VW Still Writing Checks for its Bad Behavior; Lululemon’s Sour Outlook; Economy Shows Some Impressive Muscle

Putting this baby to bed…

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Looks like Volkswagen will be handing over $157 million to ten U.S. states to settle environmental claims over the auto company’s notorious diesel emissions scandal. Among the lucky – if you can call it that – recipients of these funds are New York, which snagged $32.5 million, Connecticut which took in $20 million, Massachusetts, Pennsylvania, Delaware, Maine, Rhode Island, Oregon, Vermont and Washington, which all took in various amounts of the remaining settlement.  Incidentally, that $157 million was well below what the states originally sought. There was already a previous $603 million settlement with 44 other states, but this latest one is separate from that. In fact, the German car company has agreed to spend up to $25 billion to settle claims and make buyback offers. Just wondering if that means it will actually hit that figure or will the company try and do their best to come in as under as possible.  As part of this latest ten-state settlement, VW now has to offer three new electric vehicles in those states. Two of those vehicles need to be SUV’s. Which to me, looks like a bit of a win for VW, but hey, what do I know. In the meantime, as part of a $4.3 billion settlement with the Department of Justice, VW pleaded guilty to fraud, obstruction of justice and falsifying of documents in a district court in Detroit earlier this month. The company can also look forward to major audits, oversight and monitoring for the next three years. Sort of like what Wells Fargo has to go through as payback for its fraudulent account scandal. Am I seeing a pattern?

Soured…

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Fancy trendy yoga apparel maker Lululemon was upsetting Wall Street’s zen today after announcing that its first quarter sales marked a “slow start” to the year. Which is  really just CEO code for “Yikes! Our quarter sucked.” And with that news, shares of the company took a very ugly 23% plunge to $51 a pop, a stock price the company hasn’t seen since December of 2015. This news was especially weird because Lululemon did better in holiday sales than most other clothing retailers. Yet now, this quarter now becomes the very first one in seven years to see same store sales go down. The company took in almost $790 in revenue with a $136 million profit that added 99 cents per share, even though analysts were expecting that figure to be closer to $784 million with a $1.01 profit per share. Last year at this time the company made off with a $117 million profit that added 85 cents per share. Competition from Nike and Under Armour definitely turned up the heat on the super-pricey Lululemon, with their vast offerings and more affordable selections. But CEO Laurent Potdevin blamed the company’s neutral offerings instead, arguing that they lacked  “depth and color for spring” that consumers are apparently craving. That’s got to be it, right?

Yes, you need to know this…

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There was a lot of spending this quarter. A lot. In fact, consumer spending was so strong that it caused the economy’s GDP to grow at a 2.1% rate, more than what was thought in initial estimates. In the process, that impressive growth rate even made up for areas of the economy that didn’t perform up to snuff, like trade and business investing. In fact, for all of 2017, analysts are actually expecting to see a 2.3% rate of growth. Of course, the fact that the labor market is strong, with higher incomes and wages, helps with all that consumer spending as well. Naturally. That 2.1% rate is a major upward shift from last year at this time when that rate stood at 1.6% and had the dubious distinction of being the weakest period of growth in five years. This next bit may cause you to cringe, but one of the reasons for this anticipated impressive growth rate is President Trump. He’s got plans, in case you hadn’t heard, for tax cuts and spending. Say what you will, but moves like that help economies. And who doesn’t like a little economic boost.  However, if it makes you feel any better, Trump thinks he can get that rate up to 4%, and economists are laughing on the inside at him for even thinking he can pull off that feat.

VW’s China Redemption; Fitbit Numbers Way too Skinny; Deal Drama: Walgreens/RiteAid vs. Regulators

Emissions Scandal? What Emissions Scandal?

