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Operating profit totaled 167.7 million pounds, plunging 17.2 percent from last year’s 202.7 million pounds.

LONDON — Harrods owner the Qatar Investment Authority is rewarding themselves with a 180 million pound dividend.

Accounts from Harrods Group (Holding) Ltd. show that the retailer’s operating profit dropped by 17.2 percent in the 52-week period ending February 2024.

Operating profit totaled 167.7 million pounds, sharply down from last year’s 202.7 million pounds.

Harrods said the decline in operating profit was due to the company’s pension buy-in with Scottish Widows Ltd. as they bought an insurance policy from the life insurance and pensions company.

The decline also resulted in managing director Michael Ward’s salary falling to 2.1 million pounds versus the 2.3 million pounds the year before.

However, the company recorded an 8 percent increase in turnover to 1075.1 million pounds, an 81.1 million pound boost from the previous year.

The business applauded itself for its turnover, saying that “2023 was a year of good financial performance for Harrods, reflected in our sustained and robust growth that reaffirms our leading position in luxury retail,” a Harrods spokesperson said. “Our results reflect our continued commitment to exceptional customer offerings and ongoing investment across the Knightsbridge store, our online platform and across the U.K. and internationally.”

Harrods also praised its swimwear department, eveningwear spaces and new dining hall for the retailer’s sales growth.

“These results reflect a period of significant growth for the luxury industry in 2023. The current domestic and global economic environment has meant that current trading conditions in the luxury sector are more challenging. We remain confident in the fundamentals of the business, and the resilience of the luxury sector, and that the business sustains its longer-term growth and performance objectives,” the spokesperson added.

ORLANDO, Florida, Sept 4 (Reuters) - Nvidia's (NVDA.O), opens new tab share price slump after its strong, but not exceptionally strong, second-quarter results raises a broader question for U.S. stocks: Are 2025 earnings growth forecasts too optimistic?

The aggregate 2025 earnings growth forecast for S&P 500 companies has risen steadily from 13.7% in April to 15.3% today, according to LSEG/Refinitiv. That's well above the 10.2% growth projected for this year and among the strongest rates seen this century.

Still, these lofty predictions could be realized assuming the Federal Reserve steers the economy toward a soft landing and lops off at least 200 basis points from the fed funds rate by the end of next year, as markets currently expect.

Two major economic data points last week indicated that the "Goldilocks" conditions needed to back up these rosy forecasts are in place: Second quarter GDP growth was revised up to 3.0% and annual core PCE inflation in July was a lower-than-forecast 2.5%.

On a three-month annualized basis, core PCE inflation is tracking 1.72%, below the Fed's 2% target.

That's obviously very good news for corporate America. If steady disinflation continues to sustain real wage growth, company executives can expect demand for their goods and services to hold up.

Indeed, CEOs and CFOs of S&P 500 firms mostly offered upbeat guidance in the season that just closed, especially around "key financial terms" such as earnings, revenue, and margins, according to an HSBC analysis of company earnings calls.

MIND THE GAP

While nearly 80% of large U.S. firms registered beats on earnings in the second quarter, only 60% outperformed sales expectations. That's one of the lowest levels of sales beats in the last 17 quarters, according to HSBC, and below the average of 62% over the last two decades, according to LSEG/Refinitiv.

Aggregate revenue for S&P 500 companies is currently expected to grow by 6% next year, according to LSEG/Refinitiv. That would mark a rise from this year's estimated 4.7%, but would still be almost 10 percentage points short of projected earnings growth for 2025.

That would be one of the widest gaps in at least 13 years, according to LSEG/Refinitiv figures.

In other words, profits will have to be juiced by exceptionally high margins to support the expectations baked into today's S&P 500 index level. Is this feasible?

Average profit margins for large U.S. companies, excluding financials and resources, are currently running above 9%. That's one of the highest rates in recent decades apart from the distorted 2021 post-pandemic period.

But analysts at JP Morgan warn that top line growth is about to weaken and net interest expenses are poised to pick up again. Margins will be squeezed.

