EU Wants to Take a Big Tax Bite Out of Apple; Google Takes On Uber. Sort of; Abercrombie & Fitch Teen Ditch

Bite me…

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The EU commission is coming down hard on Apple by slapping the world’s most valuable company with a $14.5 billion bill for back taxes. The EU felt Apple illegally received tax aid in the form of a sweetheart tax deal from Ireland. However, both Apple and Ireland deny that allegation and contend that everything they did was totally legit. More than 700 U.S. companies currently have some type of business set up in Ireland where they enjoy a reduced corporate tax rate compared to that of the U.S. The EU however says that rate is too reduced and says Apple pays much MUCH less than the 12.5% corporate tax rate in the country. Companies can set up tax structures that allow them to pay even less.  EU officials charge that Apple did just that and Apple paid only a .005% rate on its profits in 2014.  I’d love to meet Apple’s accountants who set that one up. Just saying. The U.S treasury isn’t happy about the situation either and feels U.S.firms are being unfairly targeted and that such investigations are unfair. Senator Chuck Schumer even called this latest judgement a “cheap money grab.” Don’t expect to bump into him on your next European vacay. According to the treasury, judgements of this type could undermine U.S. investments in Europe. Starbucks already got hit with a $33 million back-tax deal while Amazon and McDonald’s are currently staring at the wrong end of their own EU investigations. The government believes that U.S. taxpayers will likely bear the brunt of the EU’s very inconvenient decision because Apple would basically deduct the $14.5 billion from taxes that it owes to the U.S. government.

Anything you can do Google can do better…

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Search engine giant, Google, is now offering its own ride-sharing app to San Francisco residents. If you’re thinking Google’s encroaching on Uber and Lyft’s turf then…you might be right. Sort of. Google began a pilot program back in May that allows commuters to carpool at cheaper rates then Uber and Lyft. Much cheaper. In fact, the rates are so cheap – think 54 cents per mile – that there is no incentive to even become a taxi driver. What’s more is that Google doesn’t even take a cut. Yet. By using Waze, which Google acquired back in 2013, commuters connect with other commuters headed in the same direction. Uber, which is currently valued at around $68 billion might begin to take issue with Google’s latest plans, assuming they’ll expand. And they will. Ironically, Google invested $258 million into Uber back in 2013. The situation between the two companies has gotten quite dicey as Google exec David Drummond recently resigned from Uber’s board given all the conflicts that are rising from these latest developments.

Smells like twenty-something spirit…

 

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Abercrombie & Fitch, purveyor of trendy teen clothing, has officially posted its fourteenth straight quarter of losses. The company saw a decline of a 4%, which was more than what was expected. A&F posted a net loss of $13 million, which was a brutal change from last year’s same quarter loss of $810,000. Net sales fell to $783, a far cry from last year’s $818 million. Naturally, as with all bad earnings reports, a tumble in shares ensued, with shares of the trendy retailer taking a 20% hit. Besides a strong dollar, the chain can’t compete with the likes of H&M, Zara and a whole bunch of other clothing sellers. Back in May, the company had predicted an improvement. But that didn’t happen and now A&F isn’t even expecting one in the near future. Which might explain why the company will reshift its focus from teens to bona-fide money making twenty-somethngs who can afford the clothes A&F is selling. Considering that more than 50% of A&F’s customers are adults over the age of 20, this seems like a prudent move. So if you find yourself at one of A&F’s 744 locations – of which 60 of them will be closing –  you might not want to be so quick to walk away as the company attempts to rebrand itself as the “iconic American casual luxury brand.” I don’t know why that just made me think of Harley-Davidson motorcycles. But it did.  The clothing company will be selling clothes for actual grown-ups who once upon a time were the same teens who spent their parents’ hard-earned cash at this very establishment.

