quarter, revenue growth fell short of market expectations – hence the 3.3% share price fall in after-hours trading on the news. The company believes that corporate IT spend will rise going forward, but that it will have to monitor progress re the US-China trade talks. * SO WHAT? * Dell is often seen as one of the bellwethers for PC and software spend – as well as business confidence (the latter because companies will only spend if they are feeling flush – otherwise they just soldier on). The fact that it returned to the public markets after five years of being a private company means that it will be a bit easier to follow these trends because its operations will be more transparent. Interestingly enough, competitor Hewlett-Packard Enterprises said last week that its quarterly sales fell by 4% as it failed to close some business deals – presumably because buyers were faffing about the impact of the ongoing US-China trade negotiations. As Dell’s CFO Tom Sweet put it, “Right now, we’re going to have to go execute through some – and navigate probably through some – choppy waters at times, but that’s the job we have to do”.

You will, by now, be used to hearing about Huawei-bashing from the American side but Huawei orders employees to cancel meetings with US contacts (Financial Times, Sue-Lin Wong, James Kynge and Louise Lucas) gives you an idea of what it’s like if you’re an American employee working at the company’s Shenzhen headquarters.

Basically, US citizens working in R&D at Huawei’s HQ were sent back to the US two weeks ago when Trump put the company and 68 of its affiliates on his “entity list” and now the company is making big changes as to how its Chinese and US offices communicate with one another. The company is also limiting interactions between employees and any US citizens – even to the extent of checking the passports of any non-Chinese to its campus to make sure they aren’t American! If they are, they have to make sure that none of their private conversations are about technology! Freaky or what?!? It’s interesting to see what’s going on on the ground…

Unless you spent yesterday in a cave, you will have seen that EE launches UK’s first 5G service (Financial Times, Nic Fildes) to great fanfare – one month ahead of Vodafone. Although we were one of the last major economies to launch 4G, we are actually one of the first to jump on 5G. It’s already been launched in the US and South Korea as well as Switzerland and a few smaller countries like Monaco, Jersey and San Marino – but we are ahead of most of Europe. At the moment, the UK launch is limited to our six largest cities but EE expects to roll out 100 new sites per month although it only expects customer take-up to be gradual. * SO WHAT? * It’s launched, we’re a bit ahead of others but so far so meh. It’ll take a while to catch on (new generations always do) but I would have thought that this will be good news for handset makers (unless you are called Huawei ????)in the next few years as news of 5G’s superior speed will spread and give everyone a reason to upgrade their phones. They might have to take a bit of a hit in the short term as users hang on to their phones waiting to see more 5G coverage before upgrading, but this could give handset sales a nice boost in the medium term. I would have thought that this will also be good news for gaming companies given the new possibilities faster networks will bring. 

Costco sees stronger sales, Gap weakens and Majestic’s outlets look more likely to get sold off…

On the positive side, Costo sales rise as tariff uncertainty looms (Wall Street Journal, Sarah Nassauer) highlights a decent performance for comparable sales (which means sales at stores and through websites that have been knocking around for at least the last 12 months), with e-commerce sales rising by a healthy 20% over the quarter. Costco’s CFO says that the US-China trade shenanigans are making it difficult to predict the exact impact of another 25% tax on $200bn-worth of Chinese imports, but it will increase prices for sure. * SO WHAT? * Decent enough performance, but it will be hit – like other retailers – with higher costs. Likely beneficiaries will probably include domestic suppliers who may have lost out in the past to the Chinese.

On the negative side – and following on from Abercrombie & Fitch’s poor performance – Gap brand, Old Navy post weakest sales in three years (Wall Street Journal, Khadeeja Safdar) shows disappointing figures from Old Navy – which saw comparable sales fall for the first time

in three years – and Gap itself, which had its biggest sales decline for three years. Chief exec Art Peck blamed poor weather (that old chestnut!), weaker footfall, lower tax refunds and a decision to delay marketing spend until later in the year. The outlook wasn’t that bright either. Gap’s share price fell by 12% in after hours trading on the news. * SO WHAT? * This is disappointing news as it comes ahead of it splitting into Gap and Old Navy into separately quoted companies sometime in 2020 – but at the same time it is symptomatic of the contrasting fortunes of both brands. It really is tough out there for many apparel retailers at the moment.

