Wednesday 06/03/19

  1. In MACRO AND INDUSTRY NEWS, China cuts its growth forecasts and the FDA loses its chief
  2. In HIGH STREET/CONSUMER-RELATED NEWS, Debenhams has a profits warning, Superdry announces cuts and Papa John’s calls a truce with its founder
  3. In INDIVIDUAL COMPANY NEWS, BMW and Toyota make Brexit warnings and Harley-Davidson goes electric (well, sort of)
  4. In OTHER NEWS, I bring you unusual pancake toppings. For more details, read on…



So China’s growth forecasts are cut and the FDA’s chief departs…

China’s ‘tough struggle’ as growth falls to 29-year low (Daily Telegraph, Tom Rees) shows that China is steeling itself for its slowest annual GDP growth rate for almost thirty years by targeting a range of 6-6.5% (although I would add that China cuts taxes in bid to stimulate economy (The Times, Didi Tang) says that this is the lowest rate since 1993 – whatevs, it’s a long time!). Li Keqiang, the Chinese Premier, warned that “There will be more risks and challenges that are either predictable or unpredictable and we must be fully prepared for a tough struggle”. The Chinese government announced a major stimulus package worth £227bn in higher spending and tax cuts whilst also saying that VAT would be lowered for the manufacturing sector to help it out of the rut it has found itself in (it contracted for the third straight month in February). * SO WHAT? * If you were a glass-half-full sort of person, you might say that this is a very sizeable stimulus that is meaty enough to do something meaningful, but if you were in the glass-half-empty camp, you could say that the size of this stimulus belies the fact that the trade war has done a lot of damage and that it reflects

uncertainty about the outcome of the current negotiations. It is possible, however, that China’s industrial sector could get a boost sooner-than-expected because the trade deal that is currently expected to be signed at the end of this month may prompt Trump to lift taxes on over $250bn-worth of goods, but it’s not in black-and-white yet and the longevity of any accord will hinge on China sticking to what it says otherwise we’re all back to square one.

FDA chief Scott Gottlieb to leave Agency (Wall Street Journal, Thomas M. Burton and Jennifer Maloney) looks like a bit of a “meh” story at first glance because you may be tempted to think “Oh it’s just some suit resigning – he’ll just get replaced”. However, Scott Gottlieb has been head of America’s very powerful Food and Drug Administration (FDA) and been instrumental in pushing some major initiatives during his tenure – including a proposed ban on menthol cigarettes, the speeding up of generic medicine approval and restriction in the use of flavoured e-cigarettes among teenagers (after having helped the growth of vaping in the first place). He’ll be in place for the next month after which he’ll hand over the reins to someone else. It’ll be interesting to see whether his successor will carry on his initiatives or concentrate on other things – the tobacco industry in particular will be following events very very closely!



Debenhams continues to suffer, Superdry announces cuts and Papa John’s calls a truce with its founder…

Debenhams isssues profit warning as sales continue to slump (The Guardian, Julia Kollewe and Sarah Butler) heralds yet another bit of bad news from the troubled department store as it issued a profit warning only two months after issuing its most recent profit forecasts and three weeks after it got a cash injection of £40m. Chief exec Sergio Bucher came out with the usual BS, saying “We are making good progress with our stakeholder discussions to put the business on a firm footing for the future. We still expect that this process will lead to around 50 stores closing in the medium term” but Debenhams’ forecasts ‘no longer valid’ – like its shops (Daily Telegraph, Ashley Armstrong) makes some valid points in that the only reason why it avoided a profit warning in January was because it just came up with £50m of cost savings from nowhere and that the company’s appeals to landlords and councils for rent and rates cuts sounds like it’s asking for charity. * SO WHAT? * The company’s performance continues to be poor but Mike Ashley may yet exit this situation smelling of roses if Debenhams fails to refinance successfully because if it goes into administration, he’ll be able to cherry pick the best bits WITHOUT all the nasty pension liabilities via a pre-pack administration. I think that Debenhams is an absolute disaster, Sergio Bucher is just rearranging the deckchairs on the Titanic and Mike Ashley is in a souped-up RNLI lifeboat waiting to whisk away the fittest survivors.

