Must read: Premier Foods, Boohoo, Deliveroo, Netflix

European markets fall after Wall Street’s sell-off, says our head of investment Victoria Scholar.

GLOBAL MARKETS

European markets have opened lower, following a notable sell-off stateside in which the Dow and the S&P 500 shed more than 1.5% on the back of some hawkish Fed Reserve comments. Both St Louis Fed president James Bullard and Cleveland Fed president Loretta Mester said rates need to go beyond 5%.

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Oil prices are under pressure with WTI and Brent crude down by more than 0.5%. The kiwi dollar fell overnight after New Zealand’s prime minister Jacinda Ardern announced plans not to stand for re-election. It was a mixed picture for equities overnight with the Nikkei giving back some of yesterday’s gains, while the ASX in Australia outperformed.

PREMIER FOODS

Premier Foods (LSE:PFD) reported a 12% jump in sales in the final three months of 2022 and said it is on track to deliver its full-year expectations. Grocery sales outperformed, jumping 17.4%, while branded sales grew by 8.8%. However, sweet treats sales fell by 0.9%.

Premier Foods enjoyed a festive boost to some of its seasonal products such as Bisto pigs-in-blankets gravy granules, Ambrosia custard and its Deliciously Good Festive Pies. However, the group behind Oxo cubes and Mr Kipling cakes flagged pressure from cost inflation, which it says ‘remains at elevated levels’ and said the consumer backdrop for 2023 looked ‘particularly challenging’. It is offsetting the inflationary pressures through cost savings and annual price increases.

Shares in Premier Foods have kicked off 2023 on a strong footing, rallying 4% and have enjoyed a strong long-term performance rallying almost 190% over a five-year period.

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BOOHOO

Boohoo Group (LSE:BOO) reported an 11% drop in group revenue in the final four months of 2022, putting it on track for a full-year drop in sales of 12%, downgraded from its previous guidance for a 10% decline, sending shares lower. It warned that the demand outlook is uncertain due to macroeconomic factors but said cost inflation should moderate in the second half of the year.

Fast-fashion online retailers have struggled lately with increasing costs, delivery problems caused by strike action over Christmas and the fading pandemic-era boom in online shopping as consumers return to physical stores.

Boohoo has grown inorganically over the years with a series of acquisitions including of Debenhams, Oasis and Karen Millen. It has also partnered with a number of high-profile celebrities such as Megan Fox and Kourtney Kardashian. However, critics have accused the fast-fashion brand of alleged greenwashing. There was also a Times investigation which accused the business of trading workers like ‘slaves.’

Analysts are turning increasingly sour on the stock, with several price target downgrades lately from JP Morgan, Morgan Stanley, and Jefferies. Shares in Boohoo have sharply underperformed the market, shedding 55% over a one-year period.

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DELIVEROO

Deliveroo (LSE:ROO) reported its fourth-quarter gross transaction value (GTV) up 9% to £1.76 billion (up 6% in constant currency) year-on-year. However, orders fell by 2% year-on-year and it flagged a ‘continuing difficult consumer environment and an ‘uncertain outlook’ for 2023. It said full-year profitability will come in ahead of its previous guidance after second half adjusted EBITDA was approximately breakeven for all operations.

In November, Deliveroo pulled out of Australia amid tough competition having already exited other markets such as in the Netherlands, Spain and Germany. However this morning, Deliveroo said it had increased in key markets such as the UK, France and Italy as part of its strategy to streamline the business and focus on its most important geographies.

Deliveroo has been punished by the cost-of-living crisis as consumers look for way to slim down their budgets, cutting back on discretionary spending such as on takeaways and other deliveries. While its GTV enjoyed a boost thanks to price inflation, order volumes actually declined, highlighting the macroeconomic pressures on its customers.

The delivery business is a notoriously tricky sector with slim margins, high costs, and the onslaught of competitors such as Just Eat Takeaway.com NV (LSE:JET), Uber Eats as well as q-commerce businesses such as GoPuff. Plus, the economic downturn and sky-high inflation are adding to these pressures.  

Deliveroo has had a rough ride during its life as a public company, having shed two-thirds of its market value since its disastrous IPO in March 2021. However, the stock is enjoying a bounce in today’s trade thanks to its profitability upgrade.

Deliveroo will deliver its full-year 2022 earnings on 16 March.

NETFLIX

Netflix (NASDAQ:NFLX)’s fourth-quarter earnings take centre stage later today with subscribers likely to be the key number to watch for investors. Although Netflix surprised markets with a decline in subscriber numbers in the first quarter, the figure picked up again in Q2 and Q3 with expectations for an ambitious 4.5 million new subscribers in Q4, almost double the previous quarter.

Netflix has been positioning itself for an economic downturn by introducing a cheaper ad-supported version to offset cost-of-living pressures. It has also been trying to clamp down on password sharing to stop people borrowing other accounts. The streaming giant has struggled with the strength of the US dollar, which has been weighing on its international earnings as well as the fierce competition from the likes of Apple TV, Amazon Prime, Hulu and others. Disney+ has been doing particularly well, having overtaken Netflix in terms of subscriber numbers last year.

Netflix has been among the big tech names to cut jobs over the last year as part of a major wave of layoffs in the sector, which suffered sharp share price slides amid the challenging macroeconomic backdrop.

Shares in Netflix have been rebounding since June last year, but the stock is still down about 50% since the peak in November 2021.