FT : Adidas and Puma warn of coronavirus drag on sales

Adidas and Puma warn of coronavirus drag on sales
German sportswear makers generate about a third of revenues in Asia

German sportswear makers Puma and Adidas have warned that the coronavirus outbreak has severely disrupted business in China, prompting store closures and a sharp drop in sales in one of their most important markets.

Puma on Wednesday said that more than half its stores in China were closed, and that it expected a negative impact on revenues and profits in the first quarter of this year. Rival Adidas said sales in the country had slumped 85 per cent year on year since January 25, and that it had closed a “significant number” of stores and seen a “pronounced” reduction in customers at those that remain open.

The Chinese economy has ground to a near-standstill following the rapid spread of the highly contagious coronavirus, with some workers quarantined and consumers staying away.

The updates from the German companies offer some of the clearest details yet on the impact of the virus on the $250bn-a-year sportswear industry, which is increasingly reliant on Asian consumers for growth. The Asia-Pacific and China are also key manufacturing hubs for apparel and shoes.

Puma and Adidas generate about a third of their revenues from the Asia-Pacific region, and both said it was too early to accurately quantify the long-term impact on their businesses.

“We have experienced a material negative impact from the coronavirus outbreak on our operations in China,” Adidas said in a statement.

The group said it had also seen declines outside mainland China, predominantly in South Korea and Japan, but that it had not seen “any major business impact” there.

Puma’s chief executive Bjorn Gulden said business this month “has of course been negatively affected by the outbreak”.

The impact has rippled into the wider region, with revenues in Puma’s other Asian markets also suffering due to the lower number of Chinese tourists. The region delivered Puma’s strongest sales growth last year of 22 per cent, driven by China and India.

But the company said it expected to be able to hit its 2020 targets despite the disruption, and was working under the assumption that the situation “will normalise in the short term”.

The group forecast earnings before interest and tax in a range between €500m and €520m for the full year. Shares rose 8 per cent, largely recovering losses since the outbreak rose to international prominence in mid-January.

Puma said sales climbed 18 per cent to €1.48bn on a currency-adjusted basis in the fourth quarter, while earnings before interest and tax surged 47 per cent to €55m.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • GRPN -24.6%, SGMS -13.2%, PLMR -9.9%, KNL -9.7%, DNOW -8.5%, AMED -8.4%, STNG -4.7%, BLUE -3.1% (also announces mixed shelf offering), KAR -3%, KAR -3%, BHC -2.8%, NTR -2.7%, TXG -2.4%, ELAN -1.5%, HSTM -1.4%, BKD -1.3%, ENBL -1.2%, FDP -1.2%, EVBG -0.9%

M&A news:

  • ALLY -8.2% (to acquire CardWorks for $2.65 billion)

Other news:

  • DT -4.7% (launches 25 mln share offering by selling stockholders)
  • NEE -2.6% (announces intended sale of $2.5 bln of equity units)
  • KRC -2.4% (prices 5 mln shares of common stock at $86.00 per share)

Analyst comments:

  • RUN -2.3% (downgraded to Sector Weight from Overweight at KeyBanc Capital Markets)
  • CULP -1.2% (downgraded to Hold from Buy at Stifel)
  • TME -0.5% (downgraded to Perform from Outperform at Oppenheimer)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • SSTI +18.2%, ENPH +13%, GRMN +7.5%, HLF +5.5%, FVRR +5.4%, LZB +4.6%, TPH +4.3%, HQY +4.3%, SCPL +4.2%, SAH +3.6%, FANG +3.2%, TIVO +3.1%, RPAI +3.1%, ATHM +2.7%, DVN +2.3%, DISH +1.9%, AG +1.7%, ONE +1.6%, RCEL +1.6%, GSS +1.4%, TRTX +1.2%, QTS +1.1%

Other news:

  • BBBY +4.6% (discusses recent transactions and $1 bln capital allocation strategy)
  • IAG +1% (reports total attributable proven and probable reserves)
  • INCY +1% (announces pivotal Phase 3 study from the TRuE-AD clinical trial program met its primary and secondary endpoints)

Analyst comments:

