Our head of investment rounds up the morning's big news.
European markets are mostly under pressure ahead of the European Central Bank’s interest rate decision today. The central bank is expected to raise rates for the eighth straight time, lifting borrowing costs by 25 basis points to 2008 highs. This decision is at odds with that of the Federal Reserve, which opted to hold off from another rate hike last night. However, the Fed’s dot plot points to two further 25-basis point hikes this year, suggesting that June was a skip, rather than a pause or the peak of the hiking cycle. US futures are pointed to a softer open after a mixed close on Wall Street last night.
ASOS (LSE:ASC) reported a 14% drop in third-quarter total sales on a constant currency basis with active customers down by 800,000 from 24.9 million reported at its first half earnings. However, its adjusted gross margin improved by 350 basis points year-on-year and its profit per order increased by 30% year-to-date versus last year. Plus, it has delivered around £200 million of profit optimisation and cost savings so far this year and is on track to reach £300 million by year-end. The online fashion retailer kept its full-year outlook unchanged.
The e-commerce player has been prioritising its bottom line performance over its top line, evidenced by the drop in its third-quarter revenue, while gross margins and profit per order picked up. It comes after ASOS reported a first-half loss of £87.4 million last month, weighed down by the cost-of-living crisis, squeezed household budgets and cost inflation pressures. This prompted CEO Jose Antonio Ramos Calamonte to announce a major business overhaul, which is refocusing the business on profitability instead of sales.
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Shares in ASOS have suffered steep losses over the past year since the appointment of its new CEO, down 70% until yesterday’s close, caught up in the macroeconomic storm clouds. However, shares are soaring today by over 15% with traders and investors encouraged by its realignment towards profitability.
Nonetheless the analyst community remains cautious towards the stock with 17 hold recommendations, five sells and six buys, suggesting there’s a mostly neutral view towards this stock. However, in light of today’s positive update, we could see some upgrades in the days ahead.
Hennes & Mauritz (XETRA:HMSB) said June has got off to a good start after second-quarter net sales rose by 6% to 57.6 billion crowns, falling short of expectations for growth of 7%, weighed down by disappointing weather conditions. However, the fashion brand’s optimism towards the current quarter thanks to an expected improvement in the weather is providing a boost to shares today.
So far this year, shares in H&M are up by around a third, broadly in line with Zara’s parent company Inditex’s year-to-date gain. Amid the pressures from squeezed household budgets, consumers appear to be trading down from more expensive brands to high street retailers, helping to provide a boost for H&M and Zara. However, shares in H&M are still a long way off their recent highs from March 2021, having suffered throughout most of 2021 and 2022.
FULLER, SMITH & TURNER
Fuller Smith & Turner A (LSE:FSTA) reported a 13.9% jump year-on-year in like-for-like sales in the first 10 weeks of the fiscal year. However it said industrial action had a negative sales impact of more than £5 million, particularly with tube and train strikes denting demand in central London.
Just this week, the latest UK GDP figures for April enjoyed an improvement partly thanks to a pick-up in spending in pubs. While the industry has been recovering from the slump during the pandemic when restaurants, bars and pubs were forced to close, hospitality has been dealing with recent pressures from cost inflation with food, drinks, energy and labour becoming more expensive. Plus it has also been grappling with the softening consumer as household budgets get squeezed by inflation and higher interest rates.
Nonetheless, investors are cheering today’s update with shares staging gains, lifting the stock by more than 17% since the start of 2023. But shares are still a long way off their pre-Covid highs from the peak in September 2019.
LEGAL & GENERAL
Legal & General Group (LSE:LGEN) has appointed Antonio Simoes as group CEO. He will take up the role formally on 1 January 2024. Sir Nigel Wilson, who has been at the helm since 2012 will remain in the top job for the rest of the year. Simoes joins L&G from Banco Santander where he has been regional head of Europe since September 2020.
Wilson, who announced plans to retire in January, has steered the insurance and investments company through a number of major challenges including the double-dip recession of 2012, the Covid-19 pandemic, and the mini-budget turmoil last year.
Shares in L&G have gained more than 100% under Wilson’s tenure, with gains skewed towards the beginning of his leadership. Over the past five years, the stock has shed over 10%. Traders are selling shares in L&G today on the news, bringing the stock’s year-to-date loss to around 7%.
Unilever (LSE:ULVR) says it plans to acquire Greek yoghurt brand Yasso in North America. Financial details are undisclosed by the deal is expected to close in the third quarter of 2023. The froyo company adds to Unilever’s ice cream offering, which includes brands such as Ben & Jerry’s, Cornetto, and Magnum.
Yasso provides an alternative option aimed at the burgeoning nutritional food segment with an increasing number of consumers looking to make healthier choices. Plant based and/or low-calorie frozen treats have been growing in popularity with the rise of brands such as Halo Top, Enlightened, Yasso, and Mini Moons, a shift that Unilever aims to capitalise on.
Shares in Unilever are trading modestly higher today but remain lower by around 5% so far this year weighed down by cost inflation and the increased price sensitivity among consumers.
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