Thursday 22/08/19

  1. In RETAIL NEWS, Target hits the spot, Lowe’s goes higher, Nordstrom disappoints and Tesco’s pledges a packaging crackdown
  2. In TECH NEWS, Alibaba pulls its Hong Kong listing, Waymo shares data and Libra gets the EU treatment
  3. In INDIVIDUAL COMPANY NEWS, WeWork rival Knotel attains unicorn status
  4. In OTHER NEWS, I show you how to stop Facebook tracking you…



So Target and Lowe’s results show that the US consumer is still spending (although not at Nordstrom) and Tesco cracks down on packaging…

Target extends growth streak with strong sales and profit (Wall Street Journal, Kimberly Chin and Khadeeja Safdar) highlights solid performance in the second quarter, powered by investment in its stores, merchandise and online offering. The “big box” retailer, which sells homewares, clothing, electronics and beauty products in the US, also raised its full-year guidance and its share price shot up by 19.5% in midday trading! The stock has risen by 55% in the year to date. Particular highlights included digital sales that were up by a chunky 34% versus a year ago plus some impressive cost cutting. * SO WHAT? * The US retail landscape is looking pretty mixed at the moment as Walmart reported a relatively decent quarter in contrast to Macy’s, Kohl’s and JC Penney, who fell short. The current US-China trade war-related tariff increases aren’t going to help either as their cumulative effect will undoubtedly continue to filter through to the prices being paid by the consumer. I think that there is still some wiggle room for passing on higher prices to customers as wages continue to rise and the labour market continues to be tight, but if the economy slows down as per the expectations of some, the wheels could fall off very quickly.

Lowe’s reports higher profit, beating estimates (Wall Street Journal, Kimberly Chin) paints a contrasting picture to results from larger rival Home Depot as it reported stronger earnings in the latest quarter due to recent aggressive cost-cutting bearing fruit. * SO WHAT? * Lowe’s has had to take some pretty drastic steps recently including the layoffs of thousands of workers that resulted from the company’s switch to outsourcing certain tasks (e.g. barbecue assembly and cleaning) as well as a winding down of its retail operations in Mexico. Chief exec Marvin Ellison has been busy sorting out the company’s inventory, customer service and work processes in the year since he’s been at the helm and the company is getting a much better grip on focusing on faster-selling items and ditching

slower-selling ones. It seems to me that the effects of drastic cost-cutting are the main driver behind this performance as its same-store sales were up by 2.3% versus Home Depot’s same store sales up by 3%. Cost cuts and the improvement of processes are good – but there’s only so far that can go if sales prove to be sluggish.

Sales, profit fall again at Nordstrom (Wall Street Journal, Micah Maidenberg) shows that the gloom in department stores continues as sales and profits fell below Wall Street expectations in the latest quarter. This is the third consecutive year-over-year fall in revenue for the company and the mood wasn’t enhanced by cutting its full year sales forecast. Having said that, the share price climbed by 14% in after-hours trading, although Nordstrom shares have fallen by 43% so far this year. * SO WHAT? * The share price reaction sounds somewhat counter-intuitive, but then again maybe investors were heartened by the lowering of inventory levels and the prospect of new leadership, given pressure by the existing board to replace the current chiefs who are the great-grandsons of the founder. Once again, I say that department stores are in terminal decline and need to act quickly to capitalise on what they’ve got (great locations and the potential to create great customer experiences) and adapt to changing consumer trends.

Then in Tesco promises to ban brands that use excessive packaging (The Guardian, Jasper Jolly) we see that the UK’s biggest supermarket is increasing its efforts to do its bit for the environment by implementing various measures including the banning of brands that use excessive packaging. Tesco gave its suppliers a list of preferred materials in May last year, but will be implementing the ban starting from next year onwards. As Tesco’s chief exec Dave Lewis said, “We have all looked at the settled contents of a cereal packet and puzzled over the comparative size of the bag and box. Or opened a bag of crisps and wondered why the packaging is twice the size of the contents”. * SO WHAT? * It’s great to see Tesco leading from the front, although it is not alone in making efforts to make packaging more environmentally-friendly. The more supermarkets get on board, the greater the pressure they can exert on suppliers to make the effort to use alternative materials. Will this be a catalyst for M&A among recycling companies to get better scale in order to cope with increased volumes??



