Weekly Business Roundup
Publication 13- Bed, Bath & Beyond's Probelms Escalate, Elon Musk Jokes About Buying Manchester United, and U.K Inflation Reaches Double Digits
Published Sunday, August 21st 2022
This week, Regal owner Cineworld prepared to file for bankruptcy, U.S home sales dropped for the sixth straight month, and a Judge agreed to unseal parts of the affidavit that led to search of Trump’s Mar-a-Lago home.
Business
Bed Bath & Beyond’s Problems Escalated by Ryan Cohen’s Sale Of It’s Stock
Bed Bath & Beyond Inc. suffered another blow this week when its highest-profile investor sold out, just months after buying up shares and securing seats on the board.
Billionaire investor Ryan Cohen filed to sell his entire 10% stake in the company, a disclosure that sparked a pullback in its stock that began late Wednesday.
Mr. Cohen, co-founder of online pet-products retailer Chewy Inc., took a large stake in Bed Bath & Beyond early this year and pushed for changes, including a sale of its Buybuy Baby chain. In March, the company reached a settlement with Mr. Cohen that included the addition of three new directors.
Billionaire Investor, Ryan Cohen
His exit adds to the uncertainty at a company that is losing customers, running low on cash and operating without a permanent chief executive. The retailer, which ended May with about $100 million in cash, is hunting for a $375 million loan to build cash and help pay down debt, according to people familiar with the matter. A loan proposal it is marketing to lenders would be backed by inventory and company brands, the people said.
The company warned in June that sales in the current quarter were trending down 20% compared with the same period last year. Anthony Chukumba, an analyst with Loop Capital LLC, wrote in an Aug. 12 note to clients that recent store checks showed the chain remained out of stock on a large selection of items and that it was heavily discounting its private-label merchandise, signs that the business continued to suffer.
The company’s liquidity problems have been exacerbated by the board’s decision in November 2019 to authorize spending $1 billion on a three-year share-repurchase plan, which was completed a year ahead of schedule. The buybacks were funded from the sale of noncore assets such as Cost Plus World Market, Christmas Tree Shops and other chains.
“We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies,” Bed Bath & Beyond spokesman Eric Mangan said. He added that the company has been working with financial advisers and lenders to strengthen its balance sheet, and that the company plans to provide more information at the end of this month.
It’s unclear what immediate impact, if any, Mr. Cohen’s exit from the stock will mean for the company or the board, which now includes his representatives.
“We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies”
Regal Owner Cineworld Nears Bankruptcy as Theater Comeback Lags
Cineworld Group PLC, the owner of Regal Cinemas, is preparing to file for bankruptcy within weeks after struggling to rebuild movie-theater attendance from pandemic lows, according to people familiar with the matter.
The London-based cinema company has engaged lawyers from Kirkland & Ellis LLP and consultants from AlixPartners to advise on the bankruptcy process, these people said. Cineworld is expected to file a chapter 11 petition in the U.S. and is also considering filing an insolvency proceeding in the U.K., they said.
Earlier this week, Cineworld said that despite a gradual recovery in attendance since reopening theaters last year, recent admissions have lagged below expectations due to a limited film slate. A company spokesman said Friday that all its theaters are open for business as usual and it is “proactively evaluating strategic options to ensure we have the balance sheet strength and flexibility to adapt to market conditions.”
While revenues have rebounded somewhat since Cineworld reopened its cinemas starting in April 2021, the recovery has been too little, too late for the company, which was founded in the U.K. in 1995 and acquired the Regal chain in 2018 for $3.6 billion.
Cineworld’s performance is still below prepandemic levels. And aside from a couple of superhero films like “Black Panther: Wakanda Forever” scheduled for release in the fall, a sparse supply of content lies ahead in the second half of this year, as Hollywood studios have limited production, delayed releases or went straight to streaming amid uncertainty as to when theater attendance is expected to fully return.
Meanwhile, Cineworld faces coming maturities on its more than $5 billion debt load. A deleveraging transaction in bankruptcy would likely dilute or wipe out equity interests in Cineworld, the second-largest cinema chain in the world behind AMC Entertainment Holdings Inc.
Cineworld is negotiating with its lenders to fund the costs of the bankruptcy process, according to a person familiar with the matter. Representatives for Kirkland & Ellis didn’t respond to a request for comment. A representative for AlixPartners declined to comment.
