Costco’s Credit Chaos; Macy’s Switches it Up with New Chief; VW’s Writing Checks

Not to their credit…

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So much for a seamless transition of the Costco Anywhere Visa cards. The club-retailer started accepting the card this week, after ending its 16 year relationship with American Express, and there has been no shortage of chaos. While American Express enjoys a hearty laugh over this new credit card debacle,  Costco customers have been flocking to Facebook to rage against Coscto and its Citigroup credit card. Since Monday, Citigroup has been flooded with phone calls from 1.5 million disgruntled callers whose issues included problems activating accounts, lengthy wait times to speak to a living human breathing customer service representative and even difficulty trying to pay off existing balances. I mean seriously, when was the last time you had a hard time getting someone to take money from you. Costco has over 80 million members worldwide and eleven million of them applied for this new card. Those cards were supposed to have arrived back in May. Unfortunately many didn’t. The card offers a generous cash-back program and has no annual fee and, which was the bone of contention between Amex and Costco, that ultimately put the kibosh on the relationship. About 25% of Costco shoppers used Amex cards for their purchases and Amex took a 6% fee that cost the retailer $180 million. Citigroup is the biggest credit card lender in the world and analysts think the new partnership is a great idea to cut down on costs. Visa’s fees will be considerably smaller, costing Costco somewhere between $60 million and $150 million. Which is great news, as long as you’re not standing on line right now trying to make a purchase with the store’s new Visa card.

Miracle on 34th Street?

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Long-time Macy’s CEO Terry Lundgren is getting set to bid a long and fond farewell to the department store he helmed for the last 14 years. While he still gets to remain chairman, succeeding him officially in 2017 will be Macy’s president and former Chief Merchandising Officer, Jeff Gennette. Lundgren might be a bit sad but Wall Street sure isn’t. Investors sent shares up on the news, which is especially reassuring since shares have gone down in value more than 50% in the last twelve months. To be fair, Lundgren’s contributions were nothing short of impressive. He made Macy’s the largest department store chain in the United States, among other shining achievements. But the time has come for a changing of the retail guard as Macy’s got hit with five straight quarters of same-store losses and its first quarter results were the worst they’ve ever been since 2008. That last bit caused a bit of panic in the retail sector as other big retailers worried that these results signaled an industry-wide problem. Some experts, me not being one of them, are convinced that Macy’s doesn’t have the chops, yet anyway, to compete with the likes of the Amazons, H&M’s and Zaras of the world. (Not that H&M’s recent results were all that impressive). With a strong dollar and falling sales, Macy’s had to close about 40 stores and cut thousands of jobs. As for Gennette, one source said, “He is going to make the radical changes” which sounds awfully ominous, but in fact, entails, at least in part, setting up an off-price store called Macy’s Backstage and making online shopping enhancements, which seem to be all the rage.

Farfegnugen…

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It’s official. Sort of. Volkswagen will cough up a settlement of about $10.3 billion to settle claims that it rigged emissions tests on some of its models. Part of the settlement includes offers to buy back about 500,000 odious vehicles which emit 40 times the allowable amount of nitrogen oxide into the air we breathe. By the way, VW is not expected, by the EPA anyway, to repair all of the offending vehicles. Some owners will receive as much as $7,000 in compensation. There’s a joke in there somewhere. Also, VW must set aside money for green energy projects besides establishing programs whose focus is to offset diesel pollution. Talk about karma. Both Volkswagen and the EPA declined to comment on the settlement, which I suppose is to be expected. This settlement is completely separate from other lawsuits suits filed by other U.S. states and is also separate from the Justice Department’s own criminal investigation into the matter. So it seems as though things are anything but settled for Volkswagen.

McDonald’s Turnaround Plan Needs Salt; Warren Buffet Likes His Sugar; Chevy Volt Wants to Electrify

Would you like to supersize that?