  • TSLA +7.4% (target raised to a Street high $928 from $729 at Piper Sandler)
  • ALEC +3.5% (initiated with a Buy at Stifel)
  • NVDA +1.5% (upgraded to Outperform from Mkt Perform at Bernstein)
  • DNLI +1.5% (initiated with a Hold at Stifel)
  • PRVL +1.2% (initiated with an Outperform at Oppenheimer)

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • SSTI +21%, ENPH +14.4%, LZB +4.6%, TPH +4.3%, SCPL +4.2%, HQY +3.7%, BBBY +3.1%, RPAI +3.1%, HLF +3%, DVN +2.3%, FANG +2.3%, ATHM +1.6%, ONE +1.6%, RCEL +1.6%, TIVO +1.5%, QTS +1.1%, LC +0.9%, CXO +0.9%, ATRC +0.8%
  • Gapping down:
    • GRPN -19.3%, SGMS -10.5%, KNL -9.9%, AMED -9.4%, TXG -4.9%, DT -3.7%, KAR -3%, PLMR -2.9%, KRC -2.4%, ALLY -2.3%, BLUE -1.7%, GSS -1.7%, HSTM -1.4%, BKD -1.3%, A -1.2%, FDP -1.2%, INVH -1%, EVBG -0.9%, NEE -0.8%, NTR -0.7%, AWK -0.7%

WSJ : Everything’s 25% Off at the World’s Most Debt-Squeezed Company

Everything’s 25% Off at the World’s Most Debt-Squeezed Company
China Evergrande Group has slashed prices of properties sold this month and next, but its share price has actually risen

When a company has the highest debt interest bill of any listed firm in the world, its traditional route of sales has frozen almost completely, and it cuts prices by a quarter, is that good news?

According to the equity market, it is indeed. China Evergrande Group’s EGRNF 3.56% share price is now roughly flat since January 23, when the quarantine of the city of Wuhan began. What happens next will be a test case for Beijing’s relationship with the country’s gigantic property developers.


This week, Evergrande announced a 25%-off sale on properties listed on an online platform in February. Prices will be cut by 22% in March, while many physical sales centers are shuttered in the wake of the country’s coronavirus outbreak.

There’s a good reason for the company to want sales to continue. Chinese developers are increasingly reliant on rapidly growing presales of uncompleted properties for financing. Evergrande has $1.6 billion in dollar bonds maturing this March, and the largest debt interest bill of any publicly listed nonfinancial company on the planet, at around $8.5 billion in the last 12 months, according to Capital IQ data.

But it isn’t just the company’s enormous debt pile, which netted out at $88.46 billion as of June last year, that bears watching. The company’s account payables—money owed to suppliers—stood at $93.36 billion in June 2019. That is roughly double what they were a year earlier.

Other parts of the balance sheet are confusing. Unlike other developers, Evergrande reports relatively little unearned revenue, the category in which sales income from unfinished construction is reported, despite the major increase in presales.

In many parts of the world, the combination of eye-watering leverage and sputtering business activity could eviscerate a company. But while Evergrande looks like a juicy target, any investors with the stomach to bet against it have ended up with severe indigestion. The company hasn’t defaulted on any of its dollar debts, and its stock rallied more than 400% in 2017.

That was in no small part because of the Chinese government. Evergrande sold a stake in Hengda Real Estate, a subsidiary, and found interest from a number of state-owned enterprises.

Ultimately, the company’s performance will be a political decision this time too. In the last two years, Beijing has made a handful of steps toward a property market with fewer unconditional guarantees for developers. Small firms have been allowed to go bankrupt to encourage consolidation in the sector.

But allowing a developer like Evergrande with hundreds of millions of square meters of property owed to middle-class buyers to be threatened by hostile market forces would be much riskier. With the veiled weight of the Chinese state behind it, optimistic equity markets may be right.

WWD : Barneys Flagship Closing Sunday; Freds to Stay Open

Barneys Flagship Closing Sunday; Freds to Stay Open
The new management will be challenged to sustain the popularity and aura of the restaurant.

Say goodbye to Barneys New York on Madison Avenue, but not to Freds, the chic restaurant housed on the ninth floor of the store.

