Must read: FTSE 100, US Treasury yields, oil, Burberry, ASOS, AG Barr

GLOBAL MARKETS

European markets have opened lower with the FTSE 100 trading flat, outperforming the DAX and the CAC. Burberry Group (LSE:BRBY) has slumped to the bottom of the UK index after Deutsche Bank cut its target price on the stock. It is extending declines after the fashion brand fell yesterday following Bank of America’s decision to downgrade rival Kering to ‘underperform.’ 

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Yields are marching higher, with the 10-year US Treasury yield hitting its highest level since October 2007, while the dollar index traded close to highs not seen since November 2022. Dollar-yen has also rallied to an 11-month high. This follows hawkish comments from the Minneapolis Fed President Neel Kashkari who said the central bank may need to raise rates further given the strength of the US economy. 

The oil rally is taking a breather, with Brent crude and WTI down by over 1% each on the back of higher US bond yields.

ASOS 

ASOS said it expects earnings (EBIT) in the second half to come in towards the bottom of its guided range for between £40 million and £60 million. ASOS reported a 15% drop in fourth-quarter total group revenue, with declines in the UK, EU, US, and the rest of the world. Its adjusted gross margin rose by around 150 basis points year-on-year in the second half, falling short of guidance for an increase of 200 basis points. But inventory fell by around 30% year-on-year, ahead of forecasts. 

ASOS has been focusing on its ‘Driving Change’ agenda having launched a major business overhaul last October. It has been trying to manage inventory and save costs. With inflation coming down, ASOS has benefitted from lower freight and duty costs. However, the backdrop of a weak consumer, elevated inflation and higher interest rates are taking their toll on sales, with a weak performance in July and August and a ‘deterioration in the UK clothing market’. ASOS has been trying to draw in customers by investing in promotional activity to help reduce stock and combat the challenging trading environment and macroeconomic headwinds. However, that investment has impacted margins, which came in short of guidance. 

The fast fashion e-commerce industry is notoriously difficult, particularly amid growing competition from brands like Shein in China which offers rock bottom prices and a constant churn of stock which provides customers with the very latest trends. ASOS has also struggled with the return to physical stores post Covid as well as cost inflation from wages to energy. ASOS seems to be suffering from an identity crisis, unsure about which type of customer it is targeting and what price point it is focusing on. 

Shares have fallen sharply so far this year, down by close to 30% since the start of January, underperforming the wider UK market.

AG BARR 

AG Barr (LSE:BAG) reported adjusted pre-tax profit of £27 million in the first half of the year, up from £25.3 million year-on-year. The Irn-Bru maker said it expects annual profit to come in slightly ahead of the top end of analysts’ forecasts for around £47 million. 

Despite the challenging backdrop of a weak consumer, cost inflation and disappointing summer weather, the drinks maker has managed to navigate the headwinds by successfully raising prices and still maintaining demand. It has continued to enjoy strong consumer appetite for its range of soft drinks as well as cocktail mixes. While consumers may be cutting back on eating and drinking out in bars and restaurants, they still seem to be treating themselves to cocktail mixes and soft drinks to consume at home, even in the face of higher prices. 

AG Barr shares are trading over 2% higher, defying the broader risk-off mood, reflecting the upbeat performance. This has helped to pare its year-to-date loss to around 8%.