Last week, the New York Post reported that J.C. Penney owners and largest U.S. mall operators Simon Property Group (“Simon”) and Brookfield Asset Management (“Brookfield”) have submitted an offer to acquire Kohl’s for more than $8.6 billion, or $68 per share. Kohl’s has been under pressure from activist investors to sell, and in a March press release, the company acknowledged that it had received multiple indications of interest. Reportedly, the company’s bankers have had discussions with more than twenty prospective buyers, and bids have come in from groups including Hudson’s Bay Company, Sycamore Partners, and Leonard Green & Partners.
While many department store retailers have struggled in recent years, Kohl’s has fared comparatively better. In addition, the company has continued to rethink its business with partnerships such as those with Amazon and Sephora. With Sephora, the plan is to grow the partnership to a $2 billion business across more than 850 Kohl’s stores. Koh’s also recently announced plans to open 100 smaller format stores in the next four years. Yet, bidders are said to believe that Kohl’s should be making even more changes to drive stronger sales and profits.
In 2020, Simon and Brookfield acquired J.C. Penney out of bankruptcy for $1.75 billion. Since the acquisition, J.C. Penney has appointed Marc Rosen as CEO and added new leadership with the purpose of evolving the retailer’s digital business. The company has also added merchandise from Forever 21 (which is also owned by Simon and Brookfield), and a new athleisure collection, Sports Illustrated for J.C. Penney, which is a J.C. Penney exclusive.
A driver behind the purchase of J.C. Penney was to maintain it as an anchor store in many Simon and Brookfield properties, preserving occupancy and therefore lease payments. Perhaps even as important to the landlords was to maintain an anchor tenant so as not to violate smaller mall stores’ co-tenancy lease clauses.
The Kohl’s transaction rationale is different as its locations are mostly off-mall. The Simon-Brookfield acquisition would be driven by cost cutting and harvesting synergies between J.C. Penney and Kohl’s. According to sources reportedly close to the talks, if the proposal by Simon and Brookfield is accepted, J.C. Penney and Kohl’s stores would remain separate, but a major effort to integrate back offices and cut costs would begin. According to the New York Post, a few of these changes would include sharing the same management team, merging the IT systems of both chains, consolidating the sourcing of all in-house labels, and potentially closing Kohl’s headquarters. Reportedly, overhead costs could be reduced by $1 billion over the next three years.
From Simon and Brookfield’s perspective, combining Kohl’s and J.C. Penney could not only unlock savings, it could also provide J.C. Penney with some of Kohl’s more forward-thinking strategies and objectives. It will also provide diversification away from enclosed mall locations as the trend towards off-mall retail continues in the wake of the pandemic. From Kohl’s perspective, however, this $68 per share bid only represents a 17% premium to Kohl’s share price at the end of last week. One has to wonder whether there might be a more compelling offer to be had elsewhere, or whether Kohl’s might shrug off its activists again and bet on itself. After all, its shares were trading above $70 as recently as April, 2019.
Headlines of the Week
JCPenney offers $8.6 billion to acquire rival Kohl’s: report
Simon Property Group and Brookfield Asset Management, the owners of department store chain JCPenney, have made a bid to acquire rival retailer Kohl’s, according to the New York Post. The shopping mall giant and asset manager, which bought JCPenney out of bankruptcy for $1.75 billion in 2020, have offered Kohl’s $68 a share, valuing the retailer at more than $8.6 billion, the Post reported, citing sources familiar with the talks. Representatives for JCPenny, Simon Property Group and Brookfield Asset Management did not immediate reply to CBS MoneyWatch’s requests for comment. The prospective new owners would keep the two brands separate while cutting Kohl’s costs by $1 billion, The Post reported, citing a “well-placed” but unnamed source.
