Fed comments spook markets, Next has a challenging year ahead, and new master chef for Greggs

“The Federal Reserve continues to wield considerable power over global markets and its latest comments are not what investors want to hear,” says Russ Mould, Investment Director at AJ Bell.

“Minutes from its latest monthly meeting implied that a tight jobs market and ongoing inflation could result in a more aggressive change in monetary policy with interest rates going up sooner than expected.

“As a result, tech stocks have been heavily sold down, including a 3.3% decline in the tech-heavy Nasdaq index last night on Wall Street. A lot of tech companies trade on high valuations with the hope of large profit growth in the future rather than today, and these types of stocks are very sensitive to rising rates.

“Parts of Europe and Asia followed the US market down on Thursday, including a 0.9% decline in the FTSE 100 with tech-related names such as Aveva, Scottish Mortgage Investment Trust and Relx among the biggest fallers.

“The boot was put into Dr Marten’s shares after private equity shareholder Permira sold a chunk of stock at a 6.3% discount to last night’s closing price. There remains a big share overhang with Permira retaining a 36.4% stake which one must presume will be sold down further in 2022. That might explain why the shares are down 7.4% today, with investors speculating that Permira has now fired the starting gun for a gradual disposal of its remaining holding.”

Next

“Next’s fifth profit upgrade in 10 months wasn’t enough to drive the share price higher as inflationary pressures on the company and consumers in general mean 2022 will be a tougher year.

“Progress over the past year has been good given the fragile backdrop. In particular, the retailer has enjoyed decent sales growth from the online channel, helped by more people buying third party clothes through its platform.

“Historically, an individual might have gone into a shop looking to buy a coat. If they couldn’t find what they wanted, the person would go to three or four other shops to check availability. That’s always been a hassle.

“Next is now offering the ability to shop across multiple brands through a single place online, thereby making it a lot more convenient for the shopper, even to the point where they don’t even have to log into multiple websites to compare products.

“This is a win/win situation for everyone involved. Next has more customers using its website, it earns money either by selling its own products or from commission and service fees for third party products, and the customer experience is greatly improved.

“Discounts are the enemy of retail, and Next is doing a good job at shifting a lot more product at full price. That’s beneficial to its profit margins and shows that the consumer is prepared to pay up if they think the product is worth it.

“More recently, Next looks to have benefited from more people buying suits as they returned to the office, and more dresses and smart clothes for the return of socialising. However, the tail end of 2021 would have been negatively affected by Omicron putting people off mixing in public.

“Looking ahead, 2022 is shaping up to be a more challenging year. Household bills are going up thanks to soaring energy prices and higher interest rates, and the forthcoming National Insurance hike will also leave less money in people’s pockets.

“Those fortunate enough to have saved some cash during the various pandemic lockdowns may still have some of this money left to act as a buffer for the higher cost of living. However, there is still a real risk that a lot of people are going to look hard at their finances and scale back on spending, particularly if the cost of goods in the shops is also going up.

“Next is wise to recognise these challenges and has set fairly low expectations as a result.”

Greggs

“Departing CEO Roger Whiteside is signing off from Greggs in style as the company beats expectations for what seems like the umpteenth time under his tenure.

“Notably Greggs is promoting from within. Its current retail and property director Roisin Currie, who will swell the underrepresented ranks of female CEOs in the FTSE 350, has big shoes to fill.

“The task is not made any easier by the ambitious targets already set out for the business through to 2026. Often a new CEO likes to reset expectations – Currie will not have that luxury.

“She must also contend with supply chain issues in the short term and the potentially permanent shift towards hybrid working, with fewer office workers around to grab a pastry or pasty on the way to or from work or on their lunch break.

“However, Greggs’ footprint in more suburban and residential areas, as well as town and city centres, does mean it could capture a decent portion of the so-called ‘food to go home’ spend.

“The market may be reassured by the consistency implied by an internal replacement as stepping too far away from the successful blueprint established by Whiteside would seem to be a mistake.

“The 647% total return delivered since Whiteside took over at Greggs in February 2013 is way ahead of the 75.4% return from the FTSE All-Share.

“Under his leadership the business has firmly cast off its discount bakery origins, becoming a more relevant food-on-the-go favourite and keeping up with shifting consumer tastes perhaps most markedly with the introduction of its vegan sausage roll in 2019.

“This was a masterstroke which broadened Greggs’ appeal by meeting under-served demand for warm and filling plant-based fast food.

“This road is now being travelled by much larger operators like Burger King, which recently started selling vegan nuggets, and McDonalds with the 2021 launch of the McPlant burger.”

These articles are for information purposes only and are not a personal recommendation or advice.