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Wesfarmers net profit tumbles 58.3%

Reuters reported that Wesfarmers Ltd posted a 58.3% drop in full-year profit. The results are mainly caused by its failed Bunnings venture in the UK, which forced the retailer to take a A$1.65 billion loss in fiscal 2018. Net profit for the retail-to-mining conglomerate fell to A$1.20 billion for the 12 months to June 30, compared with A$2.87 billion last year.

Amazon opens huge Sydney warehouse

TechRadar reported that Amazon Australia has now opened its second fulfilment centre in Moorebank, Southwest Sydney, close to the M5 motorway, Sydney airport and ports. At 43,000 square metres of indoor space, the new warehouse is nearly twice the size of the Melbourne fulfilment centre. The large space makes room for a wider product range, allowing “thousands of small and medium-sized Australian businesses” to use Amazon’s fulfilment program “to more easily access customers across the country”.

When the predator becomes the prey

The AFR reported that investors in online retailer Shoes of Prey had 87% wiped off the value of their investment as the company faces a last-ditch bid to secure a funding lifeline. Founded in 2009, Shoes of Prey was one of Australia's most promising retail startups. However, the company has been forced to change strategies several times - most recently planning to target the "Cinderella" market - people with unusually small or large feet. A fitting metaphor for a business that seems to be struggling to fit into the market.

Strong retail figures from the US

CNBC quoted the NRF commenting that US retail sales in 2018 are forecast to climb higher than what had been expected, thanks to tax reform and other upbeat economic indicators. Retail spending is predicted to climb at least 4.5%, against a prior forecast range of 3.8 to 4.4 %. "Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation's consumer-driven economy," NRF President and CEO said in a statement. "We knew this would be a good year, but it's turning out to be even better than expected." Wouldn't such news be great in Australia too?

Kmart Tyre and Auto sold

The Australian Financial Review reported that a German company, Continental has finalised the purchase of Kmart Tyre and Auto for A$350 million. KTAS operates close to 290 stores in Australia and generates about $400 million in annual revenue. Continental operates in 44 countries and its annual revenue is around A$70 billion. This is a good move (in our assessment) for Wesfarmers, as the medium to long-term progressive switch to electric cars will erode the revenue base for businesses such as KTAS or Burson.

Iconic expansion

The Australian Financial Review reported that The Iconic will be adding kid's wear, introducing more than 70 brands. The Iconic hopes to make a profit this year (for the first time) - it has accumulated $152 million in losses since 2010.  Clearly, Amazon is not the only e-commerce operator who runs their retail business at a loss.

US jeans moves

The Wall Street Journal reported that VF Corporation, the owner of Lee and Wrangler jeans, plans to spin off its denim business in a bid to sharpen its focus on faster-growing outerwear and active-wear brands. VF said Monday that it wants to create the yet-unnamed company through a tax-free spinoff to its shareholders. The newly formed company will hold the VF’s jeans business, which includes Wrangler, Lee, Rustler and Rock & Republic, and its 80 VF outlets. These businesses generate about $2.5 billion in annual revenue. The company acquired Lee, its first denim brand, in 1969. It added Wrangler, Rustler, and JanSport to its portfolio through its purchase of Blue Bell Holding Co. in 1986.  

How high will Afterpay soar?

The AFR reported on the wide philosophical divide about "buy now, pay later" leader Afterpay's real market value and future prospects. Afterpay has more than doubled its market capitalistion to over $3 billion is just six weeks, with shares closing last Friday at $14.57 (a 100 times forward earnings and at 50 times based on fiscal 2020 earnings forecasts). Here's were the bulls and bears differ. The bulls believe that Afterpay should be valued as a payments platform company, with the scale that comes from taking a clip of the ticket on an expanding volume of transactions. Conversely, the bears see the business as a consumer finance company, needing capital for growth and battling credit risk issues, arguing that a high proportion of Afterpay's customers could not, or should not, get a loan elsewhere. Given its recent expansion into the US market and a growing millennial customer base, we don't see the markets cooling on Afterpay any time soon.

Pump and dump cryptocurrency schemes

The Wall Street Journal reported that traders are talking up cryptocurrencies and then dumping them, costing other investors millions. According to the article, dozens of trading groups are manipulating the price of cryptocurrencies on some of the largest online exchanges, generating at least $825 million in trading activity over the past six months—and hundreds of millions in losses for those caught on the wrong side. A review of trading data for the year to date identified 175 "pump and dump" schemes involving 121 different digital coins. These kinds of schemes are amongst the oldest types of market fraud: Traders talk up the price of an asset before dumping it for a profit and leaving fooled investors with shrunken shares. We are not the only ones who have issued repetitive warnings about the dangers related to betting money on the inevitable cryptocurrency bubble.

UK retail icon saved from administration


The BBC reported that fashion chain Sports Direct has agreed to buy the House of Fraser department store chain for £90 million, after Chinese firm C.banner pulled out of a rescue deal earlier this month. The acquisition was announced just hours after the 169-year-old chain went into administration when talks with its creditors failed to reach an agreement. Sports Direct owner and retail mogul, Mike Ashley, said his plan was to turn the 59-store chain into the "Harrods of the High Street". A senior retail analyst at GlobalData, said: "To give House of Fraser the best chance of survival, Sports Direct and its owner Mike Ashley must make drastic changes to both its product proposition and store environment to entice shoppers back." It will be interesting to see how this rescue mission plays out.

Homebase in the UK to close 80 stores

Inside Retail reported that UK-based hardware retailer Homebase is set to close approximately 80 of its stores. The retailer says that the move will affect up to 1,000 employees, though other sources put the number of displaced employees at closer to 2,000. The struggling chain is expected to file a company voluntary arrangement. Hilco Capital purchased the chain from Wesfarmers for a nominal sum earlier this year after what Wesfarmers managing director Rob Scott called a “disappointing” investment. Wesfarmers said the deal would record a loss of between $350 to $406 million after purchasing the business just two years ago, but that it would remain eligible for 20% of equity that arises should Hilco sell Homebase in the future.

New York votes to limit rideshares

The Hustle reported that New York City Council has voted to cap the number of rideshare vehicles in operation, making it the first major city to impose limits on such services. The timing couldn't be worse for Uber and Lyft, the NYC decision calls into question how well they will be able to grow if other cities follow with similar restrictions, dealing both companies a major pre-IPO blow.