Post 250

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Summary

  • Red Lobster may be filing for bankruptcy protection.
  • Starbucks sales are falling
  • Peloton device sales are down sharply.
    • Letting go 15% of their employees.
  • Gucci sales decline accelerates.
    • But it’s OK, it’s “normal.”
  • Southwest Airlines traffic growing
    • But not as fast as wages.
  • What to do when iPhone sales are down 10%.
    • Announce a record share buyback.
  • Business bankruptcies in Canada are soaring.
  • Stellantis (Jeep, Maserati etc.) shipments declined sharply.
    • But they say it’s in preparation for new models.
  • Hershey continues to increase prices.
    • To help off-set those record cocoa price increases, which have started to fall.
  • In Financial Ructions:
    • US job growth slowing.
    • Real rates in the US are around 4% higher than those in Japan.

News

Red Lobster: Bankrupt?

A little history below and here:

1968: The first restaurant opened in Lakeland, Florida by Bill Darden.

  • Lakeland is between Tampa and Orlando.
  • 1970: Acquired by General Mills:
    • Maker of breakfast cereals.
  • 1974: Launched popcorn shrimp
  • 1982: It was the largest sit-down restaurant chain in the US.
  • 1992: Launched their cheddar bay biscuits.
  • 1995: General Mills spins off Red Lobster and Olive Garden into a separate company called Darden Restaurants.
  • 2014: Darden sells Red Lobster to private equity.
  • 2020: A supplier to Red Lobster called Thai Union takes control of the company.
    • According to this CNN article, Thai Union started replacing a lot of Red Lobster’s long-time suppliers and was giving the business to themselves.
      • Menu decisions started being made based on “executive opinion” rather than about what was best for the customer.
  • 2023: The company launches a new all-you-can-eat shrimp menu item.
    • Apparently, people would sit at the tables longer eating more and more shrimp which limited how many times they could turn over the tables.
    • They lost $11 million.
  • 2024: Exploring options including possibly filing for bankruptcy.

Is that Casey Kasem narrating in this 70s commercial?

Starbucks

The company has 38,951 stores worldwide.

2Q/2024 Results

  • Comparable sales: -4%
    • Transactions: -6%
    • Price: +2%
  • North America: -3% (it was +12% last year)
    • Transactions: -7%
    • Price: +4%
  • International: -6% (it was +7% last year)
    • Transactions: -3%
    • Price: -3%

The CEO cited “a highly challenged environment.”

PM: The company continues to be impacted by a boycott related to the Israel/Gaza war, but I’m not sure how much of the fall in sales is related to that.

Any Peloton is a Pel O Mine.

3Q/2024 Results

  • Sales were down 4%.
    • Devices: -14%
    • Subscription revenue: +3%
  • Subscriptions: 0%
  • App subscriptions: -21%
  • Over the last six months the company has lost $471 million.
  • They are letting go 15% of their employees: 400 people.

Run Of The Mill Luxury

  • Adjusted sales: -10%
    • By House (brand):
      • Gucci: -18%
      • Yves Saint Laurent: -6%
      • Bottega Veneta: +2%
      • Other Houses: -6%
  • The company mentioned:
    • “performance worsened considerably.”
    • “normalisation in the Luxury sector.”

4Q/2023 Results

  • Comparable sales: -4%
    • Gucci: -4%
    • Yves Saint Laurent: -1%
    • Bottega Veneta: -2%

Southwest Airlines

1Q/2024 Results:

  • Sales: +10.9%
    • Passenger sales: +11.9%
      • Number of passengers: 32.9 million.
        • +8.7%
      • Average fare: $173.76
        • +2.9%
    • Freight sales: +2.4%
  • Salaries, wages and benefits: +18.6%

Apple

2Q/2024 Results

  • Sales: -4.3%
    • Products: -9.5%
    • Services: +14.2%
  • Sales by category:
    • iPhone: -10.5%
    • Mac: +3.9%
    • iPad: -16.7%
    • Wearables, Home and Accessories: -9.6%
  • Announced a share buyback: $110 billion.
    • A new US company record.
  • In 2022, Alphabet paid Apple $20 billion to make Google the default search engine on the iPhone.
    • This relationship is at risk of antitrust regulation (Wired).

