FTSE lower ahead of crunch Fed meeting, Joules and Aston Martin change CEOs, everything’s going wrong for Boohoo, and Wetherspoons faces costs pressures

“The FTSE 100 was lower on Wednesday as investors anticipated the latest decision on interest rates from the US Federal Reserve – where a half percentage point rise is widely expected,” says AJ Bell Investment Director Russ Mould.

“Given the quantum of the raise is almost an open secret at this stage, all the attention will focus on any guidance around the pace of future increases and whether the recent surprise dip in US GDP has any impact on the Fed’s thinking.

“When Aston Martin Lagonda listed on the UK stock market the idea was to emulate the likes of supercar manufacturer Ferrari – an ambition which failed miserably as the shares have largely been stuck in reverse.

“Major shareholder and executive chairman Lawrence Stroll will hope replacing current CEO Tobias Moers with former Ferrari boss Amedeo Felisa can help bring Aston Martin up to speed.

“The market seemed to take the news positively but Felisa will face a tough task, particularly given the cost and supply chain pressures reflected in the first quarter loss of £47.7 million.

“Another company seeing a change at the top is posh welly seller Joules – where Nick Jones is to depart after a very soggy three years for the shares.

“Joules’ shares dived sharply once again this morning as it warned on profit and Jones’ position had probably been rendered untenable. Not that his successor will be blessed with a strong set of cards to play.

“Household budgets are constrained and while luxury brands serving the very wealthy usually ride out downturns well and cheaper outlets can attract shoppers who are trading down, more premium high street brands look vulnerable.”

Boohoo

“We’re experiencing the great reset for online retailers. After two years of joy during the pandemic thanks to the accelerated shift from physical to digital channels, growth rates across large parts of the retail sector are now falling short of expectations.

“Demand is weakening, it is costing a lot more to run these types of businesses, and supply chain issues continue to cause a headache.

“Boohoo has followed in Amazon’s shoes by effectively saying growth is more challenging to achieve. Its margins are falling, customers are being fickle with their purchases and sending more items back, and delivery delays are making its overseas operations less efficient.

“Against this backdrop we now have a more cost-conscious consumer who is watching every penny, meaning purchases are now more considered.

“Historically Boohoo benefited from its low-price points meaning customers were happy to keep hitting the ‘buy’ button as the cost of a dress or a top wasn’t too demanding. Now, they need to check if there is enough money in their bank account to pay the bills and buy the weekly shopping before thinking about any treats from clothing or other types of retailer selling ‘nice to have’ products.

“Boohoo seems to have a plan to cope with the current pressures and it remains confident about the future. However, some things are out of its control, principally demand. In this environment expect to see a price war as retailers go for sales volume over profit. That implies further margin compression which is not a good situation to be in.

“Most companies are trying to push up prices, not cut them, so Boohoo could be facing one of its worst patches in the company’s history if we do see a price war environment and further pressure on consumer finances.”

Wetherspoons

“Pub chain Wetherspoons’ business model has always been to prioritise volumes over margin performance. So the return of punters as restrictions ease is absolutely critical to the company’s prospects.

“However, there is a difference between not obsessing over margins and dealing with the impact of rising costs of labour, energy and food. Against this backdrop breaking even for the current year, as Wetherspoons aims to do, is a laudable ambition.

“The sales picture is improving slowly for the company but remains short of pre-Covid levels. Given its value-based proposition and the fact many competitors have been forced out of the market, Wetherspoons could thrive as one of the survivors.

“While cost of living pressures are acute, people are likely to still want the escape of a trip to the pub and, assuming Wetherspoons can keep its prices keen despite inflationary pressures, it could benefit from people trading down.

“However, it definitely has a tricky period to navigate and its balance sheet is quite stretched. Shareholders will hope Wetherspoons’ ‘cautious optimism’ about a full return to normality in the financial year running to July 2023 proves not to be misplaced.”

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