Thursday 29/08/19

  1. In BREXIT NEWS, BoJo makes a bold move – and we look at the reaction
  2. In RETAIL, RESTAURANT AND BLING NEWS, Guess shrugs off tariffs, Tiffany suffers from HK protests, Ted Baker signs a deal in Japan, WH Smith does well in hospitals, Pizza Express/Franco Manca/Loungers have contrasting results and De Beers loses its lustre
  3. In M&A AND IPO NEWS, PMI/Altria gets a muted reception, Thomas Cook finalises a rescue from Fosun and Peloton aims to float
  4. In OTHER NEWS, I bring you a dancing baby…



So BoJo goes nuclear and we see the reaction…

Uproar as Boris Johnson shuts down parliament to protect Brexit plan (Financial Times, Sebastian Payne) highlights BoJo’s announcement yesterday that he will be shutting parliament down for five weeks in his efforts to stop a no-deal Brexit on October 31st (although the official reason is to give BoJo a chance to unveil a “bold and ambitious” package of legislation in the Queen’s Speech on October 14th). Parliament will be suspended (or “prorogued”) from the second week of September until October 14th in the longest suspension since 1945. * SO WHAT? * This move will undermine a plan by opposition parties to use legislation next week to try to delay Brexit beyond October 31st because it means they won’t have time to push through legislation to stop it. They will probably try to table a motion of no confidence in the government but, at the moment, there don’t seem to be enough MPs who would vote for this and one insider added that “If MPs pass a no-confidence vote next week, then we won’t resign…we won’t recommend another government. We’ll dissolve parliament [and] call an election between November 1st and 5th”. There is a very useful timeline breakdown of events in What is Boris Johnson trying to achieve? (Financial Times, George Parker and Jim Pickard) for those of you who crave more detail on this. You no doubt know already, but you will be hearing LOADS of noise and commentary on this for the next couple of

months as people get increasingly hysterical/smug about this latest action. I shall try to pick through the noise in the meantime and bring you the facts so you can decide for yourself. FWIW, I think that people who disagree with BoJo’s actions will say that no-deal is disastrous for British businesses and must be avoided at all costs (hence opposition parties who would never normally come together, coming together to try and stop it), those in the middle will say that keeping no-deal on the table will give us a powerful bargaining chip in the Brexit negotiations giving us the best chance of a better deal and those who agree will say that BoJo is just following through on his promises to deliver Brexit, without any extensions or further interference. If we get an improved deal as a result, BoJo will look like a hero and win the resulting general election – but if he fails to secure better terms and powers on with a no-deal, his continued tenure as PM will look decidedly dicey. Given that many businesses are preparing for a no-deal scenario, we might have an interesting situation where a no-deal Brexit proves NOT to be as disastrous as everyone is predicting – which would further fuel BoJo’s cause, especially if he manages to hammer out a decent trade deal with Trump in the meantime.

Sterling slumps as fears grow that worst is yet to come (Daily Telegraph, Tom Rees) shows the initial reaction to BoJo’s announcement yesterday as the pound had one of its steepest falls of the year in its immediate aftermath as fears of a “disorderly” departure from Europe increased. Sterling could be heading even lower in the build-up to October’s crucial EU summit as investors mull over the prospect of a messy Brexit and potential general election.



Guess strengthens, Tiffany suffers, Ted Baker signs a Japanese deal, WH Smith heads for profits, Pizza Express/Franco Manca/Loungers have contrasting fortunes and De Beers loses its sparkle…

Guess sees little effect from potential China Tariffs increase (Wall Street Journal, Micah Maidenberg) highlights a strong performance from Guess?Inc as it said that it had managed to mitigate China tariff risks by reaching agreements with vendors. Along with its strong results and a lift in full year profit forecasts, the share price rose by 11% in aftermarket trading, although it has fallen by 28% so far this year. The company is scheduled to announce a new strategic plan by the end of October.

Tiffany’s summer sales fall as tourist spending continues slowing (Wall Street Journal, Dave Sebastian) shows that the jeweller suffered weaker sales in the second quarter on fewer tourists loading up at its US stores and disruption to stores in Hong Kong as protests continued to rage. It did, however, keep its full year guidance intact and talked about opening more flagship stores in Hong Kong and Shanghai. * SO WHAT? * It’s good that the company has kept its full-year guidance unchanged, but there are a couple of big potential headwinds in Asia – firstly, no-one knows how long the Hong Kong disruption will last for and secondly, sales consumption tax (Japan’s VAT) is to rise from 8% to 10% in October, which could potentially dent sales.