 

 

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Twitter’s Attempts to Tweet Out Terror; Wal-Mart Boffo Earnings; EPA Calls Out Harley-Davidson

Tweet this…

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Looks like ISIS is going to have to find itself a new social media platform as Twitter pats itself on the back today after announcing it suspended 235,000 terrorist-related accounts in the last six months. That figure was about double over the previous period and the social media company went to great lengths getting bigger teams to review reports of flagged content on the site on a round the-clock-basis. Better spam detection and language capabilities also helped with the endeavor as the amount of time between content getting flagged and shutting down that content has gone down. But the great effort only really came about after Twitter took a lot of heat for allowing terrorist-related content to gain a big foothold on ISIS’s preferred site. Even the director of the FBI said how “Twitter was a devil on their shoulder” back in 2015. ISIS could have given courses on how to optimize media engagement as the terror organization regularly used Twitter to spread propaganda, recruit fellow murderers, raise funds for their evil ways and publicize its horrific actions. But to be fair, Twitter does have a policy in place prohibiting the promotion of violence and terrorism.  In any case, while Twitter concedes there’s no real “magic algorithm,”  to finding and shutting down terrorist activities on its site, there has been a noticeable drop on Twitter of all things ISIS and other terror-related organizations.

What bad retail landscape?

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It’s good to be Wal-Mart as the largest retailer in all the land posted better than expected results with revenue of $121 billion and a $3.8 billion profit for the second quarter, adding $1.21 per share. Analysts predicted shares would only gain $1.02. That profit was a very welcome 9% increase over last year’s $3.5 billion second quarter profit while the revenue figure beat projections by about $2 billion. If Macy’s Kohl’s and Target are left scratching their heads after their disappointing earnings, perhaps they should take a page or two from Wal-Mart’s playbook. The company made a major push in its e-commerce division, which always helps matters when you’re competing with the likes of Amazon.  Wal-Mart also increased its full year earnings outlook to $4.15- $4.35, up from $4.00 – $4.30. In addition to lower gas prices and warm weather, Wal-Mart brass attribute its great earnings to the boost they gave to employee wages which they think led to better customer experiences. Maybe it did. Maybe it didn’t. But there’s no denying the  company experienced stronger than expected sales growth.

Exhaust-ed…

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Look out VW. There’s a new emissions offender in town. This time the dubious distinction goes to iconic motorcycle maker, Harley-Davidson, who has to pay a $12 million penalty and another $3 million to fund a clean-air project.  The U.S. claims the company violated air pollution laws through its “super-tuner” devices.  These devices, while improving engine performance, also caused the exhaust levels for those engines to increase well beyond what they were allowed. Then there were some 12,682 bikes that were also found to be short of regulatory requirements. Even though Harley-Davidson graciously disagrees with the EPA’s findings, it settled if only to avoid a long-drawn out and very expensive legal battle. As part of the settlement, Harley-Davidson doesn’t even have to admit wrongdoing. After all, who likes to admit when they’re wrong, eh? In any case, the company will cease selling the devices by August 23 and will have to buy back and destroy the devices from the dealerships. Naturally, shares of Harley-Davidson did take an 8% hit following the news of its own emissions scandal, but they recovered relatively quickly. Sort of.

It’s About to Go Down Between Aetna and the Dept. of Justice; Target in Need of Retail Therapy; Barnes and Noble Has a Job Opening. If You Dare.

Put up your dukes…

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And the gloves are off between the Department of Justice and Aetna. Aetna announced it would be reducing its role in the Obamacare exchange, stopping to sell individual insurance, and the Justice Department was apparently warned about such actions last month. You see, because ACA has been costing insurance companies so much money, Aetna wanted to scoop up rival Humana to help absorb costs. But the Justice Department was against the merger over concerns that it would increase prices for consumers and limit competition – your typical antitrust concerns. In a letter to the Justice Department dated July 5, Aetna CEO Mark Bertolini made it abundantly clear that Aetna  would drop out of the Obamacare exchange if the merger did not go his way. It didn’t. And so here we are. Aetna crticics have cried extortion and threats. Aetna , however, calls it a strategic business decision after eating a $200 million loss in its second quarter. Insurers feel that mergers alleviate the enormous costs brought on by Obamacare. They argue that Obamacare has put a major dent in their economics and the government is not holding up its end of the bargain to help mitigate the situation.

