Monday 14/10/19

1. In RETAIL/HIGH STREET NEWS, we see UK shopper numbers fall, how UK retailers can learn from their American cousins and why Pizza Express might survive
2. In NEWS ON TRENDS, Marijuana stocks get a kicking while companies are looking increasingly vulnerable to shocks
3. In INDIVIDUAL COMPANY NEWS, Netflix gets sold down and Revolut wants to raise $1.5bn for expansion
4. In OTHER NEWS, I bring you some excellent animal photos…

So we see that UK shopper numbers are weakening, how UK retailers could learn from American counterparts and why Pizza Express might be OK after all…

Number of shoppers on UK high street falls by 10% in seven years (The Guardian, Kalyeena Makortoff) cites the latest figures from the British Retail Consortium (BRC) and Springboard which reflect ongoing challenges on the UK high street. Retail footfall fell by 1.7% last month versus September last year as high street retailers have continued to suffer from online competition. BRC chief exec Helen Dickinson continues to paint a gloomy outlook and said that “if the government wants to support consumers and retailers they should make sure they take no deal off the table, while addressing the public policy costs such as business rates, that prevent shops from investing in their retail offering”. Christmas is always important for retailers, but a good one may mean the difference between going bust and survival for some.

One way that retailers might be able to boost sales is to copy their American cousins as per Retailers can learn trick or two from US (The Times, Patrick Hosking) which says that struggling retailers should try to promote festivals other than Christmas, like Halloween, to boost sales. Nina Skero, chief exec of the Centre for Economics and Business Research observed that retailers have tended to promote Christmas earlier and earlier (Selfridges opened their Christmas department in July, John Lewis in mid-September and even the cashier down at my local M&S told me management were encouraging staff to sell mince pies from last month!), but data from the Office for National Statistics implies that this just spreads Christmas over a longer time frame. Halloween is a serious earner in the ‘States as Americans spend $9bn on related merchandise while we spend a more “paltry” £419m. * SO WHAT? * This certainly sounds logical to me and there would seem to be a decent amount of upside to be had from promoting other festivals – although I think that if

retailers were really canny, they should perhaps try to invent new ones! For instance, Alibaba appropriated the relatively unknown Singles Day celebration in China in 2009 and then promoted it as an opportunity for consumers to splurge on gifts to themselves, offering big discounts through its consumer shopping site, Tmall. It is now one of the biggest, if not THE biggest offline and online shopping day in the world! And what about White Day in Japan – which is held exactly one month after Valentine’s Day where men are supposed to give women gifts to reciprocate the gifts they received on February 14th. This was first celebrated in 1978 in Japan and thought up by the National Confectionery Industry Association! Doing something like this would take some doing these days, but I’m sure it’d be possible if enough industry heads were involved and it was marketed properly…

For those of you who were saddened by the tricky situation currently being experienced by Pizza Express, No sell-by date on Pizza Express (The Times, Dominic Walsh) should give you reason for cheer because it says that it won’t go under and that it won’t have to deploy a CVA like some of its fellow high street strugglers (despite rumours published in The Sunday Telegraph yesterday that its bondholders were thinking of doing so) because, according to data analysis firm Debtwire, only 25 of the UK and Ireland’s 480 outlets are actually loss-making. * SO WHAT? * If that is indeed the case, maybe things will work out for the company. However, David Page, a former super-franchisee and CEO at Pizza Expess and current exec at successful competitor Franco Manca, poured scorn on that assessment and said that the percentage of loss-making outlets in an average restaurant chain portfolio is about 10-15%, adding that “If you were starting a casual dining pizza chain today, you wouldn’t open more than 250 stores because there aren’t the sites to support them”. We’ll just have to monitor further developments, but I am sorry to say that although I want to believe, I just don’t think it will be able to survive in its current form without something very dramatic happening. I said last week that I thought its offering is just not that inspiring and that the competition has just moved on. I’m all for comfort food, but Pizza Express will really have to engage in some out-of-the-pizza-box thinking to get things back on track IMO.