An in-court restructuring would give Cineworld the chance to cut debt, restructure or break certain lease obligations, and settle other liabilities, such as a recent legal judgment amounting to roughly $1 billion stemming from a soured merger with Canadian movie theater chain Cineplex Inc. Cineworld has appealed the judgment and denied it is liable to Cineplex, which didn’t respond to a request for comment.
Investors have been largely willing to fund companies in the entertainment, retail and cruise-line industries that had to close temporarily early in the pandemic, in hope they would rebound as lockdowns lifted. After a rash of defaults in 2020, bankruptcy filings have hovered at historically low rates as central banks eased borrowing conditions for the most troubled businesses. Cineworld itself narrowly escaped bankruptcy in 2020 after landing a lifeline from creditors while its nearly 800 theaters were shut due to Covid-19 restrictions.
Analysts expect defaults to grow modestly from those historic lows due to tightening monetary conditions and as investors become less willing to bankroll money-losing enterprises.
AMC, Cineworld’s biggest competitor, has faced similar challenges of muted attendance and a limited supply of new releases during the pandemic, but AMC managed to raise more than $2.2 billion of equity to stay afloat, largely by tapping into the enthusiasm of individual investors who made it a meme stock and drove its shares to dizzying highs.
Elon Musk Tweets He’s Buying Manchester United, Then Calls It a Joke
Elon Musk said on Twitter he was buying English soccer team Manchester United only to say hours later it was a joke, the latest example of the Tesla Inc. chief executive’s using the platform to drop confusing statements about his intentions.
Tesla Chief Executive, Elon Musk
Mr. Musk’s initial tweet on Tuesday came as a reply to a post he’d made five minutes earlier about politics, in which he said: “To be clear, I support the left half of the Republican Party and the right half of the Democratic Party!” Mr. Musk then tweeted: “Also, I’m buying Manchester United ur welcome.”
In a follow-up tweet about 4½ hours later, responding to a follower asking if he was serious, Mr. Musk said: “No, this is a long-running joke on Twitter. I’m not buying any sports teams.”
Mr. Musk didn’t immediately respond to a request for comment late Tuesday.
Shares in Manchester United Ltd. , the soccer team’s New York Stock Exchange-listed parent, weren’t trading at the time of Mr. Musk’s initial tweet Tuesday. In premarket trading Wednesday, they surged as high as $14.89 a share, a gain of more than 16% from Tuesday’s close. At that point Mr. Musk had already said his tweet about buying the club was a joke.
The world’s wealthiest person and one of Twitter’s most prominent users, with more than 100 million followers, Mr. Musk has used the platform before to drop big pronouncements—some serious, many of them not.
Weeks after persuading Twitter Inc. to accept his $44 billion acquisition offer in April, he used the platform to say that the deal was “temporarily on hold” pending clarity on questions about the company’s user data. He later cited the same issue, in part, as reason for trying to walk away from the deal, prompting Twitter to sue the billionaire to enforce the contract. A trial in that case is scheduled for October in Delaware’s Court of Chancery.
Mr. Musk also tweeted several days after inking the Twitter acquisition deal that he was acquiring Coca-Cola Co. , which at the time had a market value of about $282 billion. “Next I’m buying Coca-Cola to put the cocaine back in,” Mr. Musk wrote. On Tuesday, following his posts about Manchester United, he said, “And I’m not buying Coca-Cola to put the cocaine back in, despite the extreme popularity of such a move.”
In December, Mr. Musk tweeted that he was “thinking of quitting my jobs & becoming an influencer full-time wdyt,” using an abbreviation for “what do you think?” Mr. Musk remains CEO of Tesla as well as rocket company SpaceX, formally known as Space Exploration Technologies Corp.
“No, this is a long-running joke on Twitter. I’m not buying any sports teams”
Economics
U.K Inflation Tops 10%, Underlining Gloomy Outlook for Europe
The U.K.’s annual rate of inflation moved into double digits in July and is set to rise even higher by the end of the year, heaping greater pressure on stretched household budgets and threatening a lengthy economic contraction.
That pickup in inflation has been replicated in other parts of Europe, even as consumer prices have started to slow in the U.S. That is because energy prices have continued to accelerate across Europe as Russia withholds supplies of natural gas, with the continent facing a possible crunch this winter.
