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Ten Reasons To Doubt The Possibility Of A “Soft Landing”

Ten Reasons To Doubt The Possibility Of A "Soft Landing"

Authored by Michael Maharrey via SchiffGold.com,

There is a growing consensus that…

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Ten Reasons To Doubt The Possibility Of A "Soft Landing"

Authored by Michael Maharrey via SchiffGold.com,

There is a growing consensus that the Federal Reserve can slay price inflation while guiding the economy to a “soft landing.” In fact, Fed economists now project the US economy will not spin into a recession. Other mainstream pundits and prognosticators have taken up this narrative. But there are plenty of reasons to doubt it.

Folks who are sanguine about the economy rely primarily on three metrics. First, we saw relatively strong GTP growth in the second quarter and the Atlanta Fed recently upped its Q3 GDP estimate to 5.9%. Second, the official labor market numbers continue to reflect strong job growth. And finally, despite rising interest rates and sticky price inflation, consumers have continued to spend money.

We can certainly question the veracity of some of this data, but even taking these three metrics at face value, there are plenty of reasons to believe the economy is quickly spiraling toward a recession. Consumers and businesses are being stretched to the limit by a combination of enormous debts, rising interest rates and persistent price inflation.

Here are 10 reasons to doubt the soft landing narrative.

  1. Excess savings are running out. One of the reasons consumers have been able to keep up with price inflation is the fact that they piled up a lot of excess savings during the pandemic year. But that savings is nearly gone. Aggregate savings peaked at $2.1 trillion in August 2021. As of June, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion. In other words, Americans have blown through $1.9 trillion in savings in just two years. At this pace, all of the excess savings Americans accumulated will be gone sometime during the third quarter.

  2. Consumers are maxing out their credit cards. As Americans blew threw their savings, they turned to credit cards to make ends meet. Credit card debt rose to over $1 trillion for the first time ever in the second quarter of 2023. But there are signs consumers are close to maxing out their credit cards. In June, credit card spending suddenly fell off a cliff.

  3. People are having a hard time paying their credit card bills. A combination of rising interest rates and increasing credit card balances are squeezing consumers. The number of Americans rolling credit card debt from month to month is now higher than the number of people paying their bills in full for the first time ever. Meanwhile, default and delinquency rates are rising, not only on credit cards, but also on personal loans and auto loans.

  4. Student loan payments are about to resume. After enjoying a three-year break, student loan borrowers are about to pay the piper. Around 40 million Americans have outstanding student loans totaling $1.57 trillion. When payments resume, borrowers will find their finances squeezed. According to a survey, 56% of federal student loan borrowers say they will have to choose between making student loan payments and paying for necessities such as rent, bills and groceries. Moody’s estimates student loan repayment will deliver a $75 billion hit to consumption on an annual basis.

  5. 401k hardship loans have spiked 36% this year. In other words, Americans are dipping into their retirement savings in order to make ends meet. This reveals just how much stress consumers are feeling. And like credit card borrowing and savings, this pool of money is finite.

  6. Banks are tightening lending standards. The net percentage of banks tightening lending standards has soared from -32.4 in Q3 2021, to 50.8 in Q3 of this year. The lack of available credit will almost certainly slow consumption down the road.

  7. The cost of housing continues to soar. Mortgage rates have soared to the highest level in over two decades. Combined with a tight market, housing affordability has hit a nearly four-decade low. Rents have also blown through the roof.

  8. The financial crisis continues to bubble under the surface. In early August, Moody’s cut the credit rating of 10 small and midsize banks. It also placed six large banks on review for potential downgrades and revised 11 more banks from a stable outlook to a negative outlook. Later in the month, S&P Global followed Moody’s lead and downgraded the credit ratings of five banks. It also lowered the outlook for several others. The Federal Reserve managed to paper over the banking crisis with a bailout program. But the growing number of banks with credit rating downgrades reveals the problem wasn’t solved.