Alibaba pulls its planned Hong Kong listing, Waymo decides to share and Libra gets EU scrutiny…

Alibaba halts Hong Kong listing (The Times, Simon Duke) shows that the protests currently going on in Hong Kong are spilling over into the corporate world as Chinese e-commerce giant Alibaba has decided to shelve plans to sell around $15bn of shares on the Hong Kong stock exchange. It had planned to do so this month as part of a wider strategy (prompted by the current US-China trade war) of diversifying its funding sources and investor base, but will potentially revisit the plan in October. * SO WHAT? * Alibaba – the world’s second-biggest e-commerce company with a $460bn market cap, which floated on the NYSE in 2014 raising $25bn and which boasts over 700 million monthly users – can afford to sit things out but this is a major blow for the Hong Kong Stock Exchange as other companies who were mulling either flotations or money-raising might use Alibaba’s action to postpone as well. Political turmoil tends to spook investors (or would-be investors).

Waymo to make self-driving data set public to fuel research (Financial Times, Patrick McGee) heralds an important development for Alphabet’s self-driving car unit as it as it announced yesterday that it would make “the largest fully self-driving data set ever” freely available to all “in the hope of accelerating the development of machine perception and self-drive technology”. The data has been collected using cameras and sensors on Waymo vehicles

in various environments and road conditions. * SO WHAT? * Waymo was at pains to point out that this action wasn’t tantamount to admitting that things aren’t progressing as quickly as it’d hoped, but let’s be honest – that’s surely what’s going on here. General Motors’ self-driving unit Cruise last month decided to postpone the rollout of its ride-hailing service that had been scheduled to kick off this year, saying that it needed more testing. I think that we are WAY off driverless taxis being commonplace in cities so Waymo has probably looked at the current situation and weighed up whether it wanted to be the market leader in b*gger all or share some of its toys and have a smaller part of SOMETHING. The latter is definitely the way forward, but I don’t expect to see self-driving taxis in London any time soon! Still, if you wanted to be part of this wave, I would have thought that getting exposure to companies making the sensors wouldn’t be a bad idea.

Facebook’s digital currency set for scrutiny by EU regulators (Daily Telegraph, Hasan Chowdhury) shouldn’t come as a big surprise given that virtually every central banker, regulator and politician in developed countries has been giving Libra a good kicking – and it sounds like the European Commission is now getting involved by sending out questionnaires to groups involved in the project. * SO WHAT? * They are concerned, like everyone else, that Libra could result in “possible competition restrictions” on consumer data usage and how information will be exchanged. The cryptocurrency is slated to launch in the first half of next year, but I am sure that regulators will do their darndest to delay it as much as possible (to give time for someone/something to come up with a more universally “acceptable” option).



WeWork rival Knotel achieves unicorndom…

WeWork rival Knotel achieves ‘unicorn’ status after $400m funding (Financial Times, Judith Evans) marks a historic moment for the company that started only three years ago as its latest funding round has tipped its implied valuation at over $1bn – the level needed to achieve unicorn status! The New York-based company is one of many serviced office providers who have popped up in the wake of WeWork’s astronomic success. The company now has over 4m square feet of office space in 200 locations

worldwide. It differs from its “louder” competitor because it offers unbranded space in urban markets to medium-sized companies rather than having its own name splashed all over the place. Competitors such as Convene, The Office Group – and even the seasoned IWG (formerly known as Regus) – are all dwarfed by WeWork, which was recently valued at $47bn.* SO WHAT? * This rapid expansion is all very well, but when property prices start to fall and rents settle on a downward trend, many of these companies are likely to be exposed and have their valuations decimated. I would be much more comfortable with pursuing profitability here rather than rapid expansion as a more robust longer-term strategy. 



And finally, in other news…

I thought I’d leave you today with How to stop Facebook tracking your web browsing activity (The Independent, Anthony Cuthbertson Interesting, no?

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Some of today’s market, commodity & currency moves (as at 0907hrs 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 **
7,204 (+1.11%)26,203 (+0.93%)2,924 (+0.82%)8,02011,803 (+1.30%)5,435 (+1.70%)20,628 (+0.05%)2,883 (+0.11%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$55.5100$60.0800$1,495.671.214541.11106106.451.093179,948. 73

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