Today's earnings outlook seems especially optimistic considering where we are in the economic cycle. While growth was solid in the second quarter, the trends are clear: Activity is cooling, and the labor market is weakening – especially for those seeking to enter the labor force.

As is increasingly the case, the aggregate picture might depend mostly on how Nvidia and the other megacap Big Tech firms perform. Earnings growth estimates for tech next year are running north of 20%. In fact, if you remove Nasdaq 100 companies from the equation, overall earnings growth expectations for large U.S. firms drops to a more reasonable 10%.

While it's unlikely that the "magnificent seven" will truly stumble in the coming year or that the economy will tank, the response to Nvidia's Q2 results highlights the danger of pricing in perfection. One doesn't need to be an equity bear to recognize that a lot of things need to go right for 2025 earnings expectations to materialize and just a few things need to go wrong.

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Auto giant is considering cuts it has long avoided in Germany as it contends with tepid interest in a high-cost technology

Volkswagen’s VOW -0.49%decrease; red down pointing triangle suggestion that it might have to close a plant in Germany for the first time ever sets up a battle with its powerful union and highlights the mounting pressures on its namesake brand.

The carmaker’s bosses raised the prospect of a plant closure on Monday as it navigates an increasingly bumpy transition toward electric vehicles. The company said a “performance program” at its core Volkswagen brand that was agreed upon with union leaders last December would no longer be sufficient to hit profit targets, following a disappointing first half of the year.

“The economic environment became even tougher, and new competitors are entering the European market,” said Chief Executive Oliver Blume in a statement.

The Volkswagen brand, the group’s largest in terms of sales, contributed less than 1/10th of total operating profit in the first half. Its margin was just 2.3%, or 3.6% excluding the costs of a severance program.

While the company doesn’t break out results for its EV business, a big bet on the new technology under former CEO Herbert Diess with products such as the ID.3 and ID.4 is one reason for today’s weak profitability, according to analysts.

A few days before Volkswagen announced its December deal with the union, the German government unexpectedly canceled EV subsidies. The technology has struggled to win over fresh cohorts of buyers who may be wary of patchy public charging infrastructure and high prices.

EV sales in Germany have plummeted this year, with Tesla’s registrations in the country down 41% for the year through July, compared with the same period of 2023.

“There are plants dedicated to EVs that aren’t producing at the levels expected and costs are out of whack,” said Bernstein analyst Stephen Reitman.

To get the Volkswagen brand’s finances back on track, managers want to take more radical steps than were possible under the previous union deal, notably ending an agreement to rule out compulsory redundancies that has been in place since 1994.

Daniela Cavallo, the union leader who heads Volkswagen’s works council, vowed Monday to fight the move, which is a prerequisite for any potential plant closure in Germany.

In an interview with the company’s union newspaper, she blamed the brand’s poor performance on management missteps such as Diess’s dismissal of hybrids as a niche technology. Car buyers this year have gravitated toward hybrids as a way to get better fuel economy without the charging hassle and expense of an EV.

The emerging negotiations are already attracting scrutiny in Berlin. On Tuesday, Germany’s economy and climate-protection minister, Robert Habeck, called for long-term thinking and “close coordination with social partners” at Volkswagen. He said the government was preparing tax relief for EVs as part of a new growth plan.

Volkswagen can’t easily dial back its profit-sapping EV investments or production because its cars need to meet much stricter European emissions standards starting next year. Its fleet carbon emissions last year were 24.2% higher than they will need to be in 2025, according to data collated by Bernstein, compared with 19.6% for Mercedes-Benz and 9.7% for BMW.

The company will also need to compete with lower-cost, faster-moving Chinese EV makers, not just in China but increasingly in Europe, too. Chinese manufacturers have a cost advantage of as much as 30%, according to industry estimates.