Toymaker Mattel explores sale, has held talks with Apollo, L Catterton, source says
Toymaker Mattel is exploring a sale and has held talks with buyout firms, including Apollo Global Management and L Catterton, a source familiar with the matter told Reuters on Tuesday. The talks on a possible sale come a few months after the California-based company’s chief executive officer, Ynon Kreiz, said Mattel had completed its turnaround plan and was in “growth mode.” In its fourth-quarter results in February, Mattel forecasted full-year profit above analysts’ estimates, citing robust demand for its Barbie dolls and other toys that would help the toymaker weather rampant supply chain disruptions. In January, Mattel won the rights to produce dolls based on Disney royalty like Elsa and Jasmine, snatching back a highly lucrative license from archrival Hasbro.
Apparel & Footwear
Authentic Brands Group is at it again. The New York-based brand development and entertainment firm has jumped into the fray and submitted a bid for the London-based Ted Baker men’s and women’s brand. ABG recently finalized its 2.1 billion euro purchase of Reebok and partnered with David Beckham to co-own and manage his business. ABG is now valued at some $13 billion. ABG had no comment on a report in The Sun newspaper in London over the weekend, but sources here said the American group submitted a bid last week, the deadline for non-binding offers for Ted Baker. However, because the sale process is different in the U.K. than it is in the U.S., Ted Baker’s board will make the final decision on who it will be sold to from the parties that have submitted offers. Sources here said that although several firms have submitted offers for the business, there’s no guarantee that the Ted Baker board will accept any of them. If none are deemed acceptable, the company will continue to operate independently.
With help from new CEO, Maurices works to expand store footprint, products and brand awareness
David Kornberg spent 15 years as a top executive at Express, the trendy mall retailer that appeals to fashionable 20-somethings. When he was later approached to become CEO of Duluth-based Maurices, Kornberg first decided to visit one of the company’s stores, which, with their bright lighting and decor, are quite different from the gloss of Express. But it wasn’t the store design that made a lasting impression on Kornberg. Instead, it was an outgoing sales manager who greeted him and his wife, then remembered him on a second visit a few weeks later. “I saw that there was something extremely special about the brand,” Kornberg said. “It wasn’t just her. It was the company. It was the culture. And it was the people.” Now a year after he took the reins at Maurices, Kornberg is leading the charge to evolve the nearly century-old “hometown women’s fashion brand.” The company plans to open about a dozen stores this year, adding to its chain of approximately 900. A new line of clothing for girls premiered this spring. At the beginning of the year, Maurices signed its first celebrity brand ambassador.
Brunt Workwear Taps New President to Take On Carharrt, Dickies
A longtime Under Armour executive has snagged a top job at Brunt Workwear, a Boston-based footwear and apparel brand targeted to construction workers and tradespeople. Kevin Eskridge, an 11-year veteran of Under Armour who served as chief product officer from 2017 to 2020, has been named president of Brunt. In this role, Eskridge will oversee the company’s product development, merchandising, sourcing and global retail expansion. Eric Girouard, founder and chief executive officer of Brunt, said of Eskridge: “Not only does he have an incredible track record of building high-growth teams, but more importantly, he understands how to create a strong connection with customers through innovative, thoughtfully designed products [that] are so important to the community we serve.” Eskridge held a number of roles at Under Armour, including president of sport performance, senior vice president of global merchandising and planning, and he also served as the first managing director of Under Armour in China.
Centric Brands Acquires Hosiery Division From Daytona Apparel Group
Centric Brands LLC. announced today the strategic acquisition of a division of Daytona Apparel Group, a portfolio of retail brands owned by Windsong Brands, that closed on March 24th of this year. Centric will take full ownership of Daytona Apparel Group’s hosiery division which sells product across multiple brands in stores nationwide. Daytona Apparel will continue to independently operate their other categories. The acquisition will be merged into Centric’s growing accessories division led by Jarrod Kahn, Group President, Accessories. As part of the transaction, Centric will assume new license agreements including Stanley, Free Country, Real Tree, and Umbro. In addition, a number of associates from the hosiery team at Daytona will join Centric and report to Abe Dweck, Executive Vice President, Accessories. “Acquisitions that assist in accelerating growth are very attractive to us. Our scale and competitive edge in the accessories marketplace benefits from this transaction,” said Jason Rabin, Chief Executive Officer of Centric Brands.
