Rising US Treasury yields weigh on markets, Greggs cuts store growth target and Boohoo revises guidance down

“Stubbornly high US government bond yields are making life harder for equities to press ahead. The US Treasury yield exceeded 4.7% overnight as investors took the view that the US economy is in a decent and resilient shape,” says Russ Mould, Investment Director at AJ Bell.

“While a robust economy would be positive, it theoretically lowers the chances of the Federal Reserve making interest rate cuts in the near-term or at least fewer cuts than previously expected.

“The FTSE 100 could only muster a 0.1% rise on Tuesday to 7,520 with investors flocking to park their money in defensives such as GSK and Unilever, and financials which should benefit from rates staying higher for longer.”

Greggs

“Greggs’ ambitious growth strategy isn’t quite going to plan with a reduction in guidance for the number of net shop openings in 2023. Previously hoping for 150 net openings, the sausage roll king now expects between 135 and 145 net new sites.

“It’s hardly disastrous but gives investors something to grumble about. Achieving the new guidance would still be a record year for the absolute number of new shops opened, and planting new flags across the UK provides more opportunities to grow sales.

“Greggs knows it cannot rely on the sausage roll alone to lure in the punters so a lot of work continues to go into product innovation. More hot food on the go could appeal as autumn takes its grip, while greater delivery capabilities mean people who don’t want to venture outside can still get their Greggs fix.

“Accessibility and convenience are the name of the game and Greggs is making improvements on both measures.

“A lack of upgrades to earnings guidance may disappoint the market, but there is a lot going on to suggest Greggs can still be a winner. Investments in production and manufacturing should help to support the expansion of the business and make the group more efficient.

“At the end of the day, consumers are looking for affordable, decent quality food and drink which they can buy quickly and without having to travel miles to find a store. They can find that in Greggs, hence why the business continues to prosper.”

Boohoo

“Boohoo’s name mirrors the noise long suffering shareholders will be making after the latest downgrade to guidance from the company.

“Revenue declines are looking markedly higher than previously forecast as the company faces a slower than anticipated recovery in volumes. A soggy summer may not have helped, though to its credit Boohoo does not blame the weather, and the wider pressures on consumer spending are another factor.

“Another reason for the softer volumes tells a rather more encouraging story from a Boohoo perspective. The company is showing a greater level of discipline. It is focusing on more profitable sales and it is, combined with investments in its logistics and technology platform, hoping to futureproof a business which has faced criticism over the efficacy and ethics of its supply chain in the past.

“Boohoo’s efforts are reflected in an improved margin performance and, importantly, the company has been able to achieve a tangible reduction in inventory too as it looks to claw its way back to profitability.

“The problem for Boohoo is if volumes continue to decline then none of this will matter too much. It has to hope that its core demographic has not, for financial and environmental reasons, lost interest in the sort of cheap, disposable fashion which is Boohoo’s calling card. Or, if it has, that Boohoo can adapt its offering accordingly.”

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