Buyer’s remorse…

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Target has missed its target in what the company called a “difficult retail environment.” Well, for Target anyway. The sixth largest retailer cut its full-year fiscal profit after quarterly sales fell more than expected. One of the culprits was a smaller demand for its tech offerings, specifically Apple products. Of course, it’s to be expected that the company is constantly losing ground to Amazon. After all, who isn’t? The company has also been making a push to redo its grocery division by bringing in more organics, gourmet and healthful offerings. That endeavor hasn’t quite hits its stride. And that’s a problem since Target’s grocery division accounts for a fifth of the company’s revenue. Target did turn up a profit of $680 million. Too bad it was a 10% decrease over the same time last year. Sales were down 7.2% to $16.2 billion which was almost on par with estimates. CEO Brian Cornell griped that customer visits went down and now expects a profit range of $4.80 – $5.20, when before it was between $5.20 – $5.40.  It seems his turnaround plan is taking a bit longer to actually um,…turn. In other Target developments, to address its transgender-bathroom policy, the retailer is plunking down $20 million to install single stall bathrooms to its remaining stores that don’t already have them.

Buh-bye…

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Shelve this one under history as Barnes and Noble booted its CEO Ronald D. Boire. The bookseller felt the exec, who had the job for not quite a year, was “not a good fit.” However, to be fair, he did previously fit in at Brookstone, Best Buy, Sony and Sears Canada. Executive chairman  Leonard Riggio will take over until a more permanent replacement can be found and Riggio can finally begin his much-anticipated retirement.  The board said of Boire’s untimely departure that the decision was in “best interest of all parties for him to leave the company.” Ouch. In B&N’s most recent quarter – under Boire – the company took in $876.6 million. Impressive, right? Wrong. B&N took in $910 million the year before. It also lost $30.6 million, far more than the $19.6 million it lost during the same time last year. As efforts to trim costs and turn the company around have yet to yield any meaningful results, shares of the company have also managed to tank to its lowest price in eight months. While B&N has 640 stores dotting the planet, it is still losing ground to that animal we call Amazon. And once again, who isn’t?

 

Aetna Becomes Obamacare Dropout; Warren Buffet Takes a Big Bite Out of (the) Apple; TJX: Don’t Discount the Discounter

See ya!

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In case it wasn’t entirely clear how some big insurance companies feel about Obamacare, perhaps Aetna might shed some light for you. The healthcare insurer is dropping out of the exchange in 69% of its counties. It’s dropping out of 11 of 15 states after eating $200 million in pre-tax losses during its 2Q. Of the 838,000 Affordable Care Act policies it has, 20% will be adversely affected. Aetna, which is the nation’s third largest insurer, isn’t the first health insurance company to do this. United Healthcare Group already dropped out of Obamacare exchanges and as did Kaiser, with more expected to follow. Whichever side you fall on in terms of the Obamacare debate matters not. It’s arithmetic that’s at play here. Aetna argues that they were losing big money to make the Obamacare policies work. Not enough healthy people were signing up and too many unhealthy people were. The premiums that healthy folks pay were/are intended to offset the large cost of the the unhealthy. Unfortunatey, things didn’t work out that way. The Departement of Health and Human Services was supposed to figure out ways to fix that issue. While its says it did, insurers say it didn’t – or at least, not enough. If you’re really bent on having Aetna insure you and your state’s just been dropped by it, you might want to consider moving to Delaware, Iowa, Nebraska and Virginia. Those states will still be offering policies from Aetna in 2017. Well, at least for now they will be.

Well, if Warren Buffet’s Doing it…

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Berkshire Hathaway’s very own oracle is taking a much bigger chunk out of the not-so-proverbial apple – the one based in Cupertino, that is. Warren Buffet upped his stake in the tech company by a substantial 55%. That’s in direct contrast to his fellow billionaire’s recent actions. George Soros just chucked his Apple stake out the window over concerns in China, or rather concerns about China’s policies regarding the iPhone maker. However, there’s a chance he’ll re-invest down the road. Activist investor billionaire Carl Icahn also ditched his Apple shares back in June. When he did this, shares of Apple had taken a slight dip, at which point Warren Buffet swooped in and increased his stake. Now his total stake of 15. 2 million shares is valued at about $1.7 billion. Shares of Apple, by the way, are up 14% since June. Incidentally, Wal-Mart didn’t fare so well as far as Berkshire Hathaway’s portfolio is concerned. The Oracle of Omaha cut Berkshire Hathaway’s stake in the world’s largest retailer by 27%, keeping it at just over 40.2 million shares. But Warren Buffet has had Wal-Mart in its portfolio a decade now and while his stake might be reduced, it’s probably still not going anywhere. For now. Curious what else Berkshire Hathaway has sitting in its very lucrative portfolio? Coca Cola, American Express, Johnson & Johnson, Kraft Heinz, Wells Fargo…to name but a few.