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Volkswagen is in the news yet again. And this time it has nothing to do with poisoning the air we breathe. I know. Hard to believe, right? VW is making headlines because it has been crowned the world’s largest automaker, easily besting Toyota, after reporting that it shipped 10.3 million cars in 2016, a 3.5% increase from the year before. Toyota only managed to sell about 10.2 million cars, giving it just a .2% boost over the previous year. T’was a brutal blow dealt to Toyota’s ego – not that it’ll never admit it – since the Japanese automaker held that top spot for seven out of the last eight years.  Toyota says it’s not concerned with being in in the number one spot as long as it’s making good cars.  Toyota definitely makes good cars but I doubt anybody would believe that it’s not itching to reclaim the top spot next year. So what part of this great big planet was scooping up all those VW’s that helped the German automaker earn this dubious distinction? It certainly could not have been in the United States, where the car company isn’t exactly popular following “diesel-gate” and the on-going saga we call the “emissions scandal.”  Well, look no further than China, which stands as the primary reason for VW’s fiscally historic achievement, despite the negative sentiment against it in the rest of the world. It’s not that China is a smog-loving country filled with emission worshippers. However, it must have helped that VW sold almost no diesel cars to the country. Which probably explains the country’s on-going enthusiasm for Volkswagen. The Chinese just really dig VW’s. And in case you were wondering, GM rounded out the third spot. In fact, GM used to regularly claim the top spot, but along came 2008 and burst that bubble when the US carmaker faced the wrong end of bankruptcy and a federal bailout.

Fit to be tied…

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Fitbit is looking anything but fit these days as the company released a preliminary earnings report, ahead of its February date, showing that the hype for its wearable devices is wearing…thin. For the full year Fitbit expects to pull down revenue for 2017 between $1.5 and $1.7 billion, and is expecting a reorganization to cost approximately $4 million. That reorganization, by the way, involves getting rid of about 110 jobs, or roughly 6% of its workforce. The company has been struggling to find ways to keep sales momentum for the wearable device. CEO James Park is hoping to turn Fitbit into a bona fide digital health company. And that’s a noble endeavor, indeed. However, that plan could literally take years that Fitbit may not have.  The company had slashed forecasts for the holiday season, but a move like that never ever bodes well. Competition from Apple, not to mention companies offering cheaper alternatives, have put a major damper on Fitbit’s sales, with 6.5 million devices sold during the fiscally critical holiday season. Apparently, that number just wasn’t good enough and the data only gets worse. Fitbit is reporting estimated revenue of between $572 million to $580 million. While that number might seem respectable, it’s actually disastrous, if only because the company had initially predicted that it would pull down as much as $750 million in revenue, with analysts forecasting $736 million. As for growth, Fitbit can now expect that figure to come in at around 17%, when initial expectations had been closer to 25%. As for shares, they didn’t just fall – they plummeted. They plummeted the most in three months, hitting its lowest intraday price. Ever.

Deal or no deal…

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A deal has finally been struck between RiteAid and Walgreens. Again. If you recall, and it’s okay if you don’t, this deal has been in the works for the better part of fifteen months. Apparently, RiteAid’s new price tag is now coming in at $2 billion cheaper than its previous $9.4 billion price tag, and the official deadline for the deal has been extended as well. The deal was supposed to have closed back in 2016. But, details, mostly those involving regulatory approval, still need to be hammered out. So now, the new official deadline is July 31. In order for the deal to go through, Walgreens needs to sell off stores in certain regions where competition issues might complicate matters. The company needs to dump between 1,000 and 1,200 stores, but at least it will now only have to shell out between $6.8 billion and $7.4 billion, or roughly $6.50 to $7.oo per share, depending on the amount of stores it ultimately sells.  Once those are sold off, regulatory approval should come swiftly. Naturally, shares of RiteAid took a nasty tumble once investors realized they were losing significant bang on their mega bucks.

Bugging Out Over VW Settlement; Trump Thinks He Can Do It All; Time to Buy a Keurig?

Buggin’ out…

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VW is getting set to pony up some $4 billion in settlement money after agreeing to plead guilty to charges of conspiracy to defraud the U.S. government and obstruct a federal investigation. To break it down, the company will cough up $2.8 billion in criminal fines and another $1.5 billion in civil penalties. With that settlement, the company achieves the dubious distinction of having the largest penalty ever levied by the U.S. government against an automaker. Pretty classy for Europe’s largest car manufacturer. But I guess that’s what happens when you get busted for trying to cheat on emissions tests. VW had initially insisted that the scheme was the work of a few isolated employees. But now, lo and behold, six German execs are now facing charges, and the arrests probably won’t stop there. While Oliver Schmidt was already arrested in Florida this week, the others are still biding their time in Germany, with no guarantee that they’ll meet with justice courtesy of the United States judicial system. And even though VW swears it’s changed its naughty ways and is cooperating fully with authorities, it’ll still be watched for the next three years – just to be sure. Shares of the company rose as much as 4% today, it’s highest price since the scandal first erupted. But that doesn’t mean that this unfortunate episode has come to an end as there are still plenty of other countries that could also very well pursue action against Volkswagen.