Athletic & Sporting Goods
PlayOn! Sports and GoFan to Merge
PlayOn! Sports, a leading high school sports media and technology company, and GoFan, a leading digital ticketing company in the high school sports market, announced that they have entered into a definitive merger agreement. KKR, which joined Panoramic Ventures as an investor in PlayOn! earlier this year, is making an additional investment from its North America Fund XIII fund to support the strategic combination. PlayOn!, founded in 2008, and GoFan, in 2001, have each strategically prioritized and made an impact in the high school sports and activities market.
Elvisridge Capital Acquires Glacier Glove
Elvisridge Capital, LLC, announces the acquisition of Glacier Outdoor, Inc. (“Glacier Glove”). Glacier Glove, based in Reno, Nevada, manufactures gloves and other apparel for the fishing and hunting industries. Glacier will now join Elvisridge Capital’s other fishing-related brands, Blackfin Rods and BBS, a fishing line manufacturer. Established in 1982, Glacier Glove utilizes quality fabrics and designs to provide warmth, dexterity, and protection to make the outdoor experience more comfortable for fishermen, hunters, paddlers, cyclists, ice climbers, hikers, and other outdoor adventurers.
Cosmetics & Pharmacy
Wella Company Acquires Briogeo
Wella Company, a global beauty leader with a portfolio comprised of brands including Wella Professionals, O·P·I, ghd, Nioxin, Sebastian Professional and Clairol, has reached a definitive agreement to acquire Briogeo, a fast-growing hair care brand and one of the largest independent Black-owned brands in the United States. “Acquiring Briogeo marks Wella Company’s first portfolio expansion as an independent entity. Briogeo’s high-growth, eco-ethical and natural hair care products complement our existing hair portfolio and sustainable offerings and will fuel our growth momentum in the hair category, which is now the fastest growing segment in beauty,” said Annie Young-Scrivner, CEO of Wella Company. Under the leadership of founder and CEO, Nancy Twine, Briogeo has revolutionized clean and natural hair care, offering effective products and solutions for every hair type, hair texture, hair need, ethnicity, background and person.
Helen of Troy Acquires Curlsmith Hair Care
Helen of Troy Limited, designer, developer and worldwide marketer of consumer brand-name home, outdoor, health, wellness, and beauty products, has acquired Recipe Products Ltd. through one of its subsidiaries. Founded in 2017, Recipe Products’ Curlsmith products are a leader in the rapidly growing market for prestige haircare products for all types of curly and wavy hair. Curlsmith’s range of conditioners, shampoos, and co-washes was created in partnership with expert trichologists and stylists specializing in healthy hair. The total purchase consideration, net of cash acquired, was $150.0 million in cash, subject to certain customary closing adjustments.
Unilever warns of more price hikes as cost pressures build
Unilever raised prices by over 8% in the first quarter and warned more hikes were on the way as the maker of Dove soap and Ben & Jerry’s ice cream lifted its cost inflation forecast for the second half of the year due to the Ukraine conflict. The company said it now expected cost inflation would reach 2.7 billion euros ($2.8 billion) in July-December, up sharply from its previous estimate of 1.5 billion. Consumer goods makers around the world are lifting prices to make up for soaring energy, commodities, labour and transport costs, with the Ukraine conflict exacerbating inflationary pressures already building in the recovery from the pandemic. Unilever’s full-year costs “are going to quadruple versus a year ago. That’s why the pricing needs to be so high, and that’s why the price is going to go much higher,” Barclays’ Warren Ackerman said. “This is not the peak.”
Discounters & Department Stores
Walmart launches activewear brand Love & Sports
Walmart on Friday announced the launch of a private label activewear line, Love & Sports, according to a company press release. The brand is available on Walmart’s website and will roll out to 1,500 stores. The brand was created in partnership with fashion designer Michelle Smith and SoulCycle instructor Stacey Griffith. The first collection includes 121 women’s activewear and swim items. The activewear comes in sizes XS to XXXL, while swim products will be available “in the coming days” and come in sizes XS to XXL. All products are priced between $12 and $42, and collections will be dropping seasonally, with footwear and accessories to be introduced this fall.