In the first half, BYD, which last year overtook Volkswagen in China, sold roughly 17,000 vehicles in Europe, 14,000 more than in the same period of 2023, according to JATO Dynamics. This summer BYD sponsored the high-profile Euro 2024 soccer tournament and last week agreed to buy its German distributor.

While Volkswagen’s profitability in the first half was particularly weak, its performance has long been a drag on the group, which also includes lucrative luxury marques such as Porsche and Audi.

Other mass-market brands owned by the group, such as Skoda and SEAT, based in the Czech Republic and Spain, respectively, have reported higher margins than Volkswagen itself in recent years.

In his statement, Blume noted that “Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”

Labor costs in Germany are the highest in Europe, according to an analysis by the German Association of the Automotive Industry. A German auto worker cost roughly €62 an hour last year—equivalent to roughly $68.50—compared with €23 for a Czech worker and €29 for a Spanish one. In Hungary, where BYD is building a factory to avoid European Union tariffs, auto workers are paid only €16 an hour.

Germany’s energy costs also have risen since the country lost access to cheap Russian pipeline gas as a result of the war in Ukraine.

Volkswagen has a long history of resisting redundancies. In 1993, when the company was losing money in an economic slump, its management and union agreed to a four-day week as an alternative to a plan involving 30,000 job cuts.

Veteran German stock analyst Jürgen Pieper expects the latest war of words that has broken out between Volkswagen’s management and union to end in some kind of compromise that again avoids shuttering plants. One option could be the sale of components businesses, he said.

“The challenge for management is that this isn’t a full-scale crisis. Volkswagen just gets a little weaker every year.”

Excluding the Covid-19 pandemic period, annual growth was the lowest since 1992

SYDNEY—Australia’s commodity-rich economy recorded its weakest growth momentum since the early 1990s in the second quarter, as consumers and businesses continued to feel the impact of high interest rates, with little expectation of a reprieve from the Reserve Bank of Australia in the near term.

The economy grew 0.2% in the second quarter from the first, with annual growth running at 1.0%, the Australian Bureau of Statistics said Wednesday. The results were in line with market expectations.

It was the 11th consecutive quarter of growth, although the economy slowed sharply over the year to June 30, the ABS said.

Excluding the Covid-19 pandemic period, annual growth was the lowest since 1992, the year that included a gradual recovery from a recession in 1991.

The economy remained in a deep per capita recession, with gross domestic product per capita falling 0.4% from the previous quarter, a sixth consecutive quarterly fall, the data showed.

A big area of weakness in the economy was household spending, which fell 0.2% from the first quarter, detracting 0.1 percentage point from GDP growth.

With population growth running at around 2.5% a year, per capita spending declined by around 2.0% over the same period, according to the ABS data.

Helping to lift the gloom, government spending rose 1.4% over the quarter, due in part to strength in social-benefits programs for health services, the ABS said.

The soft growth report comes as the RBA continues to warn that inflation remains stubbornly high, ruling out near-term interest-rate cuts.

RBA Gov. Michele Bullock said last month that near-term rate cuts aren’t being considered.

Money markets have priced in a cut at the end of this year, while most economists expect that the RBA will stand pat until early 2025.

Treasurer Jim Chalmers has warned this week that high interest rates are “smashing the economy.”

He told reporters after the data that without growth in government spending over the quarter, the economy would have contracted.

Still, with income tax cuts delivered at the start of July, and the government announcing handouts to every household while offering rebates to subdue rental and electricity cost increases, there are some expectations that consumers will be in a better position to spend in the third quarter, reviving the economy to some degree.

Sally Auld, chief investment officer at wealth manager JBWere, said that while the weakness in consumer spending will alarm the RBA, it is too soon to rule out a recovery as government stimulus lifts consumption.

“Let’s see what happens,” she added.

But the economy has clearly slowed to a crawl.

“Output has now grown at 0.2% for three consecutive quarters now. That leaves little doubt that the economy is growing well below potential,” said Abhijit Surya, economist at Capital Economics.

“But if activity does continue to disappoint, the RBA could well cut interest rates sooner,” Surya added.