It’s Not Just Red Lobster

From the Office of the Superintendent of Bankruptcy

Canadian Consumer Insolvencies:

  • Twelve months to March 2023: 106,756
  • Twelve months to March 2024: 127,393
    • Up 19%

Canadian Business Insolvencies:

  • Twelve months to March 2023: 3,665
  • Twelve months to March 2024: 5,743
    • Up 57%

According to the Globe and Mail, over the last three months business insolvencies have hit their highest level since the Great Financial Crisis in 2008/2009.

Between 2016 and 2021 a drug trafficking gang laundered $653 million through various US banks.

  • Canada’s TD Bank was one of them.

Stellantis

Stellantis is based in the Netherlands and owns 14 car brands including the following:

  • Chrysler
  • Dodge
  • Jeep
  • RAM
  • Alfa Romeo
  • Citroen
  • Fiat
  • Maserati
  • Opel
  • Peugeot
  • Vauxhall

1Q/2024 Results:

  • Sales: -12%
    • Shipments: -10%
      • North America: -20%
      • Europe: -6%
      • Middle East & Africa: +42%
      • South America: -7%
      • China And India & Asia Pacific: -46%
    • They were able to somewhat off-set volume declines with “firm pricing.”
    • They said that sales were impacted by inventory reductions in anticipation of new model launches.

Hershey

1Q/2024 Results:

  • Adjusted sales: +8.6%
    • Price: +5.2%
    • Volume: +3.4%
  • But much of the growth came in the North American confectionery division due to advanced shipments to retailers in advance of Hershey implementing a new ERP system.
    • Without the inventory build, higher prices led to a mid-single digit sales increase, but volume fell.
  • Sales by division:
    • North American Confectionery: +10.4%
    • North American Salty Snacks: +1.9%
    • International: -1.3%

Their results from the previous quarter:

4Q/2023 Results

  • Adjusted sales: Down 0.1% (up 10.7% the previous quarter)
    • Price: +6.5%
    • Volume: -6.6%
  • Net profit: Down 11.5%

Note that sales have slowed considerably as their continuing price hikes are starting to “bite.”

  • North American Confectionary:
  • 3Q
    • Pricing: +11.1%
    • Volume: -1.0%
  • 4Q
    • Pricing: +7.2%
    • Volume: -5.1%

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

US Jobs

Jobs added in April:

  • Establishment survey: 175,000
    • Lowest since last October.
  • Household survey: 25,000
  • ADP: 192,000

Note that by my rough calculations, jobs created since Feb 2020:

  • Establishment survey: 5.172 million
  • Household survey: 2.832 million
  • Note that the establishment survey is about the number of jobs while the household survey is about the number of people working.
    • So, if one person has two jobs then that will count as two jobs with the establishment survey but only one with the household survey.
  • Number of jobs created over the last twelve months:
    • Establishment survey: 2,600,000
    • Household survey: 529,000

Unemployment rate:

  • Feb: 3.9%
  • Mar: 3.8%
  • Apr: 3.9%

Increase in the number of jobs vs. last year:

  • Native born: -5,000
  • Foreign born: +520,000

According to the WSJ, 60% of the jobs created over the last year were in:

  • Healthcare: 765,000
  • Government: 618,000
  • Social assistance: 257,000
    • While many of these jobs are important, they only indirectly contribute to the productive capacity of an economy.
      • Increasingly, money is being spent on jobs that play facilitating roles to productivity growth rather than the actual productivity i.e. not enough people doing the actual work.
    • Manufacturing jobs were up a paltry 20,000

Japan

  • Traders estimate that the Japanese government spent $59 billion last week to strengthen the collapsing Yen.
  • Japan inflation rate: 2.70%
    • Yield on 1-year government bond: 0.01%
    • Real rates are negative 2.69%
      • Buy a 1-year Japanese government bond and lose 2.69% for the privilege of lending them your money.
  • US inflation rate: 3.8%
    • Yield on 1-year government bond: 5.12%
    • Real rates are positive 1.32%

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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