It’s been a largely positive session for Asia markets, in the aftermath of yesterday’s strong start for European markets, which appears to have reversed some of the damage seen at the end of last week.

The latest Q2 GDP revisions for the Japanese economy showed a contraction of -7.9%, down slightly from -7.8%, with household spending particularly weak at -7.6%.

It’s been a rather mixed open for markets in Europe with the FTSE100 outperforming, helped in some part by some positive earnings updates, though airline stocks are back under pressure after EasyJet cut its capacity outlook for the remainder of the year, due to the various changing government restrictions on travel and quarantines, which has hit its plans to expand its autumn flying schedule.

Unlike a lot of its peers JD Sports Fashion was one of the few retailers that managed to set aside the weak retail outlook with a solid performance in 2019, sending its shares to record highs of 884p in December last year. In the space of four weeks in February and March this all changed as the shares plunged to a low of 275p before finding a base, and rebounding. We have managed to recover most of that lost ground, trading steadily above the 700p, for the last few weeks.

While last year’s full year numbers ended 1st February didn’t cover the period of the shutdown of the UK economy, they did show a rise in revenue of 30% to £6.11bn, helped by an increase in stores across Europe, and the Asia Pacific region, with 52 of those in Europe. Profit before tax also rose 3% to £348.5m, however this year’s outlook is set to look markedly different due to the pandemic.

Stores have now reopened, however footfall has been slow to resume to normal levels, particularly in shopping centre locations, as consumers avoid high density areas.

Despite this today’s first half numbers have seen the shares rise sharply after first half revenues only fell modestly to £2.54bn, from £2.72bn. This is a remarkable performance given the circumstances, though we did see a much steeper fall in pre-tax profits which fell to £41.5m, from £129.9m a year ago. This was largely due to higher costs, while management decided to resume guidance with expectations of a full year profits of at least £265m.

The company also had to take note of the recent decision by the (CMA) Competition and Markets Authority to block its £86m acquisition of Footasylum, despite the brand only accounting for 5% of the retail market. Management have confirmed their intention to appeal the decision while also working with the CMA, in conducting the divestment process.

Last month the CMA upped the ante further fining JD Sports £300,000 for allegedly breaking an order with respect to its ruling on the divestment. With both companies continuing to operate separately Footasylum bosses decided to make plans to close a store in Wolverhampton in contravention of the CMA’s ruling to keep the store portfolio intact.

Putting to one side the rights and wrongs of whether Footasylum bosses were right or wrong in going ahead with their plans to close the store in question, the economic challenges being faced by the retail sector as a result of the pandemic, don’t show the CMA in the best possible light in terms of their competence.

With the retail environment being what it is now, it’s highly unlikely that JD Sports will be able to find a buyer for the business without taking a sizeable loss on any forced sale, assuming of course they can find a buyer for an asset, that to all intents and purposes is now worth a lot less than what was paid for it. The next key date for this is set for September 23rd with the results of a judicial review, set to be announced soon afterwards.

Another retailer that that has managed to ride out the worst of the coronavirus storm has been automotive parts and cycle retailer Halfords. In July the company saw full year revenues rise to £1.155bn, with auto centres providing an 18.8% boost.

The retail part of the business saw a 2.7% decline in revenues, not surprising given lower footfall towards the end of its financial year, however that didn’t prevent underlying profit before tax coming in above expectations at £55.9m, with cycling sales showing a rise of 2.3%, with gross margins improving by 27bps.

In July management also offered three guidance scenarios all offering a lower outlook for its profit estimates. The worst scenario saw profits falling to zero or lower, with net debt rising to £60m, while scenario three saw profits fall to between £10m and £20m and net debt coming in at mid £40m.

The reason for the lower profit estimates, was purely down to a sales mix more geared towards cycling, which is a much lower margin business, and away from its auto centres business.