Who you calling off-price?

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Macy’s and friends might be bemoaning the state of the retail landscape. But they won’t get much sympathy from discount retailers T.J. Maxx. Its parent company TJX Cos came out with its second quarter sales results that had the retailer beating predictions.  But all was not perfect from the company that also owns Marshall’s and HomeGoods. It put out a bit of a bleaker picture for its third quarter that caused shares to fall today, despite its stellar performance.  In all fairness, that depressing and most unimpressive outlook is primarily because TJX Cos is waging war against a strong dollar. Besides, the company is giving out wage increases, so its hard to be mad at a company whose fiscal prowess is taking a hit for a very noble cause. There is even a silver lining – the company is turning out to be a big draw, luring shoppers away from malls with its deeply discounted merchandise on major name brands. Profit for TJX Cos was $562.2 million with 84 cents added to shares, while analysts only predicted 80 cents per share.  A year ago at this time, the company picked up $549.3 million with 80 cents added to shares. The stock is up 17% since January.

 

Macy’s Banks on Closures; Alibaba’s Boffo Quarter; Unvaliant Valeant

Winning…

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Shares of Macy’s soared today as investors gleefully cheered the retailer’s decision to close 15% of the company’s 728 stores. Presumably not as gleeful are the employees who work in those stores. While the locations of the closures have not been announced, many of those employees will be given a severance, provided they qualify, or be given the option to relocate. The stores to be shuttered have been costing an annual  $1 billion in annual sales. And in the face of online competition, that $1 billion could be put to better use like beefing up Macy’s e-commerce and finding bigger and better ways to further improve the better-performing stores. With Macy’s looking to invest in a “winning customer experience,” the company plans to bring in more brand shops and host a slew of in-store events that will hopefully drive traffic into the stores. Macy’s 2Q results saw sales fall about 4% to almost $6 billion in revenue with 54 cents added per share. To be fair, it did beat expectations of $5.8 billion in revenue with 45 cents added per share. But a strong dollar, off-price stores, bad-weather and less tourism didn’t help matters. Don’t knock the tourist angle; those visitors account for 5% of Macy’s annual sales.

More winning…

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China’s economy might be struggling but you’d never know it judging from Alibaba’s most recent earnings. The e-commerce giant posted its best revenue growth since its auspicious IPO back in 2014. Revenue grew a mind-blowing 59% from the same time last year to…wait for it…$4.8 billion. That impressive revenue figure was even more impressive if only because more money was made from mobile shopping than from PC’s. Talk about seismic shifts. Interestingly enough, the value of the goods it sells, aka gross merchandise value, only grew by about 24%. And like all good earnings reports, shares went up today on Wall Street. Profit for the e-commerce giant came in at $1.3 billion, a 71% increase over last year, with 74 cents added per share. Analysts only expected shares to increase by 63 cents. Monthly active users increased by 39% from the same time last year. It’s not just that the amount of monthly active users went up, but also that the average Alibaba user opens the app approximately seven times per day. Which probably explains why they account for 75% of the company’s sales.

