Mixed signals from tech to retail 

• Junk companies issue junk stock

• Macy’s wants to ride the luxury wave

• The iCar is officially dead

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Markets
Junk companies issue junk stock

For years, CFOs primarily turned to debt markets to raise capital, but rising interest rates have prompted a shift towards equity issuance, observed among companies like Campari or Aston Martin. Thanks to rising interest rates and all-time-high stock prices, selling stock has become a no-brainer for poorly rated companies.

• Last month, Davide Campari-Milano NV sold €650 million of shares and convertible bonds to fund its purchase of the Courvoisier cognac brand from Beam Suntory. The company’s net profit declined and net debt increased last year.

• Aston Martin Lagonda, owned by Formula 1 team boss Lawrence Stroll, used the £216 million ($270 million) it raised in July to push into electrification and pay down some of its debt, which carried a 15% interest rate and incurred a “significant interest cost.”

• The parent company of Arc’teryx outdoor apparel, Amer Sports Inc., raised $1.4 billion on the New York Stock Exchange in February to pay down its loans, some of which had interest rates of nearly 8%. S&P rated the company BB, right on the line of speculative-grade junk.

• For companies moving from private to public, IPOs and secondary sales have raised roughly $50 billion this year, up about 8% from last year’s pace, when issuance hit a more-than-decade low. But, there’s no rush for fast-growing startups to look for public capital just yet.

The bottom line:  

Although more existing public companies are issuing stock, the ones that do have speculative credit ratings and would be unable to finance or sell bonds at the required interest rate. And for fast growing startups, a $4 trillion private-equity warchest means going public to raise money could be pushed off for several more years.

Retail
Macy’s wants to ride the luxury wave

Macy’s (NYSE: M) revealed Tuesday that it plans to shut down one third of its 450 stores in order to shift focus to luxury retail through its Bloomingdales and Bluemercury brands. The news the recent appointment of new CEO Tony Spring, who wants to radically change the company.

• In 2020, Macy’s announced a strategic alignment plan called Polaris, which was meant to stabilize profitability and included a plan to close 125 stores.

• The company did not disclose how many employees would be affected, but did project $50 million of employee termination costs for the fiscal year. Many of the closing stores are near other Macy’s locations, which could allow some workers to transfer.

• The strategic shift could also come from increasing activist pressure to turn around after a series of earnings misses. Activist investor Arkhouse Management made a $5.8 billion buyout bid last December.

“The shopper is still under pressure,” said Spring, who had a four-decade career at Bloomingdale’s before taking the helm of its parent company. “Inflation is still up even if it’s not as high as it was. We’re going to have to fight for our fair share and fundamentally reposition the business for growth.”

The bottom line: 

Macy’s, like other mall-based retailers, has struggled with a long-term shift in consumer behavior that favors online and off-mall shopping. Much of the company’s value is tied up in real estate.

It currently operates 481 Macy’s stores, 33 Bloomingdale’s locations and 159 Bluemercury stores across the US. By closing a further 150 Macy’s stores, the company will be able to prioritize investment in the remaining locations and continue to expand small-format, off-mall locations

Other News
Stories we’re thinking about

Hold the olive oil: Olive oil might get even more expensive. Farmers in Puglia, who produce 50% of Italy’s olive oil, are facing an existential threat from olive fruit flies and Xyllela Fastidiosa, a life threatening bacterium that blocks water transport in a tree inducing rapid decline and death. Although the crisis began almost a decade ago, it has reached an unexpected peak and threatens economic ouput beyond anyones projections.

India has arrived: India’s government has officially opened up 100% of its space industries funding to foreign direct investment (FDI). Under Prime Minster Modhi, FDI in India has outpaced FDI in China by a significant margin for the first time in history. India’s infrastructure and technology sectors have benefitted the most, now hosting companies like Apple and Foxconn.

Tech
The iCar is dead

After almost a decade of speculation, Apple has officially canned its EV project, codenamed Titan. Since it began taking shape in 2014, the project has seen several bosses come and go. The new decision marks a significant shift in strategy, with Apple redirecting resources towards its artificial intelligence (AI) division.

• Just three weeks ago, Apple pushed the release of its EV out to 2028 after more technoloy setbacks that significantly limited its autonomous driving capabilities.

• Ending the project will affect some 2,000 jobs. The Apple car team employs several hundred hardware engineers and vehicle designers, a potential boon to Tesla. There will be layoffs, but it’s unclear how many.

• Cracking self-driving technology was a major challenge. Apple had road-tested its system since 2017 using a Lexus SUV exterior. The company also tested more secretive components on a track in Phoenix that was once owned by Chrysler. They just couldn’t do it.

• Despite the setback, investors seemed relieved. Apple stock climbed 1% in after-hours trading Tuesday, indicating potential support for the new commitment to AI.

Apple continues to invest heavily in other areas. The company spent $113 billion on total research and development over the past five years, with an average annual growth rate of about 16%.

The bottom line:  

Electric Vehicle sales growth is slowing in the US and around the world. While sales of plug in hybrids and full electric vehicles grew by 62% in 2022, that shrunk to 21% in 2023. Rivian Automotive (NASDAQ: RIVN) has laid off hundreds of workers after missing several sales targets. Amazon has lost nearly $6 billion on that investment.

As for Apple, there are clearly better things for the tech giant to spend its money on than a softening EV market with high barriers to entry.