In challenge to Costco, Walmart+ boosts fuel discounts at thousands more gas stations
Walmart+ members as of Wednesday are enjoying discounts of up to 10 cents per gallon off fuel they buy at participating gas stations, according to an emailed press release from Walmart. For Walmart+ members, 12,000 Exxon and Mobil stations are knocking off 10 cents per gallon on fuel, while Walmart and Murphy USA stations are cutting the membership price by five to 10 cents, per the release. Walmart+ fuel pricing is also available at more than 500 Sam’s Clubs. The discounts come as consumers are being particularly hard hit by fuel price inflation, and a few weeks after Costco reportedly slashed already competitive fuel prices for its members.
Emerging Consumer Companies
Johnnie-O Gets $108M Investment, Takes on First Institutional Investors
Johnnie-O, whose surfer dude logo has become a recognizable symbol of “West Coast prep,” has taken on its first institutional investors to help fund the brand’s continued growth. Last week, the California-based label said it had secured an investment of $108 million from Wasatch Global Investors and Ares Management Corp. funds that gives them a minority stake in the business. Although this is the sixth time the brand has raised funding, founder John O’Donnell said, the other investments were small and came primarily from friends and family. O’Donnell said this investment was spearheaded by his brother-in-law Rob Berner, who serves as chairman, as well as the brand’s chief executive officer Dave Gatto. “We wanted to raise capital to support our wholesale accounts and offer some liquidity to our investors,” he said. The brand was founded by O’Donnell in 2005 and started out with wedge-collar pique polo shirts. It has since expanded into a full lifestyle brand for men and boys.
ThirdLove snaps up Kit Undergarments in first acquisition
DTC bra brand ThirdLove has made its first acquisition. The company is scooping up Kit Undergarments, the “cult favorite intimates brand” founded by celebrity stylists Jamie Mizrahi and Simone Harouche, according to details emailed to Retail Dive. The brand will relaunch on Tuesday as Kit Undergarments for ThirdLove, and will be available on the ThirdLove website. The brand’s first acquisition is aimed at expanding its reach to a younger set of consumers, which also comes with lower price points. Kit Undergarments’ prices range from $18 to $55, according to the companies, a good deal lower than some of ThirdLove’s products. The ThirdLove Classic T-Shirt Bra, for example, sells for $68 and its Lace Balconette Bra goes for $74. Kit Undergarments will be “fully integrated” into ThirdLove’s operations, but Mizrahi and Harouche will head up design for the brand.
Taelor, San Francisco-based rental startup, raises $2.3 million
Men’s rental subscription service Taelor has raised $2.3 million in a pre-seed round of funding. Venture capital firm Bling Capital led the round. The company will use the financing to open its service to customers on the wait list, as well as expand its offerings and operations and refine its styling algorithms. Taelor launched in March 2021, offering elevated everyday styles from brands like Brooks Brothers, Bonobos and Mizzen + Main, among others, and began its pilot service in summer 2021. Customers pay a flat monthly fee of $88 and receive up to two boxes of clothes a month, which includes four items in each box like dress shirts, jackets, polos and Henley shirts, among other items. Taelor provides free dry cleaning and shipping and will add pants to the offering. In addition, they plan to work with corporations to offer its subscription service as gifts for new employees.
Food & Beverage
Mondelez to buy Mexican confectioner Ricolino from Grupo Bimbo
Mondelez International announced it has reached an agreement to acquire the Ricolino confectionery business from Grupo Bimbo SAB de CV for approximately $1.3 billion. Headquartered in Mexico City, Ricolino’s products include candy bars, truffles, panned chocolates, caramel, lollipops, marshmallows, hard and chewy candies, nougats and gum sold under such brands as Ricolino, Vero, La Corona and Coronado. Ricolino operates four manufacturing facilities and has nearly 6,000 employees with approximately $500 million in annual sales. Mondelez said the acquisition will double the size of its business in Mexico and provide an attractive entry point into the chocolate category, while expanding the company’s presence in snacking. The deal is expected to close the deal “in late Q3 or early Q4” this year.