  9. Corporate defaults have surged. By the end of June, the number of corporate debt defaults in 2023 had already exceeded the total number of defaults last year. Moody’s projects that corporate defaults will continue to surge with the default rate coming in at 4.7% globally. In the worst-case scenario, defaults could rise as high as 13.7%, surpassing the number of defaults in 2008.

  10. Monetary policy works with a lag. A lot of people believe in a soft landing because, despite a sharp, rapid increase in interest rates, the economy hasn’t crashed — yet. But history tells us that it takes a while for the impacts of tighter monetary policy to work their way through an economy. The Great Recession didn’t kick off until nearly two years after the last Fed rate in June 2006.

[ZH: 11. This morning's JOLTS data was a shitshow across the board, blasting any 'soft landing' narrative.]

Economists Robert Murphy and Jonathan Newman pointed out the similarities between 2006-2007 and today in a recent podcast. Murphy summed it up.

In other words, all the reasons that right now they’re saying, ‘OK, we’re out of the woods. We got a soft landing,’ that was true back then as well. It wasn’t that unemployment started rising rapidly. No, they said, ‘OK, we raised rates steadily over the course of a while here. We raised them from 1% all the way up to 5.25%. We’re starting to get CPI under control. This housing bubble is starting to get a little under control. Everything seems great.’ So, my question is would it be fair to say as of late 2006 that the Fed had achieved a soft landing and gotten the housing bubble under control? Most people would say, no. They had sown the seeds for the worst crisis since the 1930s. And likewise, right now, the data are eerily similar to that, and yet everyone is running around talking about a soft landing.”

The bottom line is the US economy runs on easy money. The central bank ran three rounds of quantitative easing during the Great Recession and held interest rates at zero for nearly a decade. The Fed doubled down during the pandemic. That led to massive levels of debt and all kinds of distortions in the economy, along with surging price inflation. The Federal Reserve has now taken some of that easy money away. There is no reason to think that the economy can just keep “plugging along” in this (relatively) high interest rate environment.

Things might seem OK now, but things tend to happen slowly and then all at once.

Tyler Durden Tue, 08/29/2023 - 11:00

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Week Ahead: With the Markets Converging (Again) with Fed’s Dots, Is the Interest Rate Adjustment Over?

The US
dollar and interest rates appear to be at an inflection point. Much of the past
several weeks have been about correcting the overshoot that took…

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The US dollar and interest rates appear to be at an inflection point. Much of the past several weeks have been about correcting the overshoot that took place in  Q4 23, when the derivatives markets were pricing in nearly seven quarter-point rate cuts by the Federal Reserve this year. US two- and 10-year interest rates set new three-month highs last week. With the help of economic data and comments by Fed officials, the market, as it did a few times last year, has converged to the Federal Reserve. That adjustment seems to have run its course. We look for softer US economic data in the coming weeks, which may help cap US rates. At the same time, the technical condition of many of the G10 currencies has improved and momentum indicators are turning higher. Growth impulses from are still faint in most other high-income countries, but the key, as seen in Q4 23, are the developments in the US. 

Another developing story is in China. Beijing has taken formal and informal steps to support equities. The CSI 300 rose every day last week, as the mainland markets re-opened from the extended holiday. The last time it did that in five-day week was November 2020. In fairness, the CSI 300 rose in the four sessions before the holiday commenced. During the Great Financial Crisis and again during Covid, many high-income countries moved to support their stock markets and limited short sales. Many see the threat to financial stability posed by dramatic losses in the equity market to be part of the so-called "Fed put."  It may be even more significant in China where the property market has shuttered a key savings vehicle and central government bond yields are too low. Weak stocks encouraged Chinese investors to export savings to the extent possible and purchase gold. Foreign investors, using the Hong Kong Connect were also active buyers in recent days, perhaps as the "fear of missing out" kicks-in. 

