Global Stock Rally Fizzles As Europe Slammed By “Retail Apocalypse”
by Tyler Durden
ZeroHedge.com
Mon, 12/17/2018
Another attempt to rally S&P futures overnight has fizzled, this time as a result of weakness in Europe and a mixed session in Asia, following a sharp decline in European retailers due to a record plunge in UK online retailer Asos Plc which collapsed after warning that Christmas shopping got off to a disastrous start, dragging its shares to a 2 year low and hitting the sector.
In an otherwise quiet session as traders prepare for this week’s critical Fed meeting, shares in European retailer Asos plunged by over 40% after the company cut expectations for the current financial year. The last time its shares traded this low was back in 2015/16. The company said it was experiencing a “significant deterioration” in the trading month of November and that conditions remain challenging. Guidance is slashed to 15% from earlier expectation of 20-25%. As Inezfrans notes, “the move lower is absolutely astonishing.”
Asos cut its full-year sales-growth guidance on a “significant deterioration” in November, blaming a high level of discounting amid economic uncertainty and low consumer confidence, which has been undermined in the U.K. by the continuing Brexit saga.
The rest of the Europe’s big retailers including Marks & Spencer, JD Sports, Next and Boohoo all fell in London, while German giant Zalando has also joining the implosion of the retailers, falling by 15% on Xetra.
Commenting on Europe’s “retail apocalypse”, Bloomberg notes that the gloomy update from the online retailer – which competes with Amazon.com and has furnished fashions to the likes of Meghan Markle – shows that retail weakness is widespread in the runup to the holidays. Last week, Sports Direct International Plc Chief Executive Officer Mike Ashley said sales were “unbelievably bad” in November, sending the shares off a cliff.
“This goes against the script,” said Stephen Lienert, a credit analyst at Jefferies. “It was supposed to be bricks and mortar that’s dying and online is the future, but that headline gets ripped up today.”
The Asos news shows that retailers can’t rely on online operations to make up for a decline in stores this year. If December doesn’t improve, the New Year may bring more profit warnings, or worse, to the sector. Meanwhile, other retailers such as Debenhams Plc and Marks & Spencer, which are in the midst of turnaround plans, may be particularly vulnerable. The U.K.’s shopping districts have already been decimated by a series of collapses, including the insolvency of department-store chain House of Fraser, which Ashley rescued earlier this year.
Investors in retail debt are also feeling the pain. Debenhams’ 200 million pounds of bonds due July 2021 have plummeted 35 pence on the pound since the start of the year to 64 pence, the lowest since the notes were sold in 2014, according to data compiled by Bloomberg.
Europe’s Stoxx 600 Index dropped to session lows, down 0.5% following the Asos plunge and retail sector weakness. In contrast, mining shares are up 1% after China managed to close modestly higher after the PBOC injected a net CNY150BN in reverse repo liquidity after 36 days of silence. Among Europe’s other biggest decliners are Novartis -1%, Adidas -3.4% and H&M -7.2%.
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