Marijuana stocks get smoked and dividend cover (sounds boring but IS important) makes shares look vulnerable…

Marijuana madness turns into cannabis crash (Wall Street Journal, Jacquie McNish and Vipal Monga) highlights weakness in the share prices of marijuana producers last week following a number of disappointing reports of quarterly performance and investor wobbles over sky high valuations. Hexo Corp, which has a joint venture (no pun intended), with Molson Coors Brewing, saw its share price crater by 38% last week as it cut its full year revenue outlook dramatically due to lower sales and pot prices – it’s CFO had resigned the week before. Then LA-based MedMen Enterprises announced that it was abandoning its proposed merger with Chicago-based Pharma-Cann due to difficult market conditions, pointing to the near-halving of cannabis stocks in the Horizons Marijuana Life Sciences Index as evidence of the current situation. Even the big players like Canopy Growth have seen their share prices fall by over 30% so far this year despite having the backing of Constellation Brands, who bought a 38% stake in the company not so long ago. Clearly, Constellation must have been concerned as they installed their CFO as Canopy’s board chairman last Thursday. * SO WHAT? * It sounds to me like the legalisation of cannabis in some states and countries led to a huge amount of froth which then turned into industry consolidation and over-hyped valuations. The

reality seems to be that the roll-out of legalisation and approval of products with varying amounts of CBD (the “good” element of cannabis) and THC (the “naughty”/dangerous element of cannabis) is proving to be much slower than everyone was hoping, which is resulting in a supply glut. I think that this may well result in more consolidation as company valuations come back down to earth and present more reasonable buying opportunities.

Stay with me for Shrinking cover poses threat to dividend payouts (The Times, Louisa Clarence-Smith) because chat about dividend cover isn’t usually all that exciting. Well, to be honest, this isn’t really all that exciting – but it is important!  Stats from the Henderson International Income Trust (HINT), an investment trust, show that dividend cover for British firms (this is the number of times a company’s dividend payout is covered by after-tax profits) is getting to its lowest level for a decade as dividend payouts have been rising while profits have been falling. * SO WHAT? * Yes, this all sounds rather boring, but the thing is that if dividend cover is narrowing fast, it means that companies and their investors are going to be particularly vulnerable to a downturn. This is because companies will either have to cut or cancel their dividends and investors who invested in companies for their dividend payout will get no love and may possibly be forced to sell their holdings as a result, making the situation worse for the companies as well. Generally speaking, divindend cover tends to rise when the economy is doing well and then level out as companies make higher payouts versus their profits before an economic contraction forces a sudden correction – and then the whole things starts over again.

Netflix is a fave of short-sellers and Revolut wants money for expansion…

Short sellers stream into Netflix as big rivals launch (Daily Telegraph, James Titcomb) highlights the increasing number of short sellers (investors who borrow shares in a company and sell them because they believe they can buy them back at a cheaper price when the stock falls) of the streaming giant as the launch of rival services from Disney and Apple approaches. They are set to launch within a month and will undercut Netflix subscription charges – and this has led to shares in the streamer to fall by about 25% in the last three months. Netflix is trying to launch  new high profile programming to keep users loyal but we’ll see soon enough what the impact will be of the newcomers.

Revolut looks to raise $1.5bn to expand worldwide (Financial Times, Stephen Morris) shows that UK fintech company Revolut’s wants to raise as much as $1.5bn in a global expansion bid. This follows a recent partnership with payments company Visa to open in 24 new countries including the US, Canada, Japan and Singapore and last year’s application for a eurozone licence. * SO WHAT? * This is very exciting, but I think that the company is still vulnerable to slippage as it suffered recently from continued allegations of its chief exec Nikolay Storonsky’s links with Russia and other bad press about how it treats its employees. Still, these things are probably just bumps on the road of a start-up that has only existed for five years! At least they are now shipping in some heavyweight senior management in the form of ex-Goldman Sachs exec Michael Sherwood (already appointed) and Martin Gilbert (due to be announced as its new chairman) to give them a dusting of legitimacy.

And finally, in other news…

I thought I’d leave you today with Hilarious animals captured in best photos from Comedy Wildlife Photography Awards (The Mirror, Emma Pryer https://tinyurl.com/y27hlgv7) because it seems like a good way to start the week!