Clothing giant Next begins to reverse its fortunes as sales recover after heavy lock-down losses

Some points and questions to consider while reading this article:

  1. The author makes the claim that the reversal of fortunes, is up by 4% from last year, is due to helped by cooler weather and fewer people going on holiday abroad.
  2. The author does make the point about how the revenues have increased by 4%, over the last seven weeks, and she also cites sales, pre-tax profitability(£300m), and etc. She does not provide context specifically how those things compare to last year. Is that comparison for a similar seven-week period from 2019?
  3. What things did Next implement, during the COVID-19 pandemic that specifically lead to the increase in revenue for the 7 week period? Did they lower prices? Did the seek to provide sales incentives via an online shopping distribution model?
  4. If they are seeking to close some of their retail outlets, and their end of year revenue projections are down, does this 4% increase really represent a growth trend—as we enter cooler weather and the holiday season?

By CAMILLA CANOCCHI FOR THISISMONEY.CO.UK

PUBLISHED: 04:13 EDT, 17 September 2020 | UPDATED: 06:23 EDT, 17 September 2020
Clothing and homeware chain Next has begun to reverse its fortunes after the Covid slump as it upgraded its full-year forecasts for a second time after recent strong trading.

The FTSE 100 retail bellwether said full price sales in the last seven weeks were up 4 per cent compared to last year, helped by cool weather and fewer people going on holiday abroad.

It now expects profit before tax to come in at £300million, up from its previous guidance of £195million given at the end of July. That, however, is less than half what it was expecting before the pandemic struck.
Michael Hewson, chief market analyst at CMC Markets UK, says: ‘When you consider that in January, Next was expecting to see pre-tax profits of £734million for 2020, this is a remarkable turn in fortunes from what the business was facing as recently as a couple of months ago.’
But Simon Wolfson, Next’s chief executive, said the sales performance through the pandemic had been ‘more resilient than we expected’.
‘The scale of our online business (in the UK and overseas), the breadth of our product offer, and the fact that much of our store portfolio is located out of town, have served to mitigate the worst effects of the pandemic on trade,’ he added.
Investors seem to have received well the update, with shares rising 1.7 per cent to £62.77 in morning trading on Thursday. But they remain 12 per cent down so far this year.
Sales of home, children swear, sportswear, lounge and underwear performed better than formalwear and holiday categories.
Emily Salter, retail analyst at GlobalData, said: ‘This ability to switch product focus to different categories is a luxury not afforded to many retailers, and will benefit Next as the new “rule of six” will drastically reduce the demand for occasion wear for the festive period, so Next can switch its product focus to more casual, cozy styles instead.’
Despite the upgraded forecasts, the group still expects sales to fall 12 per cent this year under a better-case scenario, or between 17 per cent and 29 per cent in a worst-case scenario.
In the first half, sales fell 33 per cent, hammered by store closures during lockdown and the group fell made pre-tax losses of £16.5million for the six months to the end of July – compared to profits of £327.4million a year earlier.
On an underlying basis, it saw profits crash 97 per cent to £9million, though it had initially expected to be loss-making.
Next, which has around 500 stores across the country, warned it still expects to close 13 shops this year, down from 14 predicted in March. Next, which has around 500 stores across the country, warned it still expects to close 13 shops this year, down from 14 predicted in March
Its update follows that of Zara’s owner Inditex yesterday, which said a surge in online trade helped it to record a healthy profit during the summer.
Next said it has not seen a deterioration in bad debt rates or any extension in the length of time customers choose to pay down their accounts.
Russ Mould, investment director at AJ Bell, says that despite the crisis, Next is still ‘managing to keep its head above water’.
‘Interestingly it has seen no change in bad debt trends, which one might have expected to shoot up amid growing unemployment,’ he said.
‘Next’s management has always taken a cautious view and is not being complacent, which explains why it is making provisions now for an increase in bad debts just in case.
‘That summarises Next to a tee. Its ability to keep making money through the crisis should be cause for celebration, but Next would never party too hard.’

It Starts: Mortgage Delinquencies Suddenly Soar at Record Pace

By Wolf Richter

OK, it’s actually worse. Mortgages that are in forbearance and have not missed a payment before going into forbearance don’t count as delinquent. They’re reported as “current.” And 8.2% of all mortgages in the US – or 4.1 million loans – are currently in forbearance, according to the Mortgage Bankers Association. But if they did not miss a payment before entering forbearance, they don’t count in the suddenly spiking delinquency data.

