>>> Barron’s Weekend Summary

Barron’s Weekend Summary: CA Healthcare, the country's largest for-profit hospital operator, has faced criticism for its recent acquisition

Cover:
-HCA Healthcare, the country's largest for-profit hospital operator, has faced criticism for its recent acquisition of Mission Hospital in Asheville, North Carolina. The hospital, which is the second-largest in the HCA system by net patient revenue, generated nearly $1.3B in 2022. The acquisition was one of more than a dozen hospitals that HCA acquired between 2017 and 2021. HCA's share price has increased more than 140% in five years and outperformed the S&P 500 index. Unionized nurses at Mission Hospital have publicly decried low staffing and stretched workloads, with dozens of physicians signing an open letter expressing concern about the hospital's quality under new ownership. HCA is fighting the suit, stating that the issues have been resolved and Mission Health continues to be recognized as one of the top hospitals in the country in third-party quality and patient safety ratings.

Interview:
-Savita Subramanian, head of U.S. equity and quantitative strategies at BofA Securities, advises investors to increase their exposure to value stocks in cyclical industries. The S&P 500 index has gained nearly 14% this year, and the Nasdaq 100 has 16%, largely due to rallies in megacap tech stocks. Subramanian, who has been following markets for over two decades, has earned a reputation for prescient investment calls. She marries quantitative research with fundamental analysis and draws on behavioral finance principles. Subramanian raised her S&P 500 year-end price target in March to 5400 from 5000, which was one of the most bullish calls on Wall Street. However, she is not planning to change her target now, as market sentiment has moved from bearish to more neutral. She has been following markets for over two decades and has a dual major in mathematics and philosophy at the University of California, Berkeley.

Tech Trader:
-Artificial intelligence (AI) is gaining traction as investors continue to invest in the technology. Nvidia, Arm Holdings, C3.ai, and Taiwan Semiconductor have all seen significant increases in their stock prices over the past month. The recent unveiling of Apple's AI strategy and AI-juiced earnings reports from Oracle, Broadcom, and Adobe have also boosted the market. Corning, a specialty glassmaker, has seen its revenue decline for six consecutive quarters due to declines in key markets such as smartphones, TVs, autos, and telecommunications. However, CEO Wendell Weeks believes a turnaround is possible due to improvements in underlying businesses and new opportunities, such as AI. Weeks predicts that Corning can boost annual revenue by at least $3B by 2026, potentially as much as $5B, on top of the $13.6B reported in 2023. Weeks believes that material science is slow, but a catalyzing customer application can trigger a big secular trend to take off.

The Trader:

-The Federal Reserve remains optimistic about its battle against inflation, with the stock market experiencing positive momentum. The S&P 500 index has hit four new closing highs, with a 1.4% gain this week. The NASDAQ Composite has advanced 3%, while the Dow Jones Industrial Average has fallen 0.7%. Apple's announcement of artificial-intelligence capabilities in new iPhones has boosted hopes that consumers will upgrade to the iPhone 16, sending the stock up 8.7% for the week. The inflation data also provided optimism, with the consumer price index rising 3.3% year over year in May, below the forecast and down from April's 3.4%. The S&P 500 gained 0.9%, while the Fed emphasized that inflation is not close enough to its 2% target to cut rates. The Fed's "dot plot" showed one rate cut later this year, down from three at the previous meeting.
-Pacific Gas & Electric (PG&E) shares have seen a partial recovery after filing for bankruptcy in 2019 due to a $30B settlement with victims, the state of California, and insurance companies. The company is expected to have negative free cash flow over the next two years, despite increasing earnings per share. However, the stock has gained about 150% since bottoming out in 2019, and its current market cap of $39B has returned to near peak levels. The bull case starts with PG&E's deal with California, which includes a provision allowing the utility to receive cash from the state for every $1B billion in damages it settles from a $21B fund. J.P. Morgan analyst Richard Sunderland upgraded the stock to Overweight from Neutral, citing the company's clear guidelines and financial protections. PG&E's investor day presentation confirmed its direction in safety, financing, and demand outlook for the coming years.

Features:
-French stocks and bonds experienced a drop due to President Emmanuel Macron's call for snap elections three years early, following a stronger showing for Marine Le Pen's far-right National Rally in European elections. The move could fuel increased spending, sparking concerns about a European debt and currency crisis. A rushed coalition on the left vows to break with Macron as the elections approach. The bond market also showed uncertainty, with the gap between 10-year bond yields in France and Germany widening to 80 basis points, its highest point since the euro debt crisis in 2011. Gavekal Research founder Charles Gave cited a decline in French bank shares and its debt situation as reasons investors should not dismiss the prospects of a currency and bond market crisis.
-Pharma stocks have traditionally been chosen based on the number of drugs and vaccines sold to large numbers of people. However, the dominant force in pharma stocks is closing, and investors will need to find a new strategy. Advanced therapies and personalized medicines, also known as precision medicine, are rapidly emerging. This field allows healthcare providers to order specific therapies for each patient based on their unique genetics and other factors. The battle against certain cancers is one of the most important developments in this field. Over one-third of new drugs approved by the Food and Drug Administration have been personalized medicines, and further growth is expected. The personalized medicine market is valued at over half a trillion dollars worldwide and is predicted to exceed $1T by 2031. However, investors should not use a "patent cliff" model, as patent laws are not as consequential for personalized therapies as they are for one-size-fits-all medicines.

Europe:
-The iShares MSCI France exchange-traded fund fell 7.22% on the week, despite being tilted away from luxury sectors. The largest component is LVMH Moët Hennessy Louis Vuitton, controlled by Bernard Arnault, who is now at No. 3 in the Bloomberg Billionaires Index. Other big components in the French ETF include global luxury brands like L'Oréal and Hermès International, whose businesses are less affected by the domestic economy than big spenders around the globe. Airbus, half of the global duopoly in commercial aircraft with Boeing, is half of the global duopoly in commercial aircraft with Boeing. Election politics have roiled France's markets, as have those in India and Mexico. Stocks had another winning week, with the NASADQ Composite closing at record levels and the S&P 500 index nearly ending the week at a fresh high.