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Image courtesy of pakorn/FreeDigitalPhotos.net

McDonald’s CEO Steve Easterbrook finally revealed to all who were maybe mildly interested about his big plan is to steer McDonald’s back towards fiscal awesomeness, all in the course of a 23 minute video. The world’s biggest burger chain wants to re-franchise 3,500 of its stores. Because franchising offers “stable and predictable cash flow” from collecting fees, it will supposedly save the company about $300 million a year.  And who doesn’t like saving $300 million. Then, Easterbrook wants to make the company’s corporate structure and bureaucracy less “cumbersome” by dividing the company up into four neat little parts. Well, maybe not little. But certainly neater.  The first part is all about U.S. stores. International markets like, Australia and the U.K make up part number two. The third part is labeled high growth markets  – think China and Russia. Then, all those other countries in the world make up the fourth group.  Of course, no master revival plan would be complete without incorporating a customer-focused approach and the ever-menacing prospect of…accountability. But hey whatever works. And something needs to after the company posted a 2.3% drop in sales and revenue that was way too short of its target. Despite detailing this new plan Mc Donald’s couldn’t get Wall Street excited enough to send shares up, even a little.

Enjoy a Coke with Warren Buffet…

Image courtesy of tiverylucky/FreeDigitalPhotos.net

Image courtesy of tiverylucky/FreeDigitalPhotos.net

In case you couldn’t make it to the the Berkshire Hathaway shareholders meeting this weekend, also known as Woodstock for Capitalists, here are but a few of the pearls from that auspicious event. Wells Fargo, Coke, IBM and AmEx rock, at least according to the Oracle of Omaha. Mr. Buffet clearly knows a thing or two of what he speaks since his company has a market value of a staggering $350 billion. When he discussed Coca Cola and the $16 billion stake his company owns in it, the debate about the adverse health effects of sugar didn’t seem to concern him. He feels that people enjoy Coke and thus, it apparently makes them happy. Unlike Whole Foods, which he said, “I don’t see smiles on the faces of people at Whole Foods.” No doubt Whole Foods was not happy about that comment. He was also asked about his involvement with 3G Capital with whom he is now buying Kraft Foods. People have taken issue with 3G over its practice of buying companies and then laying off many of its employees. Mr. Buffet, however, said, “I don’t know of any company that has a policy that says we’re going to have a lot more people than they need.”  How charming. As for naming a successor, well, he didn’t.

Low-voltage…

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Image courtesy of Danilo Rizzuti/FreeDigitalPhotos.net

Even though gas prices are pretty low, making gas-guzzling SUV’s that much more appealing, that’s not stopping car companies, like GM, from parading out its latest eco-friendly models. The 2016 Chevy Volt model is making its debut and what is supposed to be so electrifying about it is that it’ll be around $1,500 less than the 2015 model. It’ll also get 30% more mileage from a single charge than the 2015 model. It’s a bit redesigned and there’s even a $7,500 federal income tax credit. But to be fair, it’s not a fully electric vehicle because if you find yourself coasting along  the highway – or any road, for that matter – and the battery juice runs out, the Volt becomes just another regular gas guzzler.  If that doesn’t bother you – and why should it – then consider that Chevy is offering 0% financing for 72 months for qualified buyers. Unqualified buyers should take the bus. California’s even offering a $1,500 rebate which pretty much means that GM doesn’t think there’s going to be a waiting list for this particular automobile. Because let’s face it, a Tesla it’s not.

AmEx Wants to Know What Your Loyalty is Worth; How Do You Say Opel-ease in Russian?; FedEx’s Hit and Miss

Where’s your loyalty?

Image courtesy of Stuart Miles/FreeDigitalPhotos.net

Image courtesy of Stuart Miles/FreeDigitalPhotos.net

Maybe membership does still have its privileges. AmEx is trying to make a comeback following its breakup with powerhouse retailer, Costco, and rumors of an impending break-up with JetBlue. To soothe it’s broken fiscal heart, the company is making plans to offer a rewards program called “Plenti.” Catchy, huh? Joining forces with Macy’s, Exxon, RiteAid, AT&T and a few other companies, AmEx is offering a loyalty program where American consumers get to cash in points earned on their AmEx cards, and then redeem the points at these retailers. I say Americans, because AmEx already has loyalty programs in other parts of the world, including Germany and Italy. Fill up your car at Exxon and then run over to Macy’s and buy yourself a shirt. Or some vitamins at RiteAid. Or insurance. Yes, I did say insurance since Nationwide Insurers is one of the partners. As is Hulu. Cool, huh? . Noticeably absent from the list of participants is a national grocer and home improvement retailer. But fear not, oh faithful spender, as rumor has it those slots are just about to be filled. If you’re wondering how AmEx benefits, it’s simple: AmEx gets a fee from its partners-in-retail. Clever indeed.