There’s a fungus among us…

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There’s nothing like a criminal probe to completely throw your shares under the fiscal bus.  Today’s probe is brought to us by Valeant Pharmaceuticals, purveyor of everybody’s favorite toe-nail fungus treatment, Jublia. The burning question is whether Valeant had a very special relationship with a specialty pharmacy that helped inflate its drug prices. The specialty pharmacy at the heart of the probe is, or rather was, Pennsylvania-based Philidor Rx Services. Investigators suspect the mail-order pharmacy and Valeant were a little too close for comfort as far as insurance and wire fraud is concerned. It seems that Philidor wasn’t being entirely truthful to insurers about its relationship with Valeant so that it could sell lots of Valeant drugs at prices that seemed rather high. Distributors, in this case Philidor, are supposed to be completely neutral, yet Philidor seemed anything but, with almost all of its products that it sold coming from Valeant.  These days, however, Valeant (conveniently) says it didn’t condone Philidor’s practices. Valeant naturally neglected to mention the very large role it played in those practices. Incidentally, sales of Valeant dermatological products plunged since Philidor went the way of the dinosaur and now Valeant is staring in the face of $30 billion of long-term debt and a market value that plunged by 90% in the last twelve months. As criminal charges loom large, brass at Valeant have booted CEO Michael Pearson and overhauled the board of directors in a  seemingly desperate bid to restore investor confidence. Good luck with that one.

Michael Kors Department Store Diss; Disney Swims to Great 3Q; Ralph Lauren Hits and Misses and Hits

More bag for your buck…

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Michael Kors is biting back at the hand that feeds it: department stores. The accessories company is blaming them for its recent losses, fed up with the constant discounts department stores are putting on Michael Kors merchandise. In case you haven’t noticed there is nary a moment when Michael Kors products are not discounted. I dare you to prove that one wrong. The fact that consumers can use coupons for Michael Kors products? Ugh. Don’t even get them started. In fact, CEO John Idol is putting the kibosh on them and also chucking those friends and family discounts. Michael Kors reported a 7% drop in its first quarter wholesale business and is planning on shipping less merchandise to the stores in an attempt to reclaim some much-needed pricing power. Michael Kors feels that consumers forgot the value of its products. Seems like a prudent move considering that Macy’s, in particular, brings in the largest chunk of wholesale revenue for Michael Kors.  In any case, it’s a strategy that Coach also is beginning to employ, except that Coach also plans to pull out of about 250 stores completely. Earnings came in at $147 million and 88 cents a share on $988 million in revenue. That was a slight change from last year’s $174 million and 87 cents on $986 million. The fact that mall traffic and tourism were down didn’t help matters. Even same stores sales took a 7.4% hit, which was especially brutal since analysts only predicted a 4.2% decline. Still, analysts expected 74 cents on $953 million in revenue, so the earnings weren’t all that bleak in the first place.

It’s Dory’s world after all…

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Disney posted impressive earnings throwing a big shout out to its studio division, who cranked out the incredibly endearing and ridiculously, lucratively marketable “Finding Dory.” Okay, so marine life wasn’t the only reason since “The Jungle Book “and “Captain America: Civil War “also contributed to that success. Just not as much. Not nearly as much. In any case,  Disney particularly relished those 3Q earnings considering that its 2Q earrings missed the mark while this quarter it took in $1.62 per share, beating estimates by one penny. But not everything was coming up roses and clown fish at Disney, all because of ESPN and a future for it that looks more bleak than bright. Taking a beating from “cord-cutting” consumers who are giving the heave-ho to cable subscriptions and bundles, ESPN is, not surprisingly, rapidly losing subscribers. The network signed a $1 billion deal with BAMTech to find a way for ESPN to bring “direct-to-consumer ESPN-branded, multi-sports subscription streaming service.” Two words, ESPN: blue tang.

No medals for you…

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Even Michael Phelps couldn’t help win this one. Of course  I am referring to Ralph Lauren’s recent earnings that had the luxury brand posting a 7% sales loss. Ralph Lauren reported a loss of $22 million with 27 cents per share. That’s a far cry form last year when the company took in a profit of $64 million and 73 cents added per share. Revenue, which came in at $1.55 billion, took a hit, but analysts expected that hit to be closer to $1.77 billion so complaining wasn’t necessary. Shares still went up today so clearly these losses have done little to spook investors. That’s because those losses were expected as part of a strategic comeback plan engineered by Ralph Lauren CEO Stefan Larsson, who took over back in November. His grand plan also includes reducing turnaround times from design to shelves and to focus on Ralph Lauren’s core brands – initiatives that he thinks will generate roughly $180 million to $220 million in annual savings. That and closing about 50 stores should have Ralph Lauren returning to its fiscal glory in no time.