Emerging Markets:
-Recent elections in India and Mexico have highlighted the potential for political instability and a potential for radical changes to jeopardize government checks and balances. Claudia Sheinbaum's victory as Mexico's first female president and her supermajority in the lower house led to concerns about radical changes that could jeopardize checks and balances. In contrast, India's Prime Minister Narendra Modi's coalition victory and his ability to stay in power have allayed concerns about the world's largest democracy. The market has interpreted supermajorities as a threat, especially in the hands of left-leaning leaders. Divided governments are generally a win for investors, but investors are pulling back from Mexico after Sheinbaum's win. Mexican stocks had doubled since 2020 due to a strong U.S. economy and rising U.S.-China tensions. However, concerns now are that Sheinbaum's supermajority could lead to increased spending to bolster state pensions and minimum wages, as well as constitutional changes that could compromise judicial independence and government oversight.

Commodities:
-The Energy Select Sector SPDR Fund, which includes oil producers like Chevron and Exxon Mobil, saw an 18% increase through early April, then a rough patch but still maintained a solid 5% gain. The fund reached a multiyear high of $98, boosted by WTI crude oil's 12% rise. Copper names like Freeport-McMoRan and Southern Copper rose 50% and 29%, respectively, while the metal itself rose just over 30%. The price jumps for copper and oil show confidence in the global economy's growth and the potential for it to continue growing now that central banks have stopped raising interest rates. Additionally, copper is benefiting from AI mania, as data centers that power the world's adoption of artificial intelligence require more of the metal. However, the commodities and their associated stocks moved in sync, with the oil ETF and copper stocks dropping slightly.

Streetwise:
-Shares of major home builders have slowed since March, with Toll Brothers down 8%, Lennar 10%, and D.R. Horton 14%. Mortgage rates have not been the main reason for the selloff, with the 30-year rate at just under 7%. Mixed economic signals also don't explain the builder selloff. UBS blames an increase in home inventory, with 1.52 million single-family homes for sale in April, a 15% increase from a year ago. This raises concerns for investors due to a housing shortage keeping selling prices high and profits for builders being fat. Publicly traded companies have taken market share, and if a rush to sell homes is taking hold, big builders could give up more gains. However, nationwide, inventory is up but still exceptionally low, with an average of 2.36 million single-family units for sale since 1982. Houses for sale are old and expensive, with some homeowners shooting for the stars due to tight supply and lavish sales prices.

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-EU regulators are set to charge Apple for allegedly stifling competition on its mobile app store, marking the first time they have used new digital rules to target a Big Tech group. The European Commission has determined that Apple is not complying with obligations to allow app developers to "steer" users to offers outside its App Store without imposing fees. The charges would be the first brought against a tech company under the Digital Markets Act, which forces powerful online gatekeepers to open up their businesses to competition in the EU. An announcement over the charges against Apple is expected in the coming weeks. The EU could also announce charges against other tech groups, such as Google parent Alphabet and Facebook owner Meta's use of personal data for advertising.
-Voters in France are considering whether to allow the nationalist, populist RN to enter the heart of government. The snap poll on June 30 and the second round on July 7 will depend on whether voters see the RN of today, which Marine Le Pen has spent over a decade crafting into a smoother, more professional force, is up to the task. Voting patterns in the Berry region of central France show the RN making inroads in new areas and voter segments, conquering a swath of France known as "the diagonal of emptiness" due to depopulation, lack of high-speed train links, and weak economy.
-Russia's Vladimir Putin has proposed a ceasefire and negotiations to end the war in Ukraine in exchange for control of four frontline Ukrainian regions. The conditions include areas Moscow never occupied during its two-year invasion, a pledge not to join NATO, and lifting western sanctions imposed in 2022. Ukraine rejected this proposal, claiming it amounted to capitulation and would leave the country vulnerable to future attacks. Under Putin's conditions, Russia would gain full control of Donetsk, Kherson, Luhansk, and Zaporizhzhia.
-Boeing and Airbus have admitted to using titanium parts in their jets with counterfeit certification documentation. The parts were purchased from Spirit AeroSystems, a Kansas supplier struggling with quality issues. The metal, which originated in China, was falsified before being used in parts installed in jets. The transaction may have occurred as early as 2019. The metal is used to make critical components for aircraft, including landing gears and fasteners for engine-to-wing pylons. The companies have been scrutinized by regulators following a door panel blowout in January. An audit of the two companies found examples of them failing to meet manufacturing and quality control requirements.
-Tesla CEO Elon Musk has won a significant victory in shareholder votes on his $56B pay package and a proposal to relocate the company's domicile from Delaware to Texas. The largest stock options package in US history was reapproved by 77% of votes cast at Tesla's annual meeting in Austin. The plan to reincorporate in Texas won the backing of 84% of votes, representing 63% of shares. The results are a significant boost for Musk as he seeks to reassert control over Tesla. The reaffirmation of his pay will also strengthen Tesla's position in overturning a Delaware court decision to void the 2018 stock options package.
-Luxury clothing sales platform Yoox Net-a-Porter is closing its China operations, citing a weaker economic backdrop in the vast ecommerce market. The decision was made in line with a global Yoox Net-a-Porter plan to focus investments and resources on its core and more profitable geographies. The company operated in China under a joint venture with Chinese ecommerce group Alibaba, which will be liquidated. Profitability in China's luxury market has been a focus this year due to a prolonged property slowdown and lagging consumer demand. French luxury group Kering has also faced worsening performance in the first quarter due to slow market conditions.
-The Labour Party is planning the largest Whitehall shake-up in decades, aiming to break down departmental silos and pursue its government missions. Sir Keir Starmer is reviewing proposals for five new "mission boards" to aid cross-department work, headed by Starmer himself. These entities will draw on private sector expertise and may be granted powers to help deliver policy. The Labour leader's aim is to "break down silos" and reduce delays caused by measures passing between rival departments and being split between different budgets. The Treasury will focus more on attracting investment and driving growth, as part of his pledge to end "sticking-plaster politics" and usher in a "decade of renewal" for the country.
-Carlyle is considering a sale of Cogentrix Energy, one of the largest US power plant owners, as a wave of deals for utilities accelerates due to soaring energy demands from digital networks. The private capital group has hired advisers to explore a sale that could value Cogentrix at $3B-$4B, generating a large windfall for Carlyle's infrastructure arm. Investment bank Lazard and law firm Latham & Watkins have been hired to advise on the sale. Cogentrix owns stakes in 13 natural gas power plants across the US. The wave of deal-making has been partly spurred by speculation that data centers and digital infrastructure used to power artificial intelligence will spark an unprecedented demand for power, straining the energy supply.
-South Africa's ruling African National Congress (ANC) has signed a power-sharing deal with the Democratic Alliance, allowing a new government to be formed under ANC leader Cyril Ramaphosa. This deal was crucial for the ANC to maintain power, which lost its majority for the first time since the end of white minority rule 30 years ago. Ramaphosa is expected to be reappointed president later. The deal is seen as a "historical" moment for South Africa, allowing his party to co-govern. The agreement aims to create a stable democracy and an inclusive economy.
-Miami's Waldorf Astoria Residences, the tallest building in the Americas south of New York City, has secured a $668M residential construction loan, the largest in Florida's history. The $668M loan, secured from Bank OZK and Related Fund Management, breaks the previous record for a residential construction loan in Florida, a $600M loan for the Cipriani Residences earlier this year. Miami is the most attractive market for condo construction lenders due to the demand and lack of supply. The city experienced a population influx during the pandemic, with high earners flocking to the area for better weather, friendly taxes, and looser Covid restrictions. The buyer pool is deeper than ever, with people with high-paying jobs able to afford the construction of luxury properties.