Freds will continue to operate after the store itself closes, through a partnership between Authentic Brands Group, which bought Barneys out of bankruptcy last year, and Infuse Hospitality, a food and beverage management company.

Meanwhile, the Barneys flagship, located at 660 Madison Avenue since 1993, will close for good on Sunday.

Corey Salter, chief operating officer of ABG, said Tuesday the plan is to “continue to honor Freds’ traditions in service, luxury and great food and drink while simultaneously building a new community with intention…Additionally, Freds will be available to book as an event space for parties, holiday gatherings and other functions.”

Added Michael Schultz, chief executive officer of Infuse Hospitality: “We are excited to be able to continue to provide guests with the service and hospitality that’s long been associated with Freds, and working alongside executive chef Alfredo Escobar and general manager Loraine Ng, who are very much a part of its history and magic.”

While it’s good news that Freds will live on, it will be challenging to sustain the buzzy aura of the dining destination considering the store itself is liquidating and closing Sunday, and the chopped chicken salad won’t be the same. Last year, Freds’ longtime celebrity chef Mark Strausman, who was largely responsible for establishing the restaurant’s reputation, left unceremoniously after disagreements with the former owner of Barneys, Richard Perry.

Infuse will operate the Madison Avenue Freds only. Barneys in the Chelsea section of Manhattan and Freds inside that store have already closed. But ABG plans to open new Freds locations, according to an ABG spokeswoman.

According to ABG, once Barneys on Madison completes its liquidation, the selling space will be reduced and transformed with pop-ups and other formats that have yet to be specified and will be temporary, until the landlord re-tenants the space that had been occupied by the 230,000-square-foot Barneys flagship.

ABG is a brand development, marketing and entertainment company that owns a portfolio of global media, entertainment and lifestyle brands including Marilyn Monroe, Muhammad Ali, Shaquille O’Neal, Sports Illustrated, Thalia, Nautica, Aéropostale, Juicy Couture, Vince Camuto, Frederick’s of Hollywood, Nine West and Frye, among others.

FT : Odey hits out at Anglo American’s rescue bid for Sirius Minerals

Odey hits out at Anglo American’s rescue bid for Sirius Minerals
Hedge fund says £524m offer undervalues North York potash mine developer

Hedge fund Odey Asset Management has lashed out at Anglo American’s £524m rescue bid for Sirius Minerals, saying it does not represent fair value for the company’s shareholders.

In an open letter to Chris Fraser, the chief executive of Sirius, and Anglo boss Mark Cutifani, Odey also said it would vote against any offer that is not designated “final”.

“Odey believes Anglo American have chosen not to declare their offer as ‘final’ because there is a risk of both the deal failing at its current level, and of an interloper at a later stage,” said the letter, which was signed by Odey’s fund manager Henry Steel.

“Odey therefore commits to vote against any Anglo American offer that is not designated as ‘final’ at this level. If Anglo wish to retain the option to counter bid, Odey accepts that rationality, and hence also commits today to vote in favour of any bid at 7p or above,” the letter said.

Anglo has offered 5.5p a share for Sirius, which has been struggling to finance the development of a huge potash mine on the North York Moors. The emergence of Odey as shareholder threatens to derail the bid, although it is likely to be seen by Sirius and Anglo as an attempt to extract a higher price. Odey has a 1.29 per cent interest in Sirius, according to regulatory filing released on Wednesday.

Thousands of retail shareholders face huge losses if the deal goes ahead. However, Sirius sees the Anglo bid is the best way of realising some value for investors as well as safeguarding the development — the largest mining project in the UK for a generation.

It has also warned investors that if the takeover is not approved, the company — which is running out of cash — is likely placed into administration.

However, Mr Steel reckons there is “material upside” for an entity that can fund the development costs of the Woodsmith mine.

“It is Odey’s belief that Anglo-American’s current offer does not represent fair value for shareholders in Sirius,” Mr Steel said.

Sirius shareholders will vote on whether to accept the deal on March 3. Of those present at the meeting, 75 per cent will need to vote in favour for the bid in order for it to be completed.