The U.K.’s Office for National Statistics Wednesday said consumer prices were 10.1% higher in July than a year earlier, up from 9.4% in June. That was the highest rate of inflation in more than four decades and the fastest increase in prices recorded in one of the Group of Seven rich countries since the current surge started in early 2021.
“Inflation figures continue to paint a worrying picture for consumers and businesses alike, and price pressures are set to build further,” said Alpesh Paleja, lead economist at the Confederation of British Industry.
Economists at JPMorgan see increasing signs that global inflation is set to ease, with prices of food and many commodities down from recent peaks. However, they expect that disinflation to be evident first in the U.S., with Europe set to lag behind despite some recent easing in the prices of goods leaving factory gates.
“Europe, however, faces ongoing pressure from surging natural gas prices that have more than doubled over the past three months,” they wrote in a note to clients. “We expect the combined drag of a squeeze on purchasing power and depressed sentiment to tip the region into recession this year.”
July is unlikely to mark the peak in U.K. inflation, since household energy costs are set to rise sharply when a cap on prices is lifted in October. The Bank of England estimates that could send the annual rate of inflation to 13% as the year draws to a close.
The U.K. is suffering a particularly severe surge in prices in part because of its 2016 decision to leave the European Union, which has caused costs for importers to increase, while a weaker pound has also raised the prices of goods and services purchased overseas. Brexit has also reduced the availability of foreign workers in some lower-paid services industries, such as hospitality, pushing costs and prices higher.
However, the U.K. might not be the only one of Europe’s three G-7 members set to face the double-digit inflation that has already hit Spain, Greece and a number of the EU’s eastern members.
Germany’s gas regulator Monday announced a surcharge on gas prices designed to cover most of the increased costs to home energy suppliers since Russia’s invasion of Ukraine. Economists estimate that will send Germany’s annual rate of inflation above 10% from 7.5% in July.
“Inflation figures continue to paint a worrying picture for consumers and businesses alike, and price pressures are set to build further”
U.S. Retail Spending Was Flat in July
U.S. consumers continued opening their wallets last month, shifting savings from falling gasoline prices to purchases of everyday goods as they weathered high inflation and a slowing economy.
Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July compared with the prior month’s revised 0.8% increase, the Commerce Department said Wednesday. But a measure of spending that strips out gasoline and auto sales rose 0.7% last month from June, showing shoppers maintained the ability to spend with much of the spending moving online.
“We’ve had nine weeks of gas prices falling; the evidence from this is that people saw the drop in gas prices and said, ‘This is good news, let’s go shopping,’” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He added that consumer spending appears to have gotten off to a “pretty strong start” in the third quarter.
Pantheon Macroeconomics Chief Economist, Ian Shepherdson
Federal Reserve minutes released separately Wednesday from last month’s policy meeting said officials agreed they needed to keep raising interest rates enough to slow the economy and likely would need to hold rates at that level until it was clear inflation was decelerating.
Fed officials voted to raise their benchmark rate by 0.75 percentage point in July, following an increase of the same size in June. Those were the largest rate increases since 1994. Several officials have indicated since the meeting that they would support lifting rates by at least a half percentage point at their next meeting in September.
Officials last month signaled sensitivity to two different risks—that they might not raise rates enough to bring down inflation and that they might raise borrowing costs more than needed, causing unwarranted economic weakness, according to the minutes.
The U.S. economy has contracted for two consecutive quarters and recent economic figures offer a mixed picture of its performance at the start of the third quarter. The labor market added 528,000 jobs in July and recovered all the jobs it lost at the start of the pandemic. Industrial production rose 0.6% in July as manufacturing output picked up after two consecutive months of contraction, the Federal Reserve said Tuesday. But the housing market has slowed in recent months, with declines in sales, new construction and builder sentiment.
The Fed is aggressively raising interest rates to bring down high inflation and address imbalances in the economy created by pandemic-related factors such as supply-chain disruptions and shifts in consumer and labor demand.
Shoppers have maintained spending despite the highest annual U.S. inflation in four decades, though they are getting less for their money because of higher prices. The retail sales figures aren’t adjusted for inflation.
“We’ve had nine weeks of gas prices falling; the evidence from this is that people saw the drop in gas prices and said, ‘This is good news, let’s go shopping’”
U.S. Home Sales Dropped in July for Sixth Straight Month
U.S. existing home sales fell in July for the sixth straight month, the longest streak of declines in more than eight years, as higher mortgage rates and a shortage of homes for sale are cooling this once red-hot market.