THE NEW YORK TIMES
- The G7 summit in Italy has sparked a tense debate over abortion rights, primarily between the United States and Italy. The summit's final statement, which includes the words "abortion" and "reproductive rights," has sparked a diplomatic tug of war between the two countries. The debate primarily revolves around the inclusion of the words "abortion" and "reproductive rights" in the statement, which has been a contentious issue. The Italian government has denied any intention to backtrack on its commitment to protecting access to safe abortions. The G7 leaders had a variety of topics to discuss and disagree on, including the ongoing wars in Gaza and Ukraine, a loan for Ukraine, and the issue of abortion rights.
-President Biden was at the G7 with Ukraine's President, Volodymyr Zelensky, where he was expecting to discuss a security pact he had signed to support Ukraine in its battle with Russia. However, he seemed flustered when asked about the Gaza cease-fire plan. Biden asked for an update on the fate of the cease-fire deal, which he announced last month but has yet to be publicly accepted by Israel or Hamas. He reiterated the U.S. stance that the proposal had been endorsed by the Israeli government, the United Nations Security Council, and the G7, and that the hold-up was with Hamas. Biden seemed flustered at confronting questions about his cease-fire plan for Gaza.
-Former President Donald Trump is celebrating his 78th birthday, which he is not happy about. Trump, who is trying to become the oldest person to be elected president of the United States, expressed his dislike for birthdays, particularly this one. He was upset earlier this week when his supporters sang an early "Happy Birthday" to him at a rally in Las Vegas. Trump is now 78 and trying to convince the country to give him another four years in office, at the end of which he would be the oldest president in American history. The current, 81-year-old occupant of the Oval Office holds the mantle.
-A Houston bankruptcy judge has ordered the sale of Alex Jones's personal assets, allowing the conspiracy theorist to continue broadcasting on Infowars while the Sandy Hook families continue to pursue payment of $1.4B in defamation damages. The proceeds will be distributed among the Sandy Hook families, but Jones will not have to shutter his Infowars business empire. The outcome divided the Sandy Hook families, with those who sued Jones in Texas favoring the decision, which will keep Jones on the air but allow them to potentially receive more in damages from the Infowars income. Those who sued Jones in Connecticut favored settling for less money and shutting down Jones, although they acknowledged he would not be silenced entirely.
-The Supreme Court has rejected a ban on gun bump stocks, which allow semiautomatic rifles to fire at speeds rivaling those of machine guns. The ban was imposed after one of the deadliest mass shootings in modern US history, at a Las Vegas concert in 2017. The decision, by a vote of 6 to 3, split along ideological lines. Justice Clarence Thomas, writing for the majority, argued that the Bureau of Alcohol, Tobacco, Firearms and Explosives had exceeded its power when it prohibited the device by issuing a rule that classified bump stocks as machine guns. The court held that a semiautomatic rifle equipped with a bump stock is not a 'machine gun' because it cannot fire more than one shot by a single function of the trigger.
-Israel's defense chief rejected a diplomatic effort by France to end the tit-for-tat missile strikes over Israel's border with Lebanon. The United States, France, and other mediators have been seeking an agreement to stop the tit-for-tat strikes between Israel and Hezbollah, a powerful militia and political faction backed by Iran. The United States, France, and other mediators have sought for months to find a way to stop the tit-for-tat strikes. More than 150,000 people on both sides of the border have been displaced by the fighting, and Israel has warned that it is prepared to take stronger action to dislodge Hezbollah militants from southern Lebanon. The ongoing cross-border hostilities between Hezbollah and Israeli forces have raised fears of a full-blown war.
-China and the World Anti-Doping Agency (WADA) have been accused of doping in the Olympic Games, following the revelation that 23 elite Chinese swimmers had tested positive for a banned substance months before the last Summer Olympic Games. China and the WADA defended their decision to allow the swimmers to compete in the Games in 2021, claiming they had not been doping. However, a secret report reviewed by The New York Times revealed that China and the WADA were aware that three of the 23 swimmers had tested positive for a different performance-enhancing drug several years earlier and had escaped public identification and suspension in that case as well. China claimed that the swimmers had unwittingly ingested the banned substances, an explanation viewed with considerable skepticism by some anti-doping experts. The two incidents add to longstanding suspicions among rival athletes about what they see as a pattern of Chinese doping and the unwillingness or inability of the WADA to deal with it.