Hydration brand Lemon Perfect raised $31 million Series A, with participation from Beyoncé
Lemon Perfect, a maker of hydrating lemon water, raised $31 million in Series A financing. Headlined by Beyoncé Knowles-Carter, the round brings the brand’s total funding to $42.2 million and total valuation to more than $100 million. Founded in 2017 by Yanni Hufnagel, Lemon Perfect’s enhanced water is free from sugar, artificial flavors and sweeteners. It contains electrolytes from potassium as well as antioxidants like vitamin C. Varieties include original lemon, pineapple coconut, strawberry passion fruit, peach raspberry, dragon fruit mango, blueberry acai and kiwi star fruit. Powered by cold-pressed organic lemons, the beverage offers a host of benefits around heart health, digestive support and immune defense, along with increased metabolism, collagen synthesis, stress relief, clear skin and fresher breath, according to Lemon Perfect. It is available in retailers nationwide, on Amazon and direct-to-consumer through the brand’s e-commerce platform. Funds from the Series A round will help the startup scale to more than 40,000 points of distribution by the end of 2022.
US snacks business Second Nature Brands acquired by PE firm CapVest
Private-equity firm CapVest has acquired US better-for-you snacks business Second Nature Brands for an undisclosed sum from Palladium Equity Partners. CapVest said the deal sees it “capitalising on growing demand for better-for-you snacks and treats”. Michigan-based Second Nature Brands has a product range including Kar’s Nuts, Second Nature Snacks and Sanders Chocolates. It specializes in non-GMO-verified snacks and trail mixes. The Palladium Equity Partners fund invested in the then Kar’s Nuts in 2017. A year later, Kar’s Nuts combined with Morley Candy Makers, a manufacturer of confectionery products sold under the Sanders Fine Chocolate name. Last February, Kar’s Nuts announced it would trade under the corporate identity of Second Nature Brands to reflect the composition of its better-for-you portfolio.
Grocery & Restaurants
Is Domino’s status as the leading pizza chain beginning to slip?
Domino’s Pizza continues to struggle as the company reported U.S. same-store sales decline of 3.6% for the first quarter ended March 27,2022, attributable to challenges faced industry-wide like price and commodity inflation, uncertain global political circumstances, and labor shortages. While Domino’s dominated the pizza category at the height of the pandemic — with the Ann Arbor, Mich.-based company seeing its strongest sales performance in a decade in the third quarter of 2020 — the company’s numbers began to slip in the third quarter of 2021. To offset some of the inflation challenges, Domino’s changed its $7.99 carryout deal to be digital-only last quarter, and in March, bumped up its iconic $5.99 Mix and Match deal to $6.99. “2022 is shaping up to be a challenging year,” outgoing CEO Ritch Allison said during Thursday’s earnings call. “We faced significant inflationary cost pressures […] Stores close to fully staffed did much better as compared with stores not as fully staffed. We continue to believe that consumer demand for Domino’s remains very strong.”
Chipotle grows Q1 same-store sales 9%
Higher wages and food costs cut into Chipotle Mexican Grill’s restaurant-level margins, despite increases to menu prices and lower delivery expenses, the company said Tuesday. For the first quarter ended March 31, Chipotle said its restaurant level operating margin was 20.7%, down from 22.3% in the first quarter last year. Food, beverage and packaging costs were 31% of total revenue, an increase of 100 basis points over Q1 2021. Across the industry, restaurants are facing higher costs as a result of lingering COVID-related supply challenges and the war in Ukraine. Still, the Newport Beach, Calif.-based chain said same-store sales increased 9% for the quarter, and total revenue increased 16% to $2 billion. Net income for the quarter was $158.3 million, or $5.59 per share, compared with $127.1 million, or $4.52 per share, a year ago.