Not so sure about this…

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Looks like Trump’s not going anywhere. Not even away from his business empire. The President-elect, in a news conference today, discussed that he will not be selling off his global empire and put his liquid assets in a blind trust. However, his assets will still be placed into a different type of trust that will keep him from making decisions that would personally benefit him.  According to Trump’s flack, a blind trust wasn’t even a realistic option for Trump anyway since real estate can’t just be sold off so easily as stocks and other assets can.  Instead, he will remove himself from all business dealings, resign from all his positions and hand-off control to his two sons. It’s just not clear when he’ll actually stick to that plan since just this weekend he turned down a $2 billion development deal in Dubai. Speaking of which, his company will not enter into any new business deals abroad until after his term ends. How gallant of him. Domestic deals, however, are a whole other story. They’ll be permitted as long as they are met with approval from an ethics adviser hired to work specifically for the Trump organization. See how that works out? Ethics watchdogs aren’t down with Trump’s plan since they feel it will do little – if nothing – to prevent conflicts of interest. But ethics or not, the fact is, a President is not required by law to even avoid conflicts of interest. Donald Trump also stated that he could run both the White House and his business except that he won’t because it doesn’t look nice. Ya think?

Are you ready for this jelly?

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Savor that cup of coffee now because it’s about to get a bit more expensive. Well, that’s assuming it’s packaged coffee. The biggest coffee roaster in the U.S., J.M. Smucker Co – yes, the one that makes jelly – decided to raise the prices on its packaged coffees, including its Folgers, Dunkin’ Donuts and Cafe Bustelo brands. I did say a bit because that increase, on average, will only be about 6%, since the costs involved in producing green coffee have gone up as well.  But don’t bother blaming the jelly company execs. Blame Arabica coffee futures. Or rather, Mother Nature, since coffee futures have gone up 30% in the last year due to drought conditions in several coffee-producing regions. In all fairness, J.M. Smucker Co. actually decreased the price of its coffee last May courtesy of a Brazil oversupply. So I suppose things are just kind of even-ing out. Incidentally, K-cup pods are excluded from the price increase. So if you haven’t bought one of those nifty machines yet, now might be a good time to scoop one up.

VW Has Some Arresting; Mars Inc. Has Gone to the Dogs; Alibaba Woos Trump

Arrested development…

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The FBI made its second arrest in the Volkswagen Emissions Scandal. Which is sort of reassuring considering that it seemed like the responsible parties were going to skate free. But there is no skating in the future for Volkswagen executive Oliver Schmidt, whose being charged with conspiracy to defraud the United States. His job title, ironically, is “General Manager of the Engineering and Environmental Office for Volkswagen America.”  However, the environment was apparently the last thing on his mind when he allegedly involved himself in the plan to install secret software, known as “defeat devices,” into some 475,000 diesel cars in the United States. If you recall, this naughty software allowed VW automobiles to cheat exhaust emissions tests. The affected vehicles were emitting 40 times the legally allowable amount of pollution levels. VW has yet to comment on the arrests but did say that it was cooperating with the Department of Justice – which seems like a prudent move.  The automobile company is thisclose to settling some of those criminal and civil allegations that has cost it billions so far, not to mention a $15 billion settlement that involves repairing or buying back the compromised vehicles. As for the Detroit Auto show this week, VW executives will be noticeably absent, but presumably, not missed. The first person arrested in the scandal, Robert Liang, already pleaded guilty to a single count of conspiracy to defraud the U.S. government.

Out of this world…

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Mars Inc., maker of the beloved Snickers bar, just announced it’s buying animal hospital VCA Inc, adding 800 pet hospitals to its 900 animal clinics. But don’t go choking on your candy bar just yet if you think pet care and confections don’t mesh to your liking. You needn’t see the logic. Only the math. Last year, $13.7 billion worth of chocolate was sold which was barely more than the previous year. But pet food is projected to grow at an annual rate of 2.5% over the next five years. Mars Inc already had a big 18% chunk of the pet care industry as of 2015 and owns the brands Whiskas and Pedigree, besides the pet hospitals. People spent an estimated $63 billion on pet related goods and services this past  year – a number that has grown 60% over just a decade ago. So VCA fits right into Mars’s lucrative, yet diverse portfolio. Oh, and by the way, Nestle owns Purina. Mars picked up VCA for over $9 billion at approximately $93 per share – more than a 30% premium -and the new company will become Mars Petcare. How’s that Snickers tasting now?