THE NEW YORK POST
-Tupperware Brands is set to close its South Carolina factory and lay off over 100 workers, marking the company's last remaining US plant. The iconic plastic food container company will shift all manufacturing operations to Mexico, where many of its products are already made. The closure of the facility in Hemingway, Florida, will result in the layoffs of 148 employees. The layoffs are set to begin in September and conclude on January 14, 2025. Tupperware aims to appreciate each of its valued team members and their many years of service to the company. The Hemingway plant, which was sold in 2023, was the company's sole manufacturing site in the US. Eligible employees will be offered severance packages and early retirement, and the company will also help connect them with other companies for employment. Tupperware was founded in 1946 by Massachusetts chemist Earl Tupper.
-Tesla CEO Elon Musk confirmed that he and former President Trump have had conversations during a shareholder meeting. Musk said that Trump calls him out of the blue for no reason and is "very nice when he calls." He recalled telling Trump that EVs are "pretty good for the future" and that America is the leader in electric cars. Musk also mentioned that many Trump's friends now own Teslas and love them. The Wall Street Journal reported last month on the pair's "growing alliance." Musk did not address this claim. Tesla shareholders voted to reinstate Musk's $56B pay package that had been voided by a Delaware judge and change the company's state of incorporation from Delaware to Texas.

WSJ : Pensions Piled Into Private Equity. Now They Can’t Get Out.

Pensions Piled Into Private Equity. Now They Can’t Get Out.
Retirement funds seek cash while money languishes in zombie investments

Private-equity and pension funds seemed like a match made in heaven. U.S. companies and states handed over control of some worker retirement savings. In exchange, they got a promise of high returns after a decade—and often received healthy cash payouts in the years before that.

Now the honeymoon is over. The payouts have dried up, creating an expensive problem for investment managers overseeing the savings of workers retired from big corporations and state and city governments.

To keep benefit checks coming on time, those managers are unloading investments on the cheap or turning to borrowing—costly measures that eat into returns. California’s worker pension, the nation’s largest, will be paying more money into its private-equity portfolio than it receives from those investments for eight years in a row. The engine maker Cummins took a 4.4% loss in its U.K. pension last year, in large part because it sold private assets at a discount.

It is the latest cash crunch to befall retirement funds that have piled into hard-to-sell investments in search of high returns, and spotlights the risks as Wall Street is trying to sell those investments to wealthy households.

“You’ve got a lot more money out and going out than is coming back, and I think that’s causing a lot of angst,” said Allen Waldrop, Alaska Permanent Fund Corp. private-equity director.


U.S. companies and state and local governments manage around $5 trillion in pension money. Large public pension funds have an average 14% of their assets in private equity, while large corporate pensions have almost 13% in private equity and other illiquid assets such as private loans and infrastructure, according to data from Boston College and JPMorgan Chase. Much of the money was committed when low bond yields were dragging down retirement portfolios.

But as private equity has grown, its lead over traditional stocks has narrowed. And during the decade before the investments pay out, it can be hard to trust interim estimates provided by fee-seeking managers.

Pensions, sovereign-wealth funds, university endowments and other institutions often promise their money to private-equity managers for a decade or so. Over that time, the managers draw down the cash and use it to buy companies, then overhaul and sell them. Those sales and the resulting cash distributions to investors have slowed markedly as high interest rates have made buying and owning companies more complicated and expensive.


Unable to sell without denting returns, private-equity managers are keeping workers’ retirement savings locked up for longer—sometimes past the promised maturity date. Nearly half of private-equity investors surveyed by the investment firm Coller Capital earlier this year said they had money tied up in so-called zombie funds—private-equity funds that didn’t pay out on the expected timetable, leaving investors in limbo.

So pension funds are selling private-equity fund stakes secondhand—often taking a financial hit in the process. Secondary-market buyers last year paid an average of 85% of the value the assets were assigned three to six months before the sale, according to Jefferies Financial Group. Secondhand sales by private-equity investors increased 7% to $60 billion last year.

Columbus, Ind.-based Cummins sold private assets because its U.K. pension suddenly needed cash after derivatives bets backfired and many U.K. pensions had to post large amounts of collateral. A Cummins spokeswoman said the plan is confident in its strategy.

The Oakland, Calif.-based healthcare provider and nonprofit insurer Kaiser Permanente has sold $6.5 billion in private assets in the past two years and is preparing to sell another $3.5 billion after an aggressive push into private markets a few years ago. Anton Orlich, who oversaw much of that push, is now supervising an expansion of the $502 billion California Public Employees’ Retirement System’s private-equity portfolio to 17% of assets.

Orlich told Calpers’s board Monday that the cash demands of the private-equity portfolio have dwarfed payouts for four years and would continue to do so for about another four years. Calpers is investing extra money up front as a part of a strategy that will reduce sudden requests for cash later, Orlich said.


Some pension funds are borrowing to access cash. Both Calpers and the $333 billion pension serving California teachers have approved plans to take out loans equivalent to 5% and 10% of fund holdings, respectively.

The Alaska Permanent Fund Corp. has received cash from a different kind of borrowing: private-equity managers making payouts that come not from investment gains but from loans they have taken out to appease cash-starved pensions and other investors. That is frustrating for the investment chief, Marcus Frampton. He estimated that his fund, which invests mineral revenue and other state money, could borrow on its own at lower cost. So far, this practice doesn’t appear to be widespread.

The $80 billion Alaska fund has been getting more cash from its private-equity program than it has put in. But it still missed out on around half a percent worth of stock gains—or about $40 million—over the past year after private equity tied up more cash than expected, causing the fund to run a smaller than planned stock portfolio, Frampton told the fund’s board last month.

Board members decided to reduce real-estate and cash holdings instead. They also voted to scrap a goal set a year ago to reduce the share of assets in private equity.

WWD : Galeries Lafayette Revamps Its Luxury Offering, Returns to Pre-pandemic Sa

Galeries Lafayette Revamps Its Luxury Offering, Returns to Pre-pandemic Sales, Traffic Numbers
With Chanel, Rolex, MaxMara and more, the department store group has more local VIPs to make up for the loss of Chinese tourists.

PARIS — As retail rights itself post-pandemic, Paris’ Galeries Lafayette has bounced back with sales reaching 2019 levels.