No more vroom…

Image courtesy of Stuart Miles/FreeDigitalPhotos.net

Image courtesy of Stuart Miles/FreeDigitalPhotos.net

GM is coming to a screeching halt in Russia after taking a 74% hit in sales there with an 86% hit on its Opel brand alone. Hence, GM has put the kibosh on Opel production altogether and will be drastically slowing down production on its Chevy lines, chalking it all up to a $600 million loss. The collapsed ruble and dropping oil prices have dealt a major blow to the Russian economy, with car sales especially down 38%. So GM decided to make a run for it. However, if you find yourself in Russia and jonesing for a Corvette, then no worries. Because Corvettes are imported, they will still be making their way into the country, together with Tahoes and Camaros. Can’t you just picture Putin cruising the Kremlin in a Camaro? Oddly enough, or not, the automobile company is still looking to up its Cadillac game in Russia. The luxury auto has yet to catch up to the popularity of European automobiles BMW and Audi. Tragically, only 72 of them have been sold in Russia in the first two months of the year.

Special delivery…

Image courtesy of David Castillo Dominici/FreeDigitalPhotos.net

Image courtesy of David Castillo Dominici/FreeDigitalPhotos.net

FedEx released its earnings report, regaling Wall Street and the world with news of its prosperous third quarter. One of the fiscal highlights was the $11.7 billion in revenue the company took in. Not a major difference than what experts forecasted, and a modest 4% gain over last year, but the number did hit its target so nobody was necessarily complaining on that front. The big exciting numbers, though, came courtesy of FedEx’s impressive profits. At $580 million and $2.01 per share, the company’s net income was a whopping 63% higher than last year at this time. Analysts only predicted a profit of $1.88. It’s kind of nice when analysts are wrong. Just saying. And for that very impressive feat, FedEx can thank low fuel prices. Of course there were a few other reasons too, but fuel could definitely be crowned the star of this one. But then its shares took a bit of dip today on the news of its less than impressive outlook. The company expects to pull in between $8.80 – $8.95 per share for the year but analysts much prefer to see $8.98 per share. FedEx’s performance tends to hint to Wall Street what we can expect from our fickle economy. So if FedEx is feeling a bit too fiscally modest and only moderately ambitious, it makes The Street a little edgy.

Nasdaq’s Getting Crafty; Costco’s Earnings Knock it Out of the Warehouse; Labor Market Laboring

How crafty…

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Image courtesy of sattva/FreeDigitalPhotos.net

Etsy is looking to join the big kids on Wall Street. The online marketplace for all things crafty is looking to score $100 million for its IPO but that number could go much much higher. Brooklyn-based, Etsy, which would trade on Nasdaq under the ticker symbol ETSY (catchy, no?) was founded in 2005 and by 2014 it pulled in $195 million in revenue, a 56% increase over the previous year. Half of that revenue, though, comes from transaction fees. Plenty of that revenue also comes from the services it sells to its sellers, which are basically, payment processing, shipping labels and promoted listings. Impressive numbers definitely, but the company is spooking investors since it also took in a $15 million net loss last year and expects its operating expenses to “increase substantially.” Yikes. So yeah, that little tidbit puts a damper on things. Etsy currently has about 1.4 million sellers with close to 20 million buyers.

Are you even surprised?

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Image courtesy of photoraidz/FreeDigitalPhotos.net

Costco came out with its quarterly earnings, easily topping analysts’ predictions and if that is at all shocking to you then clearly you have never stepped foot inside one of its 671 warehouses dotting the world. News of the good earnings sent shares rising today 2.5% and why shouldn’t it? The stock went up 30% during 2014 and is already up 10% this year. And while the strong dollar has been playing some nasty little fiscal tricks with its earnings, the third largest retailer still managed to nail $598 million in profit at $1.35 a share on $27.5 billion in revenue. Analysts were only expecting $1.18 on $27.65 billion in revenue. It should be duly noted that some of that profit came courtesy of a $57 million tax benefit over a special dividend from last month. But it should also be duly noted that same store sales were up 2% and sales up 8%. These earnings come on the heels of Coscto’s AmEx breakup and its new contracts with Citigroup and Visa. Now it even has plans to sell a Kirkland Signature Chevrolet truck – a particularly handy vehicle for your average Costco run.