In terms of current trading cycling has been the outperformer, year to date like for like revenues rising 59.1%, while motoring declining 28.6%, a marked improvement on the 45.4% decline seen at the start, as the sector there returned to growth due to the increase in car journeys, prompting increased sales in batteries, bulbs, and wiper blades, while staycations saw higher sales of roof boxes and roof racks as people holidayed at home.  

As a result, profits are now expected to come in well ahead of the expectations of only a few weeks ago, surpassing its scenario three estimate of July, coming in at £35m-£40m for the first half. While this is much better than expected, management appear to be managing expectations saying that the outlook still remains too uncertain to be confident about the rest of the year. Its also unlikely, with the weather getting colder and wetter, that bicycle sales will be anywhere near as strong as they were in the first part of the year.   

In July, soft drinks and tonic maker Fevertree announced it had seen a solid start to the year. Off trade sales for the 12-week period to June 12th saw a 34% increase year on year, as alcohol consumption amongst consumers went up during lockdown, with the US showing a particularly strong performance. On trade sales were weaker as a result of the various lockdowns closing bars and other licensed premises. This appears to be reflected in today’s first half revenues, which have seen a decline of 11% at £104.2m, and pre-tax profits falling 38% to £21.7m, sending the shares sharply lower. Management appear to be more confident about H2, raising the interim dividend to 5.41p from 5.2p, despite gross margins slipping from 51.9% to 46.8%.

The company also announced the acquisition of Global Drinks Partnership, its sales agent in Germany for €2.6m. In this morning’s first half numbers the company has said it expects full year revenue to come in between £235m and £243m

Meggitt, a key supplier to the aerospace and defence industry has seen its shares rise in early trading despite falling to a first half pre-tax loss of £368m, as the impact of the pandemic on its civil aerospace business continues to weigh on its finances, with various impairments and write downs of £401.8m acting as a drag on the overall numbers.

On the revenue front civil aerospace fell 27%, while defence revenue grew by 7%. The company says it is on track to deliver £400m to £450m in cost savings for the full year with the planned 15% reduction in its global workforce largely complete.       

Builders merchant, and Wickes owner, Travis Perkins latest first half update has seen revenues slide over 20% to £2.78bn, with the company sliding to a loss of £113m, as a result of a £129m adjustment primarily related to the company restructuring program. The demerger of Wickes has been put on hold until further notice, with the shares slipping back in early trading.

The recent negative headlines around the EU/UK trade talks has seen the pound slip back in the last few days, however the declines have been modest and while there appears to be some nervousness about the change of tone from the UK government currency markets still appear relatively stable, suggesting that this is merely more political posturing from both sides.

US markets look set to open higher later today after being closed for the Labour day holiday yesterday, as well as posting their first weekly decline in five weeks, with the main focus likely to be on the return of the US Congress and the ongoing saga of talks between the Democrats and Republicans over a new stimulus fiscal package.

Both sides still remain far apart on coming to any sort of agreement, with last week’s jobs data offering little incentive for either side to give ground on their respective positions of $2.2trn and $1.3trn respectively.

Weekly jobless claims fell to their lowest post level post pandemic of 881k, with the latest August payrolls report showed that 1.37m jobs were added in August, as the unemployment rate fell to 8.4%.

One of the reasons behind last week’s sell off may well have been some nervousness behind the reports that Softbank had been behind the recent surge higher in US tech stocks as it bought up huge exposure to the sector in the form of aggressive bets in the options market. Given its recent track record and the huge losses it racked up in bad bets on starts ups WeWork and Uber, there is perhaps some nervousness that the organisation might well be on the cusp of another risky and perhaps questionable strategic bet.

Tesla shares are also likely to be in focus after the company lost out in being included in the S&P500, last week. Since the $70 lows in March, the shares have run higher hitting a peak of $502 last week, in anticipation of inclusion into the prestigious US benchmark. Friday’s decision not to include the company in the index could see further losses as investors take profits on their long positions.  

Etsy and Teradyne shares were added to the index.