Sales of previously owned homes dipped 5.9% in July from the previous month to a seasonally adjusted annual rate of 4.81 million, the National Association of Realtors said Thursday. That was the weakest pace of sales since November 2015, excluding the three-month pandemic-related drop in the spring of 2020. July sales tumbled 20.2% from a year ago.
The drop-off is the latest sign that the formerly booming housing market is stalling out. Home-building is also drying up, and mortgage applications are falling as more buyers keep to the sidelines.
“We are in a housing recession,” said Lawrence Yun, chief economist for the National Association of Realtors.
National Association of Realtors Chief Economist, Lawrence Yun
That is hurting potential buyers while benefiting existing homeowners, many of whom locked in their mortgages at lower rates and have seen their home values soar, he added.
The housing market went into this year the hottest it has been in about 15 years. The pandemic spurred new demand once restrictions loosened around the middle of 2020. Many home buyers looked for more space to work from home while others were willing to move farther from their office as remote work became more widespread. Near-record-low mortgage rates added fuel to the rally, and bidding wars became commonplace throughout the U.S.
Now, sales are slowing and the relentless rise in home prices is showing some signs of easing after repeated new highs. The median sales price of an existing home fell to $403,800 from a record $413,800 in June, the first decline since January, according to NAR.
While a dip in prices in July isn’t uncommon, economists have been watching for signs of easing price pressures as demand slides. Some expect price declines might arrive by year-end.
“We’re going to see a deceleration as we get towards the end of this year and early next year,” said Scott Murray, a financial-markets economist at Nationwide.
Prices should be more stable next year, he added, “which I think is a really good sign not just for the housing market but for inflation.”
Higher borrowing rates have taken much of the air out of the market, economists say. The Federal Reserve has been raising interest rates aggressively to cool inflation, and mortgage rates have climbed in response.
This week, the average 30-year mortgage rate stood at 5.13%, according to housing-finance agency Freddie Mac. That is slightly lower than last week but still well above the 2.86% rate of a year ago. Before this year, mortgage rates hadn’t topped 5% since 2011.
The combination of high prices and rising interest rates has pushed home-buying affordability to its lowest level in decades. People entering the housing market now typically pay 25% of their income on mortgage payments, up from 15% before the pandemic, Mr. Yun said.
“We are in a housing recession”
World
Judge Says He Will Unseal Parts of Affidavit That Led to Search of Trump’s Mar-a-Lago Home
A federal judge said Thursday that he would make public at least part of an affidavit detailing the evidence that led the FBI to search Donald Trump’s Mar-a-Lago home last week, after a Justice Department official said a full release would jeopardize the investigation into the former president’s handling of classified information.
Former U.S President, Donald Trump
“I’m not prepared to find that the affidavit should be fully sealed,” said U.S. Magistrate Judge Bruce Reinhart, giving the Justice Department a week to suggest which portions should remain secret.
After reviewing the affidavit carefully “many times,” the judge said that in his view, “there are portions of this affidavit that can be unsealed.”
It could be some time before the public sees any of the document, as Judge Reinhart said he would assess the proposed redactions before unsealing it. If he disapproves of the government’s redactions, he will create his own redacted version and keep it under seal until the government has the opportunity to appeal.
Several advocacy groups and news-media outlets petitioned the court to make the document public. Mr. Trump and his allies, including some in Congress, have also called for it to be made public.
“This is going to be a considered, careful process, where everybody’s rights, the government’s and the media’s, will be protected,” Judge Reinhart said.
Judge Bruce Reinhart (right)
The document would provide details about how the FBI established probable cause for its search, which led to the removal from the premises of more than two dozen boxes, including 11 sets of classified documents, some marked top secret.
It would also lay out what evidence the government had collected, including that provided by any witnesses, and describe why investigators believe a crime may have been committed.
“I’m not prepared to find that the affidavit should be fully sealed. This is going to be a considered, careful process, where everybody’s rights, the government’s and the media’s, will be protected”
Bbby has to be the biggest joke of a company out there. Most volatile company I think I’ve ever seen🤣
UK inflation is a joke at this point. Its becoming essentially impossible to make genuine gains with this ongoing madness.