Home & Road
Ethan Allen’s Q3 results underscores commitment to enhanced production
Ethan Allen Interiors Inc. reported third quarter 2022 sales of $197.66 million, an increase of 11.7% compared with the prior-year quarter. In addition, the company’s adjusted operating margin grew to 15.8%. The company attributes its strong operating margin due to net sales growth, retail gross margin expansion and cost containment measures. In its conference call, Ethan Allen noted improved production time with custom upholstery products shipping in seven to nine weeks, as compared with 15 to 17 weeks only six months ago. Shipping for wood products is now at 10 to 12 weeks as compared with 14 to 16 weeks six months ago. In addition, Ethan Allen has been investing in technology for its Vermont, Mexico and Honduras facilities. Chairman, President and CEO Farooq Kathwari said the company currently has 1.3 million square feet dedicated to case goods production, approximately 1.3 million square feet for its upholstery operations and 1.2 million square feet for national logistics services.
Flexsteel grows sales by double digits for 7th consecutive quarter
Flexsteel Inds., a manufacturer, importer and online marketer of furniture products, reported that third quarter net sales increased 18.6% to $140.4 million compared with $118.4 million in the prior-year quarter. This represents the seventh quarter in a row the company has experienced double-digit sales growth. The company’s net sales increase was driven by retail store sales of $22.9 million, or a 22.1% increase vs. the prior-year quarter. Sales of the company’s flat-pack Homestyles products sold online decreased by $900,000 compared with the third quarter of the prior year. Flexsteel noted that the decline in e-commerce has been reported by several of its large e-commerce customers who are reporting sizable declines in online traffic. The company expects this to be a near-term headwind. Gross margin as a percent of net sales decreased to 15.7%, compared with 19.5% for the prior-year quarter. However, this quarter’s gross margin increased significantly from 6.7% in Q2 2022.
Home renovation activity and spend hits four-year high
Home renovation activity and spend have reached the highest rates reported since 2018, according to the 11th annual Houzz & Home survey of nearly 70,000 U.S. respondents. Some 55% of homeowners renovated their homes in 2021, up from 53% in 2020 and 54% in both 2019 and 2018. More significant is the change in median spend: up 20% to $18,000, an increase that comes on the heels of a 15% increase last year. The Houzz report attributes this growth the fact that homeowners with higher budget projects (the top 10% of spend) increased their investment from $85,000 in 2020 to $100,000 in 2021. The renovation activity continues this year, with 55% of homeowners planning to renovate and 46% planning to decorate. And for the first time since 2018, homeowners’ planned spend has increased to $15,000 for 2022 as compared with $10,000 for the past three years. Additionally, homeowners with higher-budget renovations are planning to spend $75,000 on projects in 2022, up from $60,000 in 2021.
Jewelry & Luxury
Rebag introduces auctions for used luxury items
Adding another tech tool for its customers, luxury resale platform Rebag is launching Rebag Auction, a feature that allows users to bid on high-end items, according to a press release shared with Retail Dive. Shoppers will be able to bid on items ranging from Hermés and Louis Vuitton bags to jewelry and watches. Rebag won’t charge a buyer’s fee and will allow winning bidders to pay within 48 hours. Rebag Auction also has an auto-bidding feature that allows the platform to bid on a shopper’s behalf. The auctions will showcase more than 2,000 items weekly. The company will host weekly VIP Auctions exclusively for Rebag Rewards members from Mondays at 8 a.m. EDT through Tuesdays at 5 p.m. All users will then be able to bid on remaining items until Thursdays at 11:00 a.m. After the two auctions, unsold auction items will be available for immediate purchase on Rebag’s website or in stores.
Brilliant Earth Removes Ad Following Blue Nile Challenge
Brilliant Earth has taken down an ad that purportedly claimed the company was offering “free diamond earrings” for “one day only” after competing e-tailer Blue Nile complained about it to the BBB National Programs’ National Advertising Division (NAD). According to the full NAD ruling—which is not public but was given to JCK—Blue Nile argued that its rival’s claims “were misleading because the promotion failed to disclose that for purchases between $1,000 and $5,000, the free ‘diamond’ earrings were lab-grown and not natural diamonds. [Blue Nile] further contended that the hyperlinked disclosure as to the nature of the ‘diamond’ gift was inadequate.”