Another theme that we think is already emerged with Canada's January CPI last week and will be extended to the preliminary estimate of the eurozone's February CPI this week, is a sharp deceleration of inflation. The eurozone, UK, and Canada saw dramatic jumps in consumer prices in the Feb-May 2023 period. As these drop out of the year-over-year measure, headline rates will fall more than many may appreciate. Eurozone and UK inflation likely to slow below 2%, assuming a conservative average monthly gain of 0.3%. With the same assumption, Canada's headline CPI may hold slightly above 2%.

United States: The January CPI and PPI reports saw market expectations again move closer to the Fed's December dot plot, which anticipated that three rate cuts this year would be appropriate. Fed Chair Powell has warned that as the quarter progresses, the snapshot of views offered by the Summary of Economic Projections (dot plot) may become dated, but thus far, most of the Fed officials who have spoken do not appear to have changed their minds. At the end of last week, the Fed funds futures show three rates’ cuts are now discounted and less than a 30% chance of a fourth cut. This is about half of the easing that was discounted late last year. 

Among market participants, there seems to be two key issues. The first is about the strength of the economy here at the start of Q1 24. January jobs growth appeared solid, but retail sales and industrial output were weaker than expected. While all business cycles are unique, during this one, many standard metrics do not seem to be working, including yield-curve inversion, the contraction in M2, and the collapse of leading economic indicators, to name a few. On balance, with the data in hand, we suspect the economy is growing faster than the Fed's long-term non-inflationary pace of 1.8%. But is slowing and we expect this to be more evident with this month's data. Weak Boeing orders will weigh on durable goods orders and the early call for nonfarm payrolls is less than half of January's 353k increase (March 8). The second issue is inflation. The personal consumption deflator, which the Fed targets, has a different methodology and assigns different weights than the CPI. The PCE deflator rose at an annualized rate of 2% in H2 23, while the core measure rose by 1.8%. A 0.3% increase in January would allow the year-over-year rate to ease to 2.3% from 2.6%, given the 0.6% rise in January 2023. The core rate may rise by 0.4%, which would see the year-over-year rate slip to 2.8% from 2.9%. 

The Dollar Index peaked with the release of the January CPI on February 13 near 105.00, overshooting the (61.8%) retracement of the losses from Q4 23 decline. It has fallen in seven of the eight sessions since peak. A break now of the 103.30 area could signal a test on 102.80 initially and then 102.30. The five-day moving average crossed below the 20-day moving average at the end of last week for the first time since early January. The momentum indicators have turned lower.

China:  China reports February PMI and the Caixin manufacturing PMI in the coming days. Many western economists argue that the China's developmental model has failed. As we have noted before, Nobel prize-winning economy Paul Krugman argued before Xi's claim to life-time rule, Beijing's "wolf diplomacy, and harassment of its neighbors, and the unwinding of economic and political reforms since the death of Mao, that Chinese model hit a "great wall." Many of the architects of Trump's tariffs, which have been continued and extended by the Biden administration, cut their teeth on confronting Japan in the 1980s. We have suggested China was on a path set into place by Deng Xiaoping and Xi has taken China off that path. The idea of "peaceful rise" or "peaceful development," which minimized the friction with the US has been replaced by that notion that "you can't hide an elephant behind a tree." What makes the current situation exceptionally fraught with risk is that Beijing seems to think that US is in some inexorable decline. In this sense both sides conclude the other is in decline and that would seem to boost the risk of underestimating one's adversary. Beijing is not content with the current pace and composition of growth and regardless of the latest PMI print, we expect additional stimulus. Last week, it moved to deter institutional investors from selling at the open or close and put a stigma on selling short. In the Great Financial Crisis and during Covid, some market economies banned short selling in some sectors. That ought not be the issue. However, China's approach seems clumsier and less transparent.

Through formal and informal mechanisms, Beijing appears to have put a floor under Chinese stocks. The CSI 300 has strung together back-to-back weekly gains for the first time in three months. It rose 3.7% last week after rallying 5.8% in the week before the Lunar New Year holiday. It is now higher on the year. This may take some pressure off the yuan. However, the continued weakness of the Japanese yen warns that the CNY7.20 area that has capped the dollar last month and this month could come under further pressure. Assuming the fix continues to be steady, the dollar could rise toward CNY7.24, though we suspect it won't.