The retail group hit 3.6 billion euros in sales in 2023, chief executive officer Nicolas Houzé revealed during a presentation at the company’s flagship in Paris. The busy holiday shopping period last December even topped pre-pandemic numbers, and those sales continued to accelerate in the first quarter, he said.

That puts the company on track to hit 3.85 billion euros in sales across the group, including the 18 regional Galeries Lafayette stores, by the end of 2024. To that end, the group has returned to profitability after the lean pandemic years and will invest 400 million euros on building improvements such as the facade of its Paris flagship, plus significant tech and omnichannel investments over the next five years.

This year will also mark Galeries Lafayette’s 130th anniversary. Houzé’s great-grandfather opened the first outpost a few blocks away on Rue Lafayette, and it moved to the current location in 1902.

The store will hold a big birthday party with a special event under the store’s famous dome, details of which are still under wraps, in September, Houzé said.

Pop-ups and special events will increasingly become a core PR pillar for the store.

“We have continued to strengthen our events policy, since we are convinced that the department store must be an events business,” Houzé said.

Olympic Expectations
The anniversary celebration will follow this summer’s Olympics, which will bring expected disruptions to the city and the stores to the tune of driving sales down 5 to 10 percent.

Still, Houzé expects that it will ultimately be good PR for the city itself.

“Our conviction is that this global event will give the city of Paris new visibility, and ultimately make new tourists and customers want to come visit Paris. Therefore we will make up these sales losses following the Olympic Games, between the month of September and the end of the year,” he said.

“It would be completely stupid to say that everything will be business as usual. Obviously there will be disruptions and we must take this into account,” added director of operations Alexandre Liot. “But we see the Olympics as an opportunity for Paris and for France for the future.”

To capitalize on the games, Galeries Lafayette will invite 20 designers to create exclusive products for the store that will roll out around the celebrations.

The Olympic shine will also continue the polishing-up project of the Champs-Élysées, which is in the midst of a multiyear revamp to improve the boulevard. The group believes that shine will also rub off on its second Paris store on the famous shopping street, which has underperformed since its opening in 2019.

“With everything that is happening on the Champs-Élysées, the new openings that will take place in the months and years to come, the Champs-Élysées will also undoubtedly be a very powerful center during the Olympic Games. It allows us to believe in a bright future for the Champs-Élysées store,” Houzé said.

It was launched with a more avant-garde, experimental point of view.

“We were frankly very innovative and pushed the concept as far as possible. The fact is that the performance didn’t live up to what we expected for many reasons,” he said, in part because the concept did not resonate with shoppers, as well as the tough retail climate.

They have revamped the concept with a more classical offering, as well as changed marketing tactics and increased communications spend. It will still serve as a space for emerging brands and new ideas, but they have added a more classical twists. Houzé noted that the personal shopper concept was a success in trials at that store, and has since been rolled out to other locations.

Foot traffic to the group stores has also bounced back, to 30 million visitors in 2023.

With More Locals, a New Luxury Brand Mix
But with the loss of Chinese tourists and the giant buses that used to deposit them in front of the Boulevard Haussmann flagship, that mix has shifted.

Before the pandemic, about 33 percent of its customers were from China, while that number now stands at 20 percent. Those are mostly individuals, and fewer large groups.

Those losses have been made up by French customers, which now make up 40 percent of the store’s customer base with a particular focus on local VIP clients.

The remaining 40 percent are international tourists, with other Asian nationalities, such as South Korea, Japan and Thailand, filling in that gap. The Haussmann flagship reopened its international tour group welcome center last year to make for a more pleasant customer and sales floor experience, he noted.

The local customer base has become increasingly loyal since 2021, Houzé added.

“Ultimately it allowed us to address a much more balanced clientele,” he said of the new demographics.

The loss of Chinese tourists and large groups also shifted the mix inside the store. They revamped the first floor, with larger spaces for key luxury brands, including Chanel and Rolex, while removing some unnamed brands that had mainly appealed to Chinese customers.

They added brands such as Bottega Veneta, Ferragamo, Patou, MaxMara and Victoria Beckham, and have added pieces from runway collections to up the fashion quotient.

“We reinforced our offer with a strengthening of partnerships with luxury houses,” he said, to be more in line with the desires of the newer customer mix, especially Parisian VIPs.

Those expansions came to the tune of about 200 million, with half coming from the group and the other half coming from the brands themselves. The store has also added a lounge and concierge services as it banks on bigger local spend.

“And so, we must evolve, we are not going to deprive ourselves of growth drivers that are close to us,” he said.

The luxury brand offerings are about on par with what they would carry in their own flagships. To differentiate the department store, they are seeking more exclusive brands and products.

The Jacquemus and Nike collaboration was only available at the brand’s flagship and the Haussmann store worldwide.

Kim Kardashian’s Skims brand is only available at Galeries Lafayette in France. It opened a pop-up at its Nice, France, store when that brand arrived to amplify its exclusivity. Strategies like this will help it stand out in an ever-crowded market, where customers have almost every brand at their fingertips.

To that end, the group is also investing heavily in developing its own omnichannel services. Houzé said it is “the right response to the expectations” of customers today.

Changes in customer behavior shaped by the pandemic have borne out in the numbers. In 2019, about 1 percent of the company’s sales were online, while for 2023, it was about 10 percent. Many of these are shipped-from-store home delivery sales and other convenient systems the company developed during the pandemic closures.

The company is also starting to test AI systems on several fronts, including efficiency on the customer service side, creating product descriptions as well as using it on image generation.

Houzé called it a “real revolution” for retail. More than anything the executive believes that the tech will eventually be deployed to “speak to our customers in hundreds of languages” be it in store or via chatbot.

It has also invested in developing its luxury resale channel in the Haussmann flagship through the Re-Store section, which was inaugurated in 2021. With 5,000 square feet dedicated to circular fashion, the section generated 90 million euros in sales in 2023.

“It’s a category which is truly an important expectation of the young generation,” he said.

In addition to expanding the luxury spaces, it has added new contemporary brands such as Jeanne Damas’ Rouje and Balzac, a young Parisian brand which only has one brand-owned flagship and is carried in three Galeries Lafayette stores nationwide.