In Majestic Wine’s plan to sell its stores backed by activist (Daily Telegraph, Ashley Armstrong) we see that a sale of all of the company’s retail outlets is looking more likely as activist investor Gatemore Capital, which is known most recently for having agitated for change at French Connection and now has a 4% stake in Majestic, is backing the strategy previously mooted by the company. * SO WHAT? * Majestic is thought to be close to selling off its store estate for £100m to focus on its online Naked Wines business. The cash raised from the sale will be ploughed into the online business. Mind you, if there is no buyer, chief exec Rowan Gormley says that the Majestic business will be run down and unprofitable stores will be closed.

Uber continues to lose money and First Group wants to concentrate on the US…

Uber posts $1bn loss for first quarter (Daily Telegraph, Olivia Rudgard) is about as surprising as being told that bears sh!t in the woods but the taxi app company confirmed its continued losing streak last night despite seeing revenues climb by 20% over the quarter. Uber’s continuing to spend money to make money by expanding geographically and into different business areas like food delivery and driverless cars but just isn’t making any profits. Maybe one day, eh…

FirstGroup confirms sale of UK bus division to focus on US business (The Guardian, Gwyn Topham) is an interesting one as FirstGroup, one of our biggest transport companies, announced that it will sell off its bus division and potentially withdraw from UK rail operations following concerted pressure from big shareholders. Although it said it will sell off its Greyhound business in the US – which has strong revenues but is unprofitable – and concentrate instead on its school bus operations First Student and First Transit, which make 60% of the company’s operating profits. First operates South Western trains as well as Great Western Railway, TransPennine Express and the smaller Hull Trains. * SO WHAT? * Wow – this is going to be messy. Activist investor Coast Capital, which is the biggest shareholder with a 10% stake, is agitating to replace the board arguing that First will more than likely destroy value in the disposals but things must be pretty bad for the company to make this sort of dramatic move.

Axel Springer looks to go private, we look at the hurdles facing the FCA/Renault merger and the possibility of cannabis-infused ice cream…

KKR and Springer plan to open the door on deals both desire (Financial Times, Tobias Buck, Javier Espinoza and Arash Massoudi) shows that German media group Axel Springer is looking at taking the company private along with the blessing of KKR and Springer’s founding family. This would make the company private for the first time since 1985. * SO WHAT? * Quite dramatic, but understandable given that the management (and family) wants to continue to be in the driving seat. Being quoted on the public markets can bring prestige, publicity and money – but along with it comes the drag of constant accountability to shareholders and restrictions on making deals. It sounds like the company wants to go full steam ahead into digital and taking the company private could well give it more freedom to do so without the prying eyes of troublesome shareholders.

Fiat Chrysler and Renault: the roadblocks in way of merger deal (Financial Times, Peter Campbell, David Keohane, Kana Inagaki, Leo Lewis and Rachel Sanderson) is a great article which breaks down the issues that a merger between Fiat Chrysler Automobiles and Renault will have. You should definitely have a read if you are interested but the short version is as follows. The deal could face problems from political interference (France and Italy don’t want massive job losses), the make-up of the board (i.e. what will the role of the French state be and what about Nissan?), anti-trust issues given geographical overlaps plus Trump sticking his oar in, valuation (it’s been hit by former top dog Carlos Ghosn’s arrest, so some think that the price is too low), other bids (always a possibility) and Nissan potentially spoiling the party as a long-time alliance partner. Conclusion? It’s not a done deal.

It is high time for an ice cream infused with CBD (The Times, Tom Knowles) heralds the potential arrival of cannabis-infused ice cream (once it is legalised!) as Ben & Jerry’s is experimenting with infusing some of its flavours with cannabidiol oil (CBD). The company joins other American brands like Coca-Cola, Walgreens, CVS and Oreo-cookie maker Mondelez, experimenting with CBD-infused products. CBD oil contains no THC, which is the psychoactive component of cannabis, but is thought to have health benefits including better sleep, less anxiety and pain relief. This is going to be huge someday!

And finally, in other news…

I thought I’d leave you today with a rather unusual new product: How to stay cool in Japan this summer? With a mist-spraying Fanbrella (SoraNews24, Oona McGee https://tinyurl.com/yywr9p56). Ridiculous though this looks, if you know what a Japanese summer is like, this thing looks like a godsend! Any of you considering going over there for the Tokyo Olympics next year should consider buying one of these!