Thursday 13/06/19

1. In TRANSPORT-RELATED NEWS, I bring you stories on sales, batteries and experiments
2. In RETAIL NEWS, Inditex, Lululemon and Boohoo smash it, Lidl makes moves in London and Majestic gets another bidder
3. In INDIVIDUAL COMPANY NEWS, BAT is let down by vaping and Adidas’s winning run has a breather
4. In OTHER NEWS, I bring you a happy but poorer shot bar. For more details, read on…

So we look at car sales trends, battery developments and some experiments…

Car sales plunge in China ahead of emissions rules (Financial Times, Tom Hancock) highlights some tough home truths in the Chinese car market as sales fell by almost 20% last month in the world’s biggest market. Consumers kept their hands in their pockets, not wanting to buy ahead of the implementation in July of tighter new emissions rules and because of increasing concerns about the economy. These figures from the China Association of Automobile Manufacturers also showed vehicle sales falling by 16.4% in May, the fastest year-on-year decline ever, as sales of commercial vehicles like buses and trucks were particularly hard-hit. * SO WHAT? * This is bad news for car manufacturers, but I suspect that the government will step in before things get too bad with some kind of tax incentives etc. Still, the steepness of this drop-off in sales is a shocker.

Back in the UK, Pendragon warns of annual loss as it slashes prices of used cars (The Guardian, Julia Kollewe) shows that Britain’s biggest car dealer warned it would remain in loss-making territory this year because tough market conditions have forced it to slash prices of secondhand cars. Pendragon has 32 secondhand-only car outlets and 177 franchised dealerships and trades under the names of Evans Halshaw, Stratstone and Car Store, selling all the main marques. Interestingly, Pendragon wants to pull out of its US business to focus on the UK used-car market despite current conditions. Its new chief exec Mark Herbert, is doing a full business review that may lead to a breakup of the company and is expected to announced the conclusions in September. * SO WHAT? * I must say that I am surprised to hear a company like this seeing an “exciting opportunity” in the UK used-car market. It seems to me that the trend in cars is going to be away from diesels and petrols and towards electric – and this would surely mean that secondhand prices for “traditional” vehicles will only get weaker as charging capability improves, rendering them obsolete. The fact that (currently) lithium ion batteries deteriorate over time would perhaps lead to people being less likely to buy the vehicles outright (because battery depletion will cause massive depreciation), meaning that there will be loads of vehicles just hanging around with no-one wanting to “own” them in the traditional sense. There may be some mileage (#seewhatididthere) in secondhand for the next few years, but I would have thought the longer term trend is terminal for used.

Talking of electric cars, Bankruptcies and slowdown hang over China’s electric car market (Financial Times, Tom Hancock) highlights problems looming for China’s EV start-ups, such as Nio and Xpeng, as competition intensifies and subsidies that have powered an EV sales boom (sales are now 10x what they were in 2014) start to fade out. Thus far, subsidies have averaged at around Rmb70,000 ($10,100) per vehicle, but this month the subsidy will be cut to about Rmb25,000 for most vehicles. BYD, Beijing Auto and Shanghai Auto accounted for about 50% of China’s EV sales last year. * SO WHAT? * Sales are bound to drop off a cliff. It is common knowledge that once these subsidies are cut, they kill sales. This will no doubt force consolidation among the EV makers in a bid to drive down production costs and preserve margins. Who knows – maybe this will be with other domestic makers, or maybe some of the foreigners will be willing to shell out for some local bargains. The timing of this subsidy cut isn’t great either, given that consumers are getting more concerned about spending on big ticket items.

Despite all this, developments continue apace with Huawei and partners to release self-driving cars ‘as early as 2021’ (Daily Telegraph, Matthew Field) in partnership with a number of European, Chinese and Japanese car manufacturers including Audi, GAC Toyota Motors, Beijing New Energy Automobile and Changan Automobile. Then in batteries, VW and Goldman lead $1bn investment in Swedish battery project (Financial Times, Richard Milne) highlights a push to create a European battery making champion called Northvolt to rival Tesla and Asian makers with $1bn of funding from VW, Goldman Sachs, Ikea (!), and BMW. On a rather smaller scale, Battery revs up scooter in five minutes (The Times, Gurpreet Narwan) highlights the efforts by an Israeli-based-and-BP-backed start-up called Storedot which has developed a battery that can charge an electric scooter in only five minutes. It chief exec Doron Myersdorf gushed that “This is showing the world that we can break the barrier of fast charging and what was considered impossible is actually possible”. Impressive, no?

Then there was news on some experiments that had failed – like Shell reverses car-hailing plans in London (Financial Times, Anjli Raval and Aliya Ram) as the oil major decided to dramatically pull back the ambitions for its Uber-rivalling FarePilot app due to it not being profitable enough – and ones that are about to be embarked upon like Uber to test food delivery by drones (Financial Times, Shannon Bond). In this story, Uber wants to have food flown from the restaurants to an Uber Eats courier at a designated drop-off location, where the courier will then take it to the customer. Sounds great, but I am super-sceptical about the practicalities.