The gloom continues in Superdry to axe up to 200 jobs as part of £50m cost-cutting plan (The Guardian, Zoe Wood) as the fashion retailer announced that it would be cutting 20% of the workforce at its Cheltenham HQ as part of a broader plan to make £50m-worth of cost savings over the next three years. * SO WHAT? * Current chief exec Euan Sutherland is having a tricky time at the moment with his company performing poorly on the one hand and then the constant threat of co-founder Julian Dunkerton returning to sort things out on the other. Superdry will be holding an extraordinary meeting this month to consider Dunkerton’s plan that would involve installing Peter Williams, current chairman of online fashion retailer Boohoo, as a non-exec director. Dunkerton is arguing that Sutherland doesn’t know what he’s doing and Sutherland is arguing that it’s Dunkerton’s thinking that got them into this current mess. The weaker the share price gets, the more compelling Dunkerton’s actions will become. I think that Sutherland is going to have to turn things around pretty quickly in order to survive this battle.

Then in Pizza chain Papa John’s calls truce in battle with its founder (Financial Times, Pan Kwan Yuk) we see that founder John Schnatter struck a deal yesterday with Papa John’s International whereby he will vacate his seat on the board and drop all lawsuits against the company in return for being allowed to chose a replacement director. * SO WHAT? * Things have been pretty heated between John Schnatter, who started the company back in 1984, and Papa John’s since he was pushed out of the company last summer after a series of high-profile gaffes. The company has been doing all sorts of things to stop him from regaining control and he had been fighting it in the courts over the circumstances of his removal. Shares in the company have fallen by around 30% in the last 12 months and rose slightly on the latest news. The company still has a (pizza) mountain to climb in turning around sluggish sales, but at least this cloud has now gone, leaving everyone to get on with things.



BMW and Toyota sound warnings over Brexit and Harley-Davidson goes sort-of electric…

Threat to Mini factory as BMW and Toyota raise no-deal alarm (Daily Telegraph, Jillian Ambrose and Chris Johnson) highlights carmaker concerns about the impact of Brexit as BMW said that the production of some or all of the Mini could move to Holland (which would be another blow for Swindon, which is still reeling from the recent Honda announcement) in a no-deal Brexit scenario and Toyota said that such circumstances would make it very difficult to justify making new models in its Derbyshire plant. * SO WHAT? * I can see where they are coming from, but I would suggest that car sales are generally on a downward trend anyway and Brexit is a convenient excuse to justify pulling production that shifts the blame onto something outside the company. Obviously it is a factor, but there are so many others – like tighter emissions

regulation, the increasing need for electrification, changing ownership trends etc.etc. – which form part of these moves. The companies are just rattling cages IMHO.

Harley-Davidson aims to put tykes on bikes with StaCyc deal (Financial Times, Eric Platt and Pan Kwan Yuk) shows that Harley-Davidson just bought StaCyc, a small producer of electric bikes for kids. This is part of an overall effort to diversify the company’s client base away from old men with handlebar moustaches and bandanas and they justified this acquisition by saying “The StaCyc electric two-wheelers will provide an entry point for the youngest riders to enjoy the thrill of riding”. * SO WHAT? * My *rse. This smacks of desperation to me! The fact is that the company’s share price is now 50% below its 2014 high and no amount of tinkering around the edges with opening stores selling H-D branded sweatshirts and jeans or buying kiddie bikes is going to mask the fact that it has been killed by the tariff wars. I don’t think it’s going to get much better soon either as Trump’s next battle (if he manages to sort the Chinese) will be with Europe.



And finally, in other news…

I thought I’d let you know about this “unusual” topping for pancakes that some people were enjoying in yesterday’s Shrove Tuesday celebrations: People are putting gravy on their pancakes – and the internet is divided over it (The Mirror, Courtney Pochin Although my first reaction was ????, the ingredients for Yorkshire puddings and pancakes are actually the same – so really it makes perfect sense. One for next year, maybe?

Some of today’s market, commodity & currency moves (as at 0818hrs 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 **
7,183 (+0.69%)25,807 (-0.05%)2,790 (-0.11%)7,57611,621 (+0.24%)5,298 (+0.21%)21,597 (-0.60%)3,102 (+1.57%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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