The shoe department has also been revamped. The category has seen a growth level upward of 30 percent and continues to accelerate with the move to a new floor and upscaled section.

With its massage, personal care and gym, the wellness space opened in 2022, appeals particularly to tourists who are staying in Airbnbs that do not have access to hotel services, Houzé noted. Most of that is services, only about 20 percent of that space is devoted to products.

For its next act, the store will expand the spaces dedicated to the growing category of menswear starting in 2025.

Houzé emphasized that all of these investments are self-financed from the group’s profitability, and not from private investments or the selling off of the BHV department store.

That decision was made post-pandemic as the group wanted to refocus its portfolio on its core brand.

“We have decided to concentrate our efforts on the Galeries Lafayette brand and the 19 department stores that we consider a priority,” he said, of the 18 regional stores plus the Boulevard Haussmann flagship. “We sold BHV to focus our financial and personnel efforts on the historic name.”

That name is also expanding into new markets, with previously announced franchise partnerships in China and India.

“The objective is to make 15 percent of our turnover internationally by 2028,” Houzé said. It stands about 10 percent now, with outposts in Doha, Dubai and Qatar.

“It is our partners who carry the investment,” noted Houzé, who said it does not factor into the 400 million-euro investment number.

The group will continue to upgrade its 18 regional stores, including new approaches such as a shopping and entertainment complex in Annecy, where it includes other brands such as Uniqlo and a climbing wall.

As for the French franchises, which were thrown into chaos by the bankruptcy of owner Foncière Immobilier Bordeaux last year, a commercial court approved a safeguard plan earlier this year to keep the company afloat.

The relationship has stabilized since the decision, Houzé said.

“We have entered into a completely normalized relationship between us as franchisors and them as franchisees,” he said.

Business Of Fashion : The Fashion System Is Creaking. Will It Collapse?

The Fashion System Is Creaking. Will It Collapse?
The current formulaic, corporatised, anodyne approach to fashion is not working. The industry needs to find its courage to be creative again, writes Imran Amed.

LONDON — Lately, something has not been feeling quite right in luxury fashion. First Kering, and now LVMH and Chanel, seem to be creeping into crisis management mode.

As has been well documented, Sabato De Sarno’s creative directorship at all-important Gucci has not yet ignited industry interest. Meanwhile, customers haven’t had the opportunity to see much new product in store, hobbling Kering’s post-Covid performance. None of the other Kering brands are registering meaningful growth that can make up for this, leaving the group with a very complex multi-faceted turnaround to execute.

Over at LVMH, things are getting more challenging too. According to market sources, sales at Dior are flagging, which perhaps explains why the house’s March 23 men’s show in Hong Kong was “indefinitely postponed” just a few weeks before it was due to take place. Meanwhile, Fendi and Givenchy seem to be in stasis mode, while reports that Hedi Slimane is about to leave Celine following “thorny contract negotiations”with his bosses at LVMH further complicates matters.

And then just last week, Chanel suddenly lost its creative director, Virginie Viard, and in a not very Chanel way, especially for someone who had dedicated 30 years to the house. The fact that Viard’s exit happened so quickly with no succession plan in place makes it clear that neither side had planned for this to happen now. Chanel’s creative conundrum comes amid market reports that sales are down in almost every market this year.

But it’s not just these designers and these houses that are troubled. Burberry’s mooted elevation strategy is not yet delivering results and Lanvin, which has been without a creative director for more than a year, seems to be languishing even if CEO Siddartha Shukla is working hard to keep the brand relevant. After John Galliano wiped his Instagram account, the rumour mill started whirring that he would be leaving his creative directorship at Maison Margiela.

Meanwhile, a number of talented designers remain without big jobs. Pierpoalo Piccioli suddenly exited Valentino in March and Sarah Burton announced last autumn that she was leaving Alexander McQueen. Both designers had worked with their respective houses for more than 20 years and haven’t popped up anywhere else, in spite of their talent. Neither have Riccardo Tisci or Claire Waight Keller who left Burberry and Givenchy several years ago.

What explains this pattern of events? There are a variety of forces at work, but I think it has something to do with a gradual breakdown of the social contract between creatives and their corporate bosses, who are not championing creativity in the way they once did.

Once upon a time, people like Bernard Arnault and Francois-Henri Pinault were willing to take creative risks to boost the fortunes of small-ish fashion brands. When Arnault appointed Marc Jacobs to become the first creative director of Louis Vuitton in 1997, the brand had no ready-to-wear collection. Arnault knew Vuitton could benefit from an injection of creative energy, just as he did with John Galliano at Dior that same year.

Now, the sheer scale of these businesses means there is a lot more at stake. And as luxury brands brace themselves for an extended ‘normalisation’ period, it seems the mantra is to take the safe route — even if that means appointing no creative director at all. Chanel is unlikely to have a new creative director for sometime, and LVMH-owned Berluti has been operating without a creative director for several years.

There are exceptions to this fashion monotony, of course. Jonathan Anderson’s Loewe manages to both surprise creatively and create commercial impact. Prada and Miu Miu are also creative highlights that are driving commercial success. Both Anderson and Miuccia Prada have a proven ability to push things forward, while also finding ways to ensure the business is still growing. These brands may soon face a different challenge. They need to carefully balance growth with over-exposure, as if growth happens too quickly, it may not be sustainable over the long-term.

Most of the brands that compete with Prada and Loewe for attention have backed away from high-risk, high-reward fashion driven by creativity. Now the approach is more formulaic, akin to selling luxury merch in an overpriced supermarket. Karl Lagerfeld may have predicted with his Autumn/Winter 2015 Chanel show.

This is a world where one brand’s $1,000 hoodie is indistinguishable from another’s. Where it is easier to copy the shape of a box bag with gold logo hardware that is working at another brand, than coming up with a unique shape of your own. Customers have cottoned onto this, and would rather spend their money on one-of-a-kind experiences or hard-to-find vintage pieces than have the same thing as everyone else.