Jewelry Sales Coming Down From Pandemic Peak, Panel Says
Jewelry sales appear to have fallen from the record-setting levels they hit during the COVID-19 pandemic, as consumers are spending again on travel and experiences, panelists agreed at an April 25 seminar at the American Gem Society (AGS) Conclave in Oklahoma City. The session was titled “Expert Insights, Industry Market Outlook, and Business Opportunities to Finish 2022 Strong” and was moderated by the writer of this article. Erich Jacobs, CEO of Jewelers Board of Trade (JBT), said he’d seen “some downward trends” for the industry—including fewer Google searches for jewelry and an increase in JBT collections—but wasn’t sure that they signal an eventual decline. “It’s too soon to tell,” he said. “But it does seem like we’ve hit peak jewelry.”
Office & Leisure
Subscriptions won’t take over the game industry anytime soon
Video games aren’t experiencing a Netflix or Spotify moment after all. At least not at anywhere near the pace that other forms of media adopted subscriptions and streaming over the last decade. While subscription gaming services have been on the rise for the past few years, thanks largely to the growth of Microsoft’s Xbox Game Pass platform, the shift in consumer spending and consumption hasn’t followed. Instead, subscription platforms and the smaller cloud gaming services often bolted onto them make up a tiny slice of the overall global games market. It may take years or perhaps even decades, alongside major advances in internet speeds and coverage as well as streaming technology, before these distribution methods supplant the traditional retail model in gaming. And for many popular titles that are given away for free and monetize entirely through in-game purchases, these models may never mesh well. Subscription and cloud gaming represents just 4% of North America and Europe game markets, or roughly $3.7 billion, according to a recent study Harding-Rolls published at Ampere.
Activist Investor Alta Fox Pushes to Replace Hasbro Chairman
Alta Fox Capital Management LLC is seeking to oust Hasbro Inc’s chairman and two other directors, as the activist investor pushes for changes at the toymaker including a spin-off of its Wizards of the Coast unit. Alta Fox, a firm founded four years ago by hedge fund veteran Connor Haley and which owns a 2.5% stake in Hasbro, said the company’s chairman, Rich Stoddart, is “unqualified to continue serving”. In response, Hasbro reiterated its call to shareholders to reject all of the activist’s board nominees, saying they would only serve “to disrupt and distract the company”. Stoddart has been on Hasbro’s board since 2014 and has only served as chairman since late last year following the death of Brian Goldner. Alta Fox in February pushed Hasbro to consider spinning off its Wizards of the Coast unit, which publishes “Dungeons & Dragons” and “Magic: The Gathering”, to boost its lagging share price, something the company has said it will not do. Last month, Hasbro turned down a settlement offer from Alta Fox to add one of its nominees to the board and pick a second member on its own.
Technology & Internet
Amazon shares fall on bleak forecast and slowest growth since dot-com bust
Amazon shares dropped as much as 10% in extended trading on Thursday after the company issued a revenue forecast that trailed analysts’ estimates. Revenue at Amazon increased 7% during the first quarter, compared with 44% expansion in the year-ago period. It marks the slowest rate for any quarter since the dot-com bust in 2001 and the second straight period of single-digit growth. The second-quarter forecasts suggests growth could dip even further, to between 3% and 7% from a year earlier. Amazon said it projects revenue this quarter of $116 billion to $121 billion, missing the $125.5 billion average analyst estimate, according to Refinitiv. Amazon has been navigating a host of economic challenges, including rising inflation, higher fuel and labor costs, global supply chain snarls, and the ongoing pandemic. To offset some of those costs, Amazon earlier this month introduced a 5% surcharge for some of its U.S. sellers, the first such fee in its history. And last quarter, Amazon hiked the price of its U.S. Prime membership for the first time in four years to $139 from $119. Profits are still taking a hit. The company’s operating margin, or the money that’s left after accounting for costs to run the business, dipped to 3.2% in the first quarter from 8.2% a year earlier.