The onslaught of delinquencies came suddenly in April, according to CoreLogic, a property data and analytics company (owner of the Case-Shiller Home Price Index), which released its monthly Loan Performance Insights today. And it came after 27 months in a row of declining delinquency rates. These delinquency rates move in stages – and the early stages are now getting hit:

Transition from “Current” to 30-days past due: In April, the share of all mortgages that were past due, but less than 30 days, soared to 3.4% of all mortgages, the highest in the data going back to 1999. This was up from 0.7% in April last year.

More information is here…

What Can the Stock Market Tell Us About the T-Mobile/Sprint Merger?

An excellent read, that gives a perspective regarding the T-Mobile/Sprint merger that took place last week. The read is extensive, however, it is well worth the time to slog through. The introduction to the article starts as follows:

“On Monday evening, around 6:00 PM Eastern Standard Time, news leaked that the United States District Court for the Southern District of New York had decided to allow the T-Mobile/Sprint merger to go through, giving the companies a victory over a group of state attorneys general trying to block the deal.”

End of QE-4: Fed’s Repos Drop Below Oct 2 Level, T-Bills Balloon, MBS Fall, Total Assets Down to Dec 25 Level

Total repos on the Fed’s balance sheet of February 5, released Thursday afternoon, have plunged by $85 billion from the peak on January 1, to $170 billion, below where they’d first been on October 2:

Under these “repurchase agreements,” the Fed buys Treasury securities and mortgage-backed securities (MBS), guaranteed by Fannie Mae and Freddie Mac, or Ginnie Mae, whereby the counterparties commit to buy back these securities at a fixed price on a specific date, such as the next day (overnight repo) or a longer period, such as 14 days (term repo). Repos are by definition in-and-out transactions. When a repo matures and unwinds, the Fed gets its money back, and the repo on the Fed’s balance sheet goes to zero.

By buying these securities, the Fed adds liquidity to the market for the duration of the repo. When the repo matures and unwinds, the liquidity gets drained from the market. When a new repo transaction occurs, the process starts over again, but with a different amount and with a different maturity date.

Read more of this article here:

Financial automation a must-have, CFO says

A survey released jointly in mid-January by CFO Dive and Invoiced reinforces the benefits Allidina sees in technology adoption. 

The survey of more than 450 CFOs and other finance executives found that most of them look to automation of the accounting and finance functions to increase productivity, reduce human error and refocus staff on more strategic work. Other priority goals of automation include improving the customer experience and the work experience of staff.

Another finding: a relatively small percentage of finance executives see automation as a way to save money through staff reductions and fewer new-hires.

Read more here:

https://www.cfodive.com/news/financial-automation-must-have-Generis/571674/

CFOs Looking to Spend on Growth

CFOs’ focus on digital transformation is consistent with other industry surveys. Deloitte research released last year found 77% of CFOs are retooling their operations to add more automation and redeploy financing and accounting staff for higher-value functions.

The relatively low priority on M&A, and the almost complete absence of IPO plans, are also consistent with other research.  

survey by consulting firm Baker McKenzie found finance leaders are expecting a 25% drop in M&A activity, from $2.8 billion to $2.1 billion. And the continuing weak interest in IPOs has been a concern of the Securities and Exchange Commission for several years now, although at the Davos Economic Summit two weeks ago, the heads of the New York Stock Exchange and Nasdaq said they’re seeing an uptick in interest in IPOs so far this year.​​

Internally, CFOs have big plans for positioning their companies for growth. Almost two-thirds are planning to pour more money into research and development while only 12% are planning to pull back on that. Almost a third say they’ll spend about the same.

Read more here: https://www.cfodive.com/news/2020-trends-middle-market-cfos-ready-to-spend-on-growth/571511/

Year End Repo Crisis Ends…but with Liquidity Glut

It was supposed to usher in a market crisis that would prompt the Fed to launch QE4 according to repo guru Zoltan Pozsar. In the end, the preemptive liquidity tsunami unleashed by the Fed in mid-December which backstopped just shy of $500 billion in liquidity, proved enough to keep any latent repo market crisis at bay.

The year’s final overnight repo operation, which the Fed expanded to as much as $150 billion ended up being just 17% subscribed, as Dealers submitted only $25.6 billion in securities ($15.2BN in TSYs, $2BN in Agencies, $8.35BN in MBS) in the year, and decade’s, final overnight repo meant to bridge the financial system’s short-term funding needs into 2020.

Read More: https://www.zerohedge.com/markets/year-end-repo-crisis-ends-whimper-amid-massive-liquidity-glut

Decade of Debt: Has the Decade of Easy Money Translated into Success?