But the lack of creativity and magic does not end there. The fashion system has also been buffeted by the sudden collapse of Matches and Farfetch, and the slow but steady decline of the once-dominant luxury e-commerce behemoth Yoox Net-a-Porter, which is a shell of its former self. The experience and assortment at Farfetch was not so different from Matches which was not so different from Net-a-Porter. This is in part because the people who bought or invested in these companies had no real. understanding of the creativity and taste required to create world-class retail. (Some of them did not understand how to manage technology either, but that’s a whole other analytical exercise.)

This meant the only way to compete was on price, which led to a downward spiral of discounting, training customers to wait for discounts, making profitability almost impossible to achieve. Sadly, the collateral damage has been independent fashion businesses that dependend on these platforms in the early stage of growth. Independent brands on both sides of the Atlantic are now on the brink, further diluting the creative lifeblood of fashion.

The result of all this is a fashion industry that fails to inspire customers, and not even ourselves. The current formulaic, corporatised, anodyne approach to fashion is clearly not working. This leaves me with the sinking feeling that things are about to break down. Maybe that’s what fashion needs to find its courage to be creative again.

TechCrunch : Tempus rises 9% on the first day of trading, demonstrating investor

Tempus rises 9% on the first day of trading, demonstrating investor appetite for a health tech with a promise of AI

Tempus, a genomic testing and data analysis company started by Eric Lefkofsky, who previously founded Groupon, debuted on Nasdaq on Friday, rising about 15% on the opening.

The company priced its IPO on Thursday at $37 apiece, at the top of its $35 to $37 price range, raising nearly $411 million at a fully diluted valuation of over $6 billion. Tempus’ last official private valuation was $8.1 billion, however, and PitchBook data estimates that the company was valued at $10.25 billion in late 2022. Shares closed the first day of trading at $40.25, up nearly 9% from the IPO price.

Despite the substantial discount from its previous valuation, the IPO is a feat for an unprofitable company during what’s considered to be a lukewarm time to launch public offerings. Tempus’ revenues were $531 million in 2023 with a net loss of $290 million. But the company’s operating losses have shrunk from 83% in 2022 to 37% in 2023, and Lefkofsky told CNBC that he expects Tempus to be cash-flow and EBITDA positive in 2025.

Lefkofsky founded Tempus in 2015, after noticing that doctors didn’t rely on data during his wife’s treatment of breast cancer. He said he set out to build a company that uses technology and data derived from genomic sequencing.

Tempus is now trying to position itself as an AI company, even though AI revenue accounted for only $5.5 million of revenue, approximately 1% of its 2023 revenue. The company said in its prospectus that its AI product line is nascent, but it intends “to embed AI, including generative AI” in every aspect of its diagnostics tools.

Lefkofsky is by far the largest shareholder in the company. According to the S1, he holds 30.1% of the company and 65% of shareholder voting power, due to the dual-class share structure. A firm controlled by Kimberly Keywell, the former wife of Brad Keywell, Lefkofsky’s longtime business partner, owns a 10.2% stake in Tempus. Scottish asset manager Baillie Gifford, holds 5.9% of the company, worth $350 million at the IPO price.

Early shareholders in Tempus include NEA, Revolution and T. Rowe Price. The company raised a $200 million Series G5 from SoftBank in April. Tempus is the fourth company Lefkofsky is taking public. He is most known for having founded Groupon, which went public at a valuation of nearly $13 billion in 2011 but now trades at under $600 million.

FT : Broadband groups Netomnia and Brsk agree tie-up as ‘altnet’ M&A continues

Broadband groups Netomnia and Brsk agree tie-up as ‘altnet’ M&A continues
Deal is latest example of consolidation in fast-growing sector providing alternative full-fibre networks

UK broadband providers Netomnia and Brsk are merging in a deal that marks the largest consolidation of alternative network providers yet, as the sector attempts to challenge BT and Virgin Media O2 in the rollout of full-fibre across the country.

The companies agreed the tie-up on Wednesday, which will create one of the largest so-called “altnets”.

Investors have poured billions of pounds into altnets, which position themselves as alternatives to the incumbent providers of full fibre. Consolidation in the sector has been widely anticipated as the industry turns its attention from laying fibre to signing up customers, with backers hoping to recoup their investment in the digital infrastructure upgrade.

Other mergers and acquisitions in the sector have included leading altnet CityFibre in March announcing it would acquire Lit Fibre and Virgin Media O2 in September agreeing to acquire Upp, which the Russian oligarch-backed investment company LetterOne had been forced to sell on national security grounds.

The deal will involve Brsk moving under the umbrella of Netomnia’s parent holding company, Substantial Group, but it will be run as a separate entity with Giorgio Iovino, Brsk’s chief executive, remaining in the role.

A new wholesale company will also be created, which will aggregate the two networks and eventually seek to acquire other altnets.

No financial details were disclosed. Substantial Group will be valued at £1.1bn after the merger with Brsk, according to people close to the matter.

Jeremy Chelot, chief executive of Substantial, Netomnia and sister internet service provider YouFibre, told the Financial Times the tie-up was “one big step towards [the] goal” of becoming the third-largest full-fibre network in the UK to rival BT’s Openreach and Virgin Media O2.

He added that fragmentation in the market — which includes dozens of altnets — had created “uncertainty”, and the deal could contribute towards an “environment which is sustainable from a competition standpoint”, with the company also interested in further consolidation.

The full-fibre services provided by the two companies will be available to 1.5mn premises with 140,000 customers connected already. The group plans to use up to £900mn of debt to reach 3mn premises and about 500,000 customers by the end of 2025.

Iovino said the pair would break even on earnings before interest, taxes, depreciation and amortisation “a lot sooner by coming together” and the group was positioning itself as an “attractive consolidator” and an alternative to other dealmakers in the market.

The Netomnia-Brsk deal is set to be finalised in the coming weeks, subject to regulatory approval. No job cuts are expected.

The collective altnet footprint reached 12.9mn premises and 2mn customers at the end of 2023, according to the Independent Networks Cooperative Association.

Incumbent BT is investing £15bn in its own full-fibre project and in May said it had reached more than 14mn homes and 4.8mn customers. The FTSE 100 company reported broadband line losses of 491,000 in its 2024 financial year and warned of “moderately higher competitor losses” if the market remained weak over the next 12 months.