Inditex, Lululemon and Boohoo put in strong performances while Lidl outlines London plans and Majestic gets another bidder…

Inditex is in the pink after Brazil launch (The Times, Gurpreet Narwan) shows that the world’s biggest fashion retailer has benefited from taking Zara online in Brazil and in eight other countries. Another nine countries, including South Africa will also be able to order online and Inditex’s physical retail business is also ploughing ahead with store openings in 23 countries. * SO WHAT? * Its shares were weaker in trading yesterday due to bad weather in March depressing sales, but it seems that the underlying story is positive. Inditex is the parent of brands including Zara, Massimo Dutti, Pull & Bear and Bershka. The company has spent a lot on getting the balance right between its online and offline offerings and services and I think that the benefits will start to come through.

Lululemon reports higher sales, raises full-year outlook (Wall Street Journal, Aisha Al-Muslim) shows that the premium sportswear retailer raised its full-year outlook due to solid growth in its online business and sales of its core leggings and joggers. Net revenues were up by an impressive 20% from a year ago, beating market consensus estimates. The shares were up by 4.5% on this good news and are up 37% over the last 12 months. * SO WHAT? * I think that Lululemon is one of those brands that will do REALLY well when economies are going strong, but the fact is that you can get way cheaper gear to sweat in elsewhere. Also, how much workout gear do you really need and does it really have to be “this season”?? FWIW I think this is great in an up market but will be very vulnerable when economies wobble.

In Boohoo enjoys a boom as high street fashion chains falter (Daily Telegraph, Michael O’Dwyer) we see that the online retailer enjoyed a very strong start to the financial year with sales in the UK (which account for over 50% of revenues) up by 27% and international sales up by over

50% as its cheap fast fashion hits a cord with shoppers. Mind you, online retailers need to be careful in Banks warn EU rules will scupper a quarter of online payments (Financial Times, Nicholas Megaw) as the Second Payments Services Directive continues to loom large in the background. * SO WHAT? * Basically, this legislation will require most online payments of over €30 to go through an extra level of authentification like entering a code via text message. Adding an extra layer of faff is supposed to reduce fraud rates but retailers are worried that consumers will find this tiresome and lose sales as a result. I suspect that there are loads of companies that transact online that will be adversely affected by this and that aren’t ready for it when it comes in in September. Expect last minute panic a la GDPR.

Meanwhile, Lidl moves into central London with £500m expansion plan (Daily Telegraph, Jack Torrance) heralds the German discounter’s plans to move in on London with 40 new shops – including one not far from Oxford Street! Lidl says that the new shops will create 1,500 jobs and it plans to open a new UK head office for 800 employees in Tolworth, south-west London. * SO WHAT? * This is quite an interesting development because, thus far, the company has concentrated on cheaper properties in less densely populated areas. I would imagine that it will go down a storm, but it will be interesting to see how profitable they are with much higher overheads.

Things are hotting up in Majestic Wine shares rise as US hedge fund joins bidders for stores (The Guardian, Jasper Jolly) as US hedge fund Elliott Advisors has thrown its hat in the ring to buy Majestic’s 200 outlets. Elliott is having a bit of a go at retail currently, having last week bought US bookshop chain Barnes & Noble that it will run with Waterstones (and did you know that Waterstones bought Foyles last September?), which it bought in April 2018. * SO WHAT? * It’s still not clear what Majestic is going to do with its chain of shops – whether it will keep and rebrand some and sell the rest, or whether it will just sell ALL of them. Majestic’s share price strengthened by 9.7% in trading yesterday on the news.

BAT suffers and Adidas pauses for breath…

BAT vaping projections let-down as cigarette market shrinks (Daily Telegraph, Oliver Gill) highlights yesterday’s first trading statement for British American Tobacco’s new chief Jack Bowles, which disappointed investors due to poor sales and an outlook for e-cigarettes and other “reduced risk products” that fell below analyst expectations. BAT aims to increase sales of its vaping products, including the Vype and Vuse brands, by between 30 and 50% this year, but things aren’t looking great at the moment.

Adidas ends its run as shareholder cashes in (The Times, Dominic Walsh) explains a 2% fall in the company’s share price after a stellar 48% rise so far this year as Group Bruxelles Lambert, which owns 7.5% of the sports company, sold a big block of shares at a 1.7% discount yesterday. * SO WHAT? * It doesn’t sound like there was anything to worry about here – and you can’t blame an investor for wanting to crystallise profits after such a strong performance.

And finally, in other news…

I thought I’d leave you today with a patriotic bar that got hit big-time in the pocket in Unlucky 13 for Miami bar that offered free shots for US goals (Reuters, https://tinyurl.com/y6d5atgq). As Ron Burgundy might have remarked about the 13-nil scoreline, “Well that escalated quickly”…