With interest rates locked in at rock-bottom levels courtesy of the Federal Reserve’s easy-money policy after the financial crisis, companies found it cheaper than ever to tap the corporate bond market to load up on cash. 

Bond issuance by American companies topped $1 trillion in each year of the decade that began on Jan. 1, 2010, and ends on Tuesday at midnight, an unmatched run, according to SIFMA, the securities industry trade group. 

In all, corporate bond debt outstanding rocketed more than 50% and will soon top $10 trillion, versus about $6 trillion at the end of the previous decade. The largest U.S. companies – those in the S&P 500 Index .SPX – account for roughly 70% of that, nearly $7 trillion.

Read More here: https://www.reuters.com/article/us-global-markets-decade-credit-idUSKBN1YY09Y

The Investing Dance: Blowing Bubbles while Tip Toeing through the Tulips

Let’s go back in time and to a different Continent. As we design this time machine, we will go back to around the 1630s to Holland-the home of the first recorded Economic Bubble. But before boarding this Delorean, let us look at some things here first. Let us take this quote from the great Economist, Ludwig von Mises:

“He who believes that the prices of the goods in which he takes an interest will rise, buys more of them than he would have bought in the absence of this belief; accordingly he will restrict his cash holding. He who believes that prices will drop, restricts his purchases and thus enlarges his cash holding.” (Mises, 1998, p. 423)

As our time machine has landed in Holland, we picture the citizens of Holland speculating on Tulips. The actual pricing is nebulous but, in circa February 1637 the price of Tulips hit their peak; and then dropped precipitously (Wikipedia, 2011). Prior to this drop, people were selling all sorts of possessions just to get their hands on precious tulips and as a result, the hysteria was on! “People selling or trading their other possessions in order to speculate in the tulip market, such as an offer of 12 acres (49,000 m2) of land for one of two existing Semper Augustus bulbs, or a single bulb of the Viceroy that was purchased for a basket of goods (shown at right) worth 2,500 florins.” (McKay, 1841).

Soon after the drop took place, it finally ended circa May of 1637–where the estimated price at that point was well below the level predicted earlier that year in February; but at the level predicted November of 1636 (Wikipedia, 2011). The hopes and dreams were gone and vanished. Soon the Dutch were at a point where not one Tulip Bulb could be sold at any price in the winter of 1637 (Sayre, 2011).

As we board our time machine and visit year 2011, we have just seen a similar scenario in the Real Estate market. A countless number of workshops, infomercials, info packages, RE Gurus, etc appeared between in the marketplace between the years 2004-2008. These gurus were experts sent to us to help everyone become wealthy via Real Estate; specifically through flipping houses. Flipping homes is highly speculative venture. Banks were loaning money based on this speculation on the hopes that the prices would increase and the borrowers would pay back at a higher rate of interest.

The Banks were willing to deplete their cash reserves in exchange that this form of speculation would eventually yield a handsome profit. Of course, both the Federal Reserve and the US government made this particularly easy by establishing lower interest rates on the loans. However, similar to the Tulip mania, this too fell down like a deck of cards. The Law of Diminishing Returns and the Economic concept of elasticity do not discriminate. Now in cities, many homes are overbuilt and the vacancy for home inventories increased due to foreclosure, which is parallel to a similar event that took place in the 1600s-the crash of the tulip mania- one can conclude ultimately that the net effects both events are no different.

This same tale can be reviewed in the 1990s with the Tech stock bubble also, or other asset bubbles throughout history. A current tale is brewing with Baby Boomers with their investments inside of 401k type plans, and currently they are seeing great losses as they are approaching retirement.

Of course the current battle cry is investing in Gold, which has its upsides; and also some obvious flaws. Gold is not immune to the aforementioned Economic Principles too. Savvy investors realize this, and have retained most of the Gold reserves waiting for the lemmings to drive up the price more.

How can you protect your hard earned wealth from these types of mania attacks? You must become educated in how the process works. Increasing your financial knowledge base is a starting point, and you should never assume that the price of an investment always goes up in price. All goods and services have the ability to go down in price, especially after a great run has occurred. Right now the Stock Market has hit its low also, so what type of strategy is in play with your 401k plan?

Works Cited

McKay, C. (1841). Extraordinary Popular Delusions and the Madness of Crowds. Unknown: Unknown.
Mises, L. v. (1998). Human Action. Auburn : Ludwig von Mises Institute.
Sayre, H. (2011). The Humanities: Culture, Continuity and Change Volume 2. Upper Saddle River, NJ: Prentice Hall.
Wikipedia. (2011). Tulipmania. Retrieved from http://en.wikipedia.org/wiki/Tulip_mania