FT : Renewables chief says Biden’s China tariffs risk slowing green transition

Renewables chief says Biden’s China tariffs risk slowing green transition
NextEra’s Rebecca Kujawa warns clean energy duties are raising costs for US consumers

The largest US renewables developer has warned President Joe Biden not to impose more trade tariffs on Chinese clean energy technologies, saying it risks slowing the green transition.

Rebecca Kujawa, chief executive of NextEra Energy Resources, told the Financial Times that tariffs were raising costs for consumers and making it “more difficult” to accomplish the country’s clean energy goals.

“It adds to the level of uncertainty,” said Kujawa.

“Any uncertainties in the development process can definitely create higher costs for customers and make it more difficult to get some of the clean energy goals that the Biden administration has over the finish line.”

The statement from NextEra adds to a chorus of complaints from industry groups and developers, warning new duties will slow and increase the cost of decarbonisation.

Last month, the Biden administration introduced a round of tariffs on Chinese clean technologies to protect the nascent US industry after warnings that cheap imports have made it difficult for manufacturers to operate, even with subsidies from the landmark Inflation Reduction Act.

On June 7, the US International Trade Commission voted unanimously to continue investigating a petition filed by a group of solar manufacturers, including First Solar and Qcells, calling for anti-dumping duties on Chinese solar cell producers in south-east Asia, where the US sources the bulk of its panels.

“Trade relief is vital to the burgeoning growth in the industry. Without it, subject imports will take over the US market,” said Laura El-Sabaawi, a partner at Wiley Rein representing the petitioners at an ITC hearing in May.

The potential new tariffs have sharply divided the industry between large domestic manufacturers, who argue they are necessary to compete with cheap imports from Asia, and operators, who warn tariffs will raise the prices of renewables due to the limited domestic supply.

“If solar is deemed to be a product that has a very uncertain cost, it’s hard for customers to make commitments to utilise that technology,” said Jim Murphy, chief executive of Invenergy, a US renewables developer that produces panels with Chinese manufacturer Longi in Ohio.

“We don’t have domestic manufacturing here, so why should we be tariffing the imports?”

The tariffs splitting the clean energy industry underscore the difficult balancing act facing the Biden administration as it vies to green the world’s largest economy while building out a supply chain for clean technologies, the bulk of which is produced in China. 

“There is a natural tension between China policy and climate policy at this point in the US,” said Herbert Crowther, an analyst at Eurasia Group, adding that tariffs would result in “slower, short-term deployment” until a domestic industry was developed.

“In the US political context, ultimately, China policy sells much more than climate policy.”

Expectations of soaring power demand from data centres for artificial intelligence and manufacturing have added pressure on the US grid to decarbonise. The US installed 5.6GW of new solar, wind and battery systems in the first quarter of 2024, up 28 per cent from the same period last year, according to the American Clean Power Association.

The White House has set a target of 80 per cent renewable energy generation by the end of the decade and 100 per cent by 2035, compared with just over 20 per cent last year.

Kujawa also warned lawmakers against the politicisation of clean energy, highlighting its role in economic development. Headquartered in Juno Beach, Florida, NextEra has transformed into a renewables behemoth over the past decade in a Republican-governed state that has rallied against prioritising climate change mitigation. Earlier this week, NextEra announced it would double its existing renewables capacity by 2027, deploying 37GW-47GW.

“Renewables have spurred economic development in local communities,” said Kujawa. “If we don’t feed into the politicisation, the reality of the real economic development, the real value to customers is able to shine through.”

FT : Hargreaves Lansdown co-founder says price ‘not main consideration’ for sell

Hargreaves Lansdown co-founder says price ‘not main consideration’ for selling business
Stephen Lansdown says he wants to know what any new owner would do with the retail investment site

One of Hargreaves Lansdown’s co-founders and top shareholders has warned that “price is not the main consideration” if private equity firms make a firm takeover offer for the investment platform this week.

Stephen Lansdown, who co-founded the UK’s largest retail investment service with Peter Hargreaves more than four decades ago, told the Financial Times that he would want to know what private equity firms would do with the business if they bought it. He owns a stake of nearly 6 per cent.

A group of private equity firms, led by CVC Capital Partners, made a £4.67bn offer for Hargreaves Lansdown in April, which the board rejected in the view that it “substantially undervalued” the business. Shares rose more than 15 per cent after the approach emerged.

The private equity firms, which include Nordic Capital and Platinum Ivy, a wholly owned subsidiary of the Abu Dhabi Investment Authority, are now considering whether to make a firm offer by the deadline on Wednesday — or to walk away.

“The conglomerate — and we’re waiting to see if they come back — has given no indication of what they want to do with the business and how they see the business developing,” Lansdown said. “I would want to know what their plan is for looking after clients and staff in particular. Price is not the main consideration if it’s not taking on the business in the right way.

“I’d be very surprised if they didn’t come back with a further bid; it’s then up to the board of HL whether they bring it to the shareholders or reject.”

He added that the approach had relieved “pressure” on Hargreaves Lansdown’s share price, which had fallen from £24 in 2019 to as low as £7 this year. He said that the company had also become one of the most shorted stocks on the London market.

One top 20 shareholder said that “hedge funds [shorting the stock] have completely missed the wood for the trees, ignoring the growth in customer numbers and assets that HL is consistently achieving”.

He added that other companies, such as banks, could make an approach, given Hargreaves Lansdown’s dominance of the retail investment market. “It would be impossible to build HL’s market share from scratch, so I would expect any US or European bank to be looking closely at HL if they have any ambition to build a position in one of the world’s largest pools of household wealth.”

Hargreaves Lansdown oversees £150bn in customer assets for some 1.8mn customers.

Nick Train, another top shareholder with a holding of nearly 13 per cent according to Refinitiv, said that the private equity approach was unsurprising because the stock was undervalued.

“Its prior stock market valuation had seemed exceptionally low,” Train said. “But many UK-listed asset and private wealth management franchises seem exceptionally lowly valued, too.”

Hargreaves Lansdown and the private equity consortium declined to comment.