Apple shares dip after company warns of a possible $8 billion hit from supply constraints
Apple’s revenue grew nearly 9% year over year in the quarter ended in March, the company said on Thursday, showing strong growth and bucking investor worries about a deteriorating macroeconomic environment affecting demand for high-end smartphones and computers. But Apple shares fell nearly 4% in extended trading after Apple CFO Luca Maestri warned of several challenges in the current quarter, including supply constraints related to Covid-19 that could hurt sales by between $4 billion and $8 billion. The tech giant also warned that demand in China was being sapped by Covid-related lockdowns. Apple CEO Tim Cook added the company was “not immune” to supply chain challenges. The smartphone business grew over 5% during the quarter, yielding more evidence that the current iPhone 13 model is selling well. Cook said that the iPhone business had a successful quarter with sales to so-called switchers, or people who previously had an Android phone but decided to buy an iPhone. The earnings beat also suggests that Apple’s premium smartphone business may be insulated from concerns about deteriorating consumer confidence. The increase in sales also came despite a difficult year-over-year iPhone comparison, since the new iPhones were launched earlier in 2021.
Facebook is opening its first showroom to sell VR headsets
Meta, formerly known as Facebook, is opening its first retail location in an effort to sell people its Oculus virtual reality headsets and its idea of the “metaverse,” the company announced last week. But it’s not a huge step into retail. Unlike Apple and other tech companies that have stores in heavy foot-traffic areas such as shopping malls, the Meta Store will open on May 9 at the company’s Burlingame, California, campus. The store will have demo areas where people can try, among other products, its Oculus virtual reality headsets and the apps and games that run on them. Customers will be able to purchase the Quest 2 headset, accessories and Portal video chat devices at the store. The company’s Ray-Ban Stories smart glasses will be available to try on but have to be purchased online. Meta said it’s also rolling out a “shop” tab on its website. “Ultimately, our goal with the Meta Store is to show people what’s possible with our products today, while giving a glimpse into the future as the metaverse comes to life — and hopefully demystifying that concept a bit in the process,” the company said.
Finance & Economy
Retail and consumer IPOs, deals tail off as more businesses set their sights on 2023
Supply chain headaches, surging interest rates and the war in Ukraine have combined to stifle IPOs and deal-making in the consumer and retail sectors so far this year. The total number of consumer and retail deals in the first quarter tumbled 31.9% from the prior period, global consultancy KPMG said in a report. Deal volume shrank 39.8%. That marks somewhat of a stark reversal from recent trends, when the number of deals involving U.S.-based consumer and retail companies nearly matched pre-pandemic levels. The boom last year was fueled, in large part, by e-commerce growth in retail and a focus on health and wellness trends, KPMG said. In 2021, Levi Strauss & Co. bought Beyond Yoga, Wolverine World Wide acquired Sweaty Betty, and Crocs purchased Hey Dude. Retailers such as Allbirds, Warby Parker, On Running, Lulu’s, Brilliant Earth, ThredUp, Rent the Runway and A.K.A Brands — just to name a few — all started trading on public exchanges.
U.S. GDP fell at a 1.4% pace to start the year as pandemic recovery takes a hit
Gross domestic product unexpectedly declined at a 1.4% annualized pace in the first quarter, marking an abrupt reversal for an economy coming off its best performance since 1984, the Commerce Department reported. The negative growth rate missed even the subdued Dow Jones estimate of a 1% gain for the quarter, but the initial estimate for Q1 was the worst since the pandemic-induced recession in 2020. GDP measures the output of goods and services in the U.S. for the three-month period. Despite the disappointing number, markets paid little attention to the report, with stocks and bond yields both mostly higher. Some of the GDP decline came from factors likely to reverse later in the year, raising hopes that the U.S. can avoid a recession.
U.S. consumer spending rises sharply, but inflation climbs almost as fast
Consumer spending rose a sharp 1.1% in March, but the increase barely outpaced another surge in inflation as Americans confront the biggest price increases in 40 years. Although households spent more, they are also paying higher prices for gas, groceries and other staples. A key measure of inflation included in the report rose by 0.9% last month, government figures showed. A big jump in gasoline prices was a chief reason why. Even after factoring in inflation, consumer spending rose a smaller but still solid 0.2% last month. But households appeared to dig into their savings to meet their needs. The savings rate fell to 6.2% from 6.8% and is now below pre-pandemic levels.