LinkedOut…

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Image courtesy of winnond/FreeDigitalPhotos.net

For some not-so-pleasant news on the labor market we look no further than the Labor Department who just shared with us that the number of people seeking jobless claims for the first time rose to a seasonally adjusted 320,000 for the week ending February 28, adding an unwitting 7,000 applicants. That leaves us with close to 2.5 million people getting jobless benefits and that’s the highest number it’s been since May. Analysts actually expected that number to fall to under 300,000. Some people might even be wondering, “Hmmm. What seems to be going on with this fickle little job market of ours?” Excellent question. Naturally weather always makes a good scapegoat for this sort of thing. But otherwise, the Labor Department couldn’t really pinpoint any one reason why that offensive number reared its ugly unwanted head once again. Last week, that number also rose instead of going back down to a cozy semi-acceptable spot below the 300,000 mark. Experts were hoping that it was just a little labor market hiccup that would correct itself by this week. It didn’t.

Are You There Shareholders? It’s Me, Warren (2015); Forbes’ Magazine Names the A-Listers; Costco: AmEx Out, Visa and Citi In

Best Regards, Warren…

Image courtesy of  Boians Cho Joo Young/FreeDigitalPhotos.net

Image courtesy of Boians Cho Joo Young/FreeDigitalPhotos.net

Warren Buffet’s annual letter to Berkshire Hathaway shareholders arrived over the weekend, regaling us –  I meant them – with so many insights and wisdom about the economy and the ways of the investment Samurai. Among the many pearls, Mr. Buffet wanted to let folks know that “America’s best days lie ahead.” Things might have been a bit shaky the last few years, but darn be the naysayers  and things can and will only get better. Mr. Buffet also wished to remind people that “Market forecasters will fill your ear but will never fill your wallet.” Aw, Warren. There’s something very moving about the way the Oracle of Omaha advises people that all these financial experts surrounding us are good for nothing. He also offered some poetic words regarding his failed investment in British supermarket chain, Tesco: “In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.” The venture ultimately cost him a whopping $400 million and the Oracle attributes the loss, to among other things, not being decisive and fast enough about pulling out of the investment. Meanwhile, during an interview on CNBC, Warren Buffet said Sen. Elizabeth Warren (D-Massachusetts) should be “less angry and demonizing” and should be more open to compromise. Ouch. I guess those two won’t be hanging out together anytime soon.

Speaking of Warren…

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Image courtesy of iosphere/FreeDigitalPhotos.net

Omaha’s most famous resident made it to the number 3 spot on Forbes’ list of billionaires. Microsoft’s Bill Gates claims the top spot – again –  with a net worth of $79.2 billion while Mexico’s Carlos Helu Slim comes in for second. There are 1,826 billionaires on the list who have a combined total net worth of $7.05 trillion. However, the average net worth of the billionaires is actually down by $60 million this year to $3.86 billion. I know, how sad.  Seventy-one of those billionaires are breaking onto the list of the very first time. Among those first-timers is basketball great Michael Jordan who makes his big billionaire list debut this year with a little help from having increased his ownership stake in the Charlotte Hornets. But his restaurants, deals with Nike, Gatorade, Hanes, etc…allow him to claim the 1,741st spot with a net worth of about $1 billion. Forty-six of the billionaires are under the age of 40 with Snapchat’s Evan Spiegel having the distinction of being the youngest billionaire on the list.

Well hello, pardner…

Image courtesy of stock images/FreeDigitalPhotos.net

Image courtesy of stock images/FreeDigitalPhotos.net

Club goers rejoice! Costco has officially entered into agreements with Citigroup and Visa to become the wholesaler’s partner in credit. In the meantime, the retailer is bidding a not-so-fond farewell to American Express, who for the last 16 years had an exclusive deal with the chain. Citigroup will be putting out a Costco/Citi credit card with perks and generous rewards aplenty, in keeping with the Costco spirit, of course. Unfortunately, Costco shoppers must wait until April of 2016 to whip out the new plastic. However, debit cards know no bounds – or labels – and those will continue to be warmly accepted regardless of the issuer, at Costco’s 674 warehouses worldwide. And while AmEx is expecting to take some type of beating on Wall Street for the next two years, shares of Visa hit an all-time high today over this very exciting fiscal news.