☕ Coffee Prices Rocket Into a Frenzy

MARKET UPDATE

Good Morning Investor! Shares of British grocery technology firm Ocado ($OCDO) surged 18% on Tuesday, after the company increased its annual guidance for both margins and cash flow. Meanwhile, in the land of swiping for dates, Match Group’s ($MTCH) shares soared almost 8% after it was disclosed that activist investor Starboard has built up a 6.6% stake in the company and is now actively pushing for change.

TODAY’S BIG HEADLINES

Macy’s Turns Down $7 Billion Buyout

Coffee Prices Rocket Into a Frenzy

Swatch & Hugo Boss Suffer the Chinese Cold Shoulder

MERGERS & ACQUISITIONS

Macy’s Turns Down $7 Billion Buyout👎

Macy’s Walks Away: On Monday, Macy's ($M) board of directors unanimously voted to end negotiations with activist investors Arkhouse and Brigade. These ambitious suitors had offered to take the legacy American retailer private in a $7 billion private-equity buyout, valuing the company at roughly $25 per share - apparently not enough to make Macy's heart go boom like their Thanksgiving Day Parade balloons.

• Despite this decision, and a 165-year legacy as one of America's most recognizable brands (older than sliced bread and just as comforting), the retailer still finds itself in a rather precarious situation.

When Bigger Isn't Always Better: Macy's oversized, physical footprint has caused it to struggle in the digital days of one-click online shopping like a dinosaur trying to use a smartphone. So much so that the company saw its net sales fall 2.7% in the first quarter year-over-year, after dipping in both 2022 and 2023. This has translated to some rather underwhelming share price performance with the stock being down roughly 24% over the past five years. Yet in spite of this, its management team believes the company can turn things around.

• Last fall, Macy's announced that it was cutting down on its mall-based centers in favor of boutique-style shops, which are roughly one-fifth the size of its megastores and offer more luxury items.

• A similar tactic is being used by Nordstrom, Target, Kohl's, and others. It's the retail version of "all the cool kids are doing it." Earlier this year, Macy's announced it would close 150 of its stores, many of which are located in struggling malls.

CONSUMER DISCRETIONARIES

Coffee Prices Rocket Into a Frenzy☕

The Great Coffee Caper: Home espresso machines are starting to look like better investments than gold bars, with coffee prices reaching a level of frenzy that would make a caffeinated squirrel look calm. Everyone's favorite stimulant bean has seen its price rapidly rise, hitting a 15-year high. Robusta futures, the global benchmark for coffee prices, has surged 70% over the past year, now costing $4,800 per tonne.

• We're already witnessing this spillover into UK supermarkets, which have seen a 15% price hike since just last year. Italian coffee company Lavazza has warned of another 25% spike in the coming year.

When the Weather Throws Shade at Your Coffee: Prices of raw materials, known as "input costs", typically need a reason to increase. In the case of coffee, there have been several - it's like Mother Nature decided to play barista and messed up the order. The coffee supply chain is under pressure thanks to changing weather patterns which are having an ever-worsening impact on harvest conditions in the world's largest producing regions such as Brazil, Vietnam, and Colombia.

• And to make matters worse, there's the small matter of distribution disruption with Middle Eastern shipping routes being heavily disrupted by the ongoing conflict in the region, further buoying prices. It's like trying to deliver coffee through an obstacle course designed by a supervillain.

Keep Calm and Caffeine On: Despite these disruptions and price hikes, coffee remains a staple of everyday life in the UK, with 95 million cups being consumed every day. The UK retail coffee market is worth £1.3bn, growing by 3.9% year on year. However, the majority of this growth came from pure price inflation.

MACROECONOMICS

Swatch & Hugo Boss Suffer the Chinese Cold Shoulder🥱

When Luxury Goes Out of Style: It's been widely covered for quite some time now that the Chinese economy isn't running too hot right now. With a real estate bubble popping, the banking sector facing a potential crisis that would make a game of Jenga look stable, and consumer spending looking about as dry as a camel's water bottle in the Sahara. But now that it's earnings season, we're seeing the tangible impact this is having on businesses with international exposure.

Boss Joins the Club: Tuesday morning, we had the German fashion house Hugo Boss ($BOSS) report their quarterly earnings, leading to a 9% plunge in share price after cutting their sales outlook on weakness in the Chinese market. The retailer became the latest high-end fashion line to warn of persistent woes in the luxury sector. The guidance cut is the company's second so far this year, indicating that things appear to be getting worse. At this rate, Hugo Boss might have to rebrand as Hugo Budget.

Time's Not on Their Side: On Monday, Swatch Group AG's ($UHR) shares fell the most in four years after sales and profit plunged amid a China-led slowdown for Swiss watchmakers and other luxury companies. It seems even Father Time is feeling the pinch.

• For some perspective, Swatch Group's brands including Omega, Blancpain and jeweler Harry Winston, reported a 70% drop in operating profit and 14% drop in sales for the first six months of the year, thanks to a dramatic slowdown in the Chinese market.

MORE NEWS

Additional market-moving events🌎

Kaspersky exit: Russian antivirus firm Kaspersky Labs is exiting the U.S. market following a ban on its products by the Biden administration, citing security concerns over Moscow's influence. (BBC)

Disney hack: Disney (DIS) is investigating a potential leak of internal messages by hacking group Nullbulge, which claims to have accessed thousands of communications to protect artists' rights. The leaked data reportedly includes messages about upcoming projects. (BBC)

Stripe Buyout: Stripe’s valuation has edged up to $70 billion as Sequoia Capital offers to buy shares from its investors looking to cash out of the fintech. Sequoia is offering to buy Stripe shares at $27.51 (Bloomberg)

The Holy Land: European cannabis start-ups are looking to US for IPO plans. (FT)

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500. Then on the 12th of June we released our next stock selection.

Here’s how the three stocks have performed since:

• Evolution AB: 1,170.00 SEK (📉-10.85%)

• Hims & Hers Health: $23.11 (📈+59.78%)

• PayPal: $61.94 (📉-2.34%)

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