Talking of Japan, Japan’s new dawn for Ted Baker (Daily Telegraph, Mason Boycott-Owen) heralds a new five-year licencing deal with Sojitz Infinity where the latter will use its local knowledge to sell Ted Baker merch in Japan’s department stores. Ted Baker has had a Japan presence since 2012 and now has five outlets, but the business is still in loss. This follows a venture between Ted Baker and Shanghai LongShang Trading Company to promote Ted Baker in China, Hong Kong and Macau. * SO WHAT? * Japan has been the death of many a UK retailer over the years, but having an agreement with “a local” at least gives you a fighting chance (although that’s no guarantee of success either). This sounds good in theory and maybe Ted Baker stores will benefit from a halo-effect from having an increased presence in Japan’s classy department stores,

but exposure to the latter sounds like a half-baked hope to me given how department stores worldwide are generally in terminal decline. BTW, Japanese department stores are pretty special – if you ever get the chance to go to one in Japan you will be amazed! A proper experience, for sure, but it comes at a price…

WH Smith on track for profits (Daily Telegraph, Laura Onita) shows that WH Smith is on track to meet profit targets as it concentrates its efforts on higher margin stationary and adding Post Offices to its stores. Sales at airport outlets continue to lead sales growth, but hospital outlets are now outpacing railway outlets in terms of sales. Its high street stores continue to get weaker, however. * SO WHAT? * Sometimes I do wonder how WH Smith can survive on the high street given that you can get pretty much everything it sells quite easily online. However, as long as the cash cows in airports, hospitals and railway stations continue to crack on I would have thought that they will continue to enjoy a stay of execution.

Then in the troubled world of casual dining, Pizza Express sees profits fall as Franco Manca grabs a bigger slice of the market (The Guardian, Sean Farrell) shows the contrast between two pizza chains as Pizza Express suffered in the first half of the year and put new restaurant openings on hold while Franco Manca continued to benefit from its sourdough pizza, green cola and vegan cheese offering. Peter Martin, VP at food and drink consultancy CGA observed that “In a very fast-moving, competitive market, consumers want something new and there is plenty of choice. Franco Manca has benefited from being different in that Italian space”. Loungers and Franco Manca chains seize on high street malaise (Financial Times, Alice Hancock) points out that smaller restaurant chains are managing to keep outlet opening costs down by refusing to pay high rents as they take advantage of landlords’ weakening position.

In Diamonds lose their sparkle as sales at De Beers plunge (Daily Telegraph, Jon Yeomans) we see that the global slowdown in the diamond market is hitting industry leader De Beers as it reported a massive 44% fall in sales at its latest sales round. Diamond pricing is a very opaque affair with De Beers and its Russian rival Alrosa having a stranglehold on the market. The diamond market as a whole is suffering from a combination of changing consumer tastes, the rise of synthetic diamonds, rupee devaluation hitting the Indian market, US-China trade tensions hitting the China market and tighter lending criteria from banks meaning that some producers have had financing issues.



The PMI/Altria deal has failed to excite so far, Thomas Cook finalises a survival deal and Peloton aims for an IPO…

Following on from the announcement of a reunification of Philip Morris International and Altria, Investor doubts put $200bn Morris-Altria merger at risk (Financial Times, Andrew Edgecliffe-Johnson, Richard Henderson, Eric Platt and James Fontanella-Khan) shows that investors have been underwhelmed by the terms of the deal so far as share prices of both companies are now lower than they were before the news came out. * SO WHAT? * PMI shareholders are probably worried about dilution and exposure to the mature US market whereas Altria shareholders will probably argue that their shares should be more highly valued. The all-paper deal will have to be approved by shareholders of both companies to go through. The debate will rumble on…

Thomas Cook agrees terms of £900m rescue deal with Fosun (The Guardian, Kalyeena Makortoff) shows that the troubled travel agent is closing in on survival in a deal that

will give Chinese congolmerate Fosun control of its holiday business. Fosun already owns Club Med and an 18% stake in Thomas Cook and the £900m cash injection may be completed in early October. Tough times, but Thomas Cook survives to fight another day.

Elsewhere, Exercise bike firm Peloton to float with potential value of $8bn (The Guardian, Sarah Butler) heralds the latest firm with massive losses itching to float on the stock market. * SO WHAT? * It touts itself as being the Netflix of fitness but TBH, I think there is limited upside for a firm that relies on customers using a £2,000 bike or treadmill where they can livestream or download classes. On top of that, subscription costs £39 per month for access to online classes for full interaction with other users and instructors or £19.49 without the interactive element. Chief exec Foley says “Peloton is so much more than a bike – we believe we have the opportunity to create one of the most innovative global technology platforms of our time”. What a load of w*nk. This has all the hallmarks of a disaster, IMHO – it sounds like it is completely up itself and its losses have tripled in the last year alone! It is exposed to a very narrow customer base who have a number of alternatives (like Zwift, for example) and just screams “fad” as far as I’m concerned. Maybe I’m wrong, but I just think it sounds like a “POS”.



And finally, in other news…

I thought I’d bring you something that will melt even the stoniest of hearts in Adorable Baby Busts a Move to Jonas Brothers’ ‘Sucker’ While Holding a French Fry (Inside Edition, It’s always great to see a happy baby!

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Some of today’s market, commodity & currency moves (as at 0909hrs 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 **
7,115 (+0.35%)26,036 (+1.00%)2,888 (+0.65%)7,85611,701 (-0.25%)5,369 (-0.34%)20,449 (-0.11%)2,891 (-0.09%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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