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from Breakingviews:

Tesco’s new chief should think the unthinkable

By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Tesco has a real chance at reinvention. Hiring Unilever lifer Dave Lewis to replace Phil Clarke as chief executive provides a golden opportunity for an outsider to apply radical thinking to solving the UK supermarket group’s mounting problems.

This is a monster of a company which is diverse in its geographical footprint and business activities. Two-thirds of its revenue comes from Britain, and it generates most of its income selling household basics such as beans and dishcloths. But Tesco has shops in South Korea, Thailand and the Czech Republic. Moreover, it has a bank and, with its iPad-like Hudl tablet, is a wannabe-technology play.

Diversification provides opportunity. Tesco has a near-30 percent market share of the UK grocery market. It would be hard to generate sustained long-term growth if it shrank back to its core. Under Lewis, however, Tesco has to prove it has the breadth and depth of management talent to pursue a diversified strategy.

from Counterparties:

MORNING BID – Closet cases

Usually when retailers warn of earnings weakness - particularly if they're saying the entire economy is in a funk - there are two possible explanations:

1: They're right, and the real economy is truly suffering, or
2: It's all their own fault.

from Breakingviews:

Woolworths pays too-steep ransom in Aussie battle

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Woolworths is paying too steep a ransom in its retail battle. The South African group is buying billionaire Solomon Lew’s stake in an Australian unit in an attempt to secure the billionaire’s support in its A$2.1 billion ($2 billion) takeover of upmarket department store chain David Jones. The side deal raises the effective takeover premium – and piles pressure on Woolworths to realise synergies.

from Counterparties:

MORNING BID – The first step is a Lulu

It will be interesting to see if the spiral that yogawear retailer Lululemon Athletica has found itself in over the last year is one that can be arrested. Companies rise and fall often in this world, but the U.S. stock market’s history is littered with retailers that went into a tailspin after series of missteps that turn once-interesting investments into a veritable death trap for investors, and result in the kind of drop that benefits mostly short-sellers, late-night comedians and eventually restructuring lawyers.

It’s particularly rough for companies that inspire cult-like followings, be they as a stock or as a retail purchase, as markets eventually become saturated, competitors jump into the fray, and investors go forth and look for the next big thing to occupy their time. And a stock like Lululemon, which quintupled between late 2010 and early 2012, is kind of the definition of a cult stock. That’s well and good when earnings keep going, which kept the stock price in a range (albeit elevated) through December 2013, but those days are over.

from Breakingviews:

Reality yet to cut into ASOS valuation

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Reality has yet to cut into ASOS’s valuation. A profit warning on June 5 sent shares in the British online fashion retailer down nearly a third. But the company continues to totter on an uncomfortably high earnings multiple. That deserves to come down too.

from Counterparties:

MORNING BID – Spending concerns and car sales

Coming data on same-store sales will help illuminate whether the modest upward tick in prices is something that is being replicated throughout the economy and signalling a stronger overall economy or perhaps one that remains more weighted to the most wealthy in the United States. According to Thomson Reuters data, Costco is poised to post the strongest same-store sales figures among the retail chains, though its 4.6 percent estimated increase would fall short of the 5 percent rise a year ago. The figures have a bit less utility than in the past given the likes of Wal-Mart stopped supplying this data years ago, but you work with what you have. Either way, it's notable that the discounters have been weak this year - a sign of lackluster spending outlooks for lower income Americans.

The lower-income sector has seen its share of economic growth diminish over recent years, a trend that has been accelerated in part by the weakness in housing prices in most parts of the economy, poor overall demand and lack of spending among all but the upper tier of consumers, and no real growth in wages -- though this morning's data on productivity and labor costs does show finally some wage growth.

from Breakingviews:

Wal-Mart can win leading the way on minimum wage

By Daniel Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Wal-Mart Stores can win by leading the way on the minimum wage. The mega-retailer’s labor costs would rise significantly if the U.S. government were to increase the national pay floor. But the company also has far more low-wage customers than it does employees. That would translate into a net gain in earnings, according to a Breakingviews analysis.

from Counterparties:

MORNING BID – There’s A Sale at Penney’s!

We come not to bury J.C. Penney, because everyone else has done that a few times over already.

Headed into the last gasps of earnings season, overall earnings growth for the quarter is currently 5.5 percent - much better than the 2 percent expected at the outset of reporting season and trending back in the direction of what had been expected Jan. 1 before, well, before anybody knew anything at all.

from Breakingviews:

Li Ka-shing de-risks with $6 bln Temasek sale

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Li Ka-shing is de-risking. The Hong Kong tycoon has ditched plans to list his retail division AS Watson in favour of selling a 24.95 percent stake to Temasek for $5.7 billion. The deal crystallises a decent valuation for Li without the uncertainties of an initial public offering (IPO). For the Singaporean state fund, it’s a bold bet on consumer growth and private investments.

from Breakingviews:

Wal-Mart puts collar on Cerberus price for Safeway

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Could Cerberus pay more for Safeway? Based on the 2007 A&P-Pathmark merger, synergies could be worth more than half the $9.4 billion that the private equity firm’s Albertsons supermarket is paying for its U.S. rival. In theory that leaves room for a higher offer. But competition from the likes of Wal-Mart means cost savings may need to go to shoppers, not investors.

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