“Big sticks” and stones…

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Everybody’s favorite Chinese e-commerce giant CEO, Jack Ma, had a very interesting meeting with President-elect Donald Trump today. The Chinese billionaire, would like very much to create a million jobs, right here in the United States, particularly in the Midwest. How very gallant of him, especially since there are all these icky growing tensions between China and the United States, courtesy of Donald Trump.  Ma is looking to grow trade so that small businesses and farmers in the U.S. can sell their goods and wares to Chinese consumers. A win-win for everyone, no? But of course there is that one big sticking point – Trump, or rather his plans to slap high tariffs on Chinese imports. An editorial in one of the China’s Communist Party’s newspapers read: “There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door — they both await Americans.” I’m guessing China is stocking up on sticks here.

It’s Not Puerto Rico’s De-fault. Yet; VW Sales Stink Worse Than Emissions; Amazon Coasts to Black Friday Sales Highs

In the name of the ‘claw’…

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The good news is that Puerto Rico didn’t default on a scheduled loan payment today. That’s awesome news if only because defaults have a nasty little way of creating lawsuits and freaking out investors. The bad news is that the commonwealth does expect to default on a payment down the road even if it did just manage to eke out a $354 million payment today on principal and interest bonds. Of that $354 million, $267 million of that was guaranteed by Puerto Rico. Phew. All this happened even as the commonwealth continues to talk – and plead, no doubt – with its creditors to get them to eat some of that ugly $70 billion debt looming menacingly above its economy. Governor Alejandro Garcia Padilla explained that Puerto Rico is running out of money which is a fact that has failed to surprise… no one. The Governor used a “Clawback Provision” for top priority payments that carry constitutional protection. In this case, revenues that were promised to public corporations were instead clawed back (catchy, huh?) and used to keep public services operating. Not sure who wins here. In any case, if Puerto Rico defaults on a payment at some point in the future, it wouldn’t be a first. The commonwealth already defaulted on a $58 million payment back in August when it paid a very very small portion of it to the tune of $628,000. Another zero added to the end of that check might have mitigated the situation even a smidge. Or not.

No good November…

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Sales at Volkswagen dropped a lot, much to the surprise of…no one. Still unable to shake off its emissions software rigging scandal, the car company saw November sales tank a whopping 25%, selling just under 24,000 cars even when ridiculously deep discounts were being offered on VW automobiles. Especially hit hard were sales of Jettas and Passats. Passats were actually down 60%! Even those adorable Beetles saw sales decreasing 39%. Oddly enough, sales of its crossover vehicle, Tiguan, were up 88%, having sold 3,907 of them. Go figure. I guess the price was right. Really right. Experts, however, feel numbers could pick up, albeit slightly, if VW would just share with the rest of the world its plan -assuming they actually have one – of how it intends to right its wrongs and repair the offending vehicles that continue tooling around our roads, polluting the air we breath. There are some 500,000 cars in the U.S. that need some fixing as they are emitting 40 times the legal limit of pollutants. And did I even mention that the scandal has spread to India where another 323,700 of the company’s automobiles were just recalled? Well, I just did now so…you’re welcome.

Sales away…

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In more unsurprising news, Amazon had a very good weekend and presumably excellent Cyber-Monday, as well. Especially excellent because consumers weren’t just using the site to buy merchandise, they were using it to buy Amazon merchandise. Shoppers scooped up Amazon Fire Tablets and Fire TV sticks making them Black Friday best-sellers. In fact, the company sold six times more Fire TV streaming devices than it did last year at this time and three times as many Amazaon Tablets than it did last year during this period. Another top seller was Amazon’s Echo, a nifty little device that does just about everything except for laundry, pretty much. But don’t expect Amazon to give you specifics on numbers since they don’t that sort of thing. Ever. If you happened to have been out and about on Black Friday, you might have noticed that the crowds weren’t as large as in years past. That’s because online purchases outnumbered purchases made in real stores as consumers realized they don’t have to brush their teeth and actually get dressed to score those awesome Black Friday deals. Wal-Mart saw twice as much online action than it did last year with half of its purchases coming from mobile devices. Even target.com saw major action, apparently selling an iPad every second. Does that include even the times when the site went down?