Eurozone: Starting with the preliminary CPI on March 1, headline inflation is set to fall sharply in the EMU. This will likely encourage speculation that the ECB can cut rates sooner, especially in the context of the recent cuts in the growth outlook. In February-April 2023, eurozone CPI rose at an annualized rate of 9.2%. With a conservative assumption of an average monthly increase of 0.3% in the February-April period this year, the headline rate will fall below 2%. It will likely be near 2% by the time the ECB meets on April 11. The core rate is firmer at 3.3% year-over-year in January. It was at 5.5% as recently at the middle of last year. The swaps market has about a 33% chance of a cut in April discounted. It had been fully discounted as recently as the end of January. For the first two weeks of the year, the US two-year rate rose less than Germany's and the US premium over Germany narrowed to about 155 bp from about 190 bp at the end of 2023. It has since recovered fully and approached 190 bp in mid-February. Eurostat will also report the region's January unemployment rate. It seems like an underappreciated story. The eurozone has withstood not only the ECB's tightening but also a stagnant or worse economy without a pick-up in the unemployment rate, which finished last year at 6.4%. Before the pandemic struck, the unemployment rate was at 7.5%, which was lowest since 2008. It reached the EMU-area low of 7.4% in late 2007. It has not been above there since July 2021. 

The euro spiked to three-week high in Asia on February 22 near $1.0890 but European and North American participants sold it back to almost $1.08. Still, the technical tone is solidifying with the momentum indicators turning up and the five-day moving average crossing above the 20-day moving average for the first time since early January. The euro recorded its first weekly advance in six weeks. We suspect the $1.0900-20 area needs to be surpassed to signify something more than broad consolidation after falling by about 4.5-cents since late last year. A close below the $1.0790-$1.0800 suggests that forging the low will take more time.

Japan:  The signal from the January CPI has already been given by the Tokyo estimate several weeks ago. That signal is of disinflationary forces. Due primarily to different weights, the Tokyo CPI is running a couple of tenths of a percent below the national figures. The January Tokyo headline and core CPI tumbled to 1.6% from 2.4% and 2.1%, respectively. In December, the national CPI was 2.6% and the core was 2.3%. Both may have slipped below 2% last month. This, like recent news that showed the Japanese economy unexpectedly contracted in Q4 23, could be seen as hampering what had been expected to be the BOJ's exit from the negative policy rate. We have argued that rather than an economic issue, the BOJ appears to be approaching it as a technocratic issue. Negative interest rates making it more difficult to conduct monetary policy. While the knee-jerk market reaction may disagree, we do not think the sharp drop in January industrial production will change the BOJ's drive either. The earthquake in early January was a significant disruption.  

Japan also reports retail sales. Japanese consumption on a GDP basis contracted for three consecutive quarters through the end of last year. Consumer spending fell by 0.9% at an annualized rate it Q4 23, which was the least of the three quarters, even though retails fell by an average of 1.1% a month, the most in the early days of Covid. Still, a poor retail sales report could contribute to the negative sentiment after having been surprised by the Q4 23 economic contraction. While consumption in Q4 23 was weak, production was strong. Industrial output rose by an average of 0.6% in Q4 23, the strongest quarterly performance in two years. The January report estimate is due on February 29. At the same time, Japan will report January employment figures. The unemployment rate finished last year at three-year low of 2.4%, despite the back-to-back quarterly contractions. Before the pandemic, at the end of 2019, it was 2.2%.

US yields rose to new highs for the year last week and the dollar closed higher last week, as it has done every week so far this year.  As we have noted, implied three-month vol is near a two-year low (~8%). Still, the market looks orderly, and with negative policy rate, Japan probably does not get a sympathetic hearing from its counterparts for material intervention. Nevertheless, the market may turn cautious as the JPY152 area is approached. That capped the greenback in 2022 and 2023. Not to lean too far ahead of our skis, but we look for softer data, including US February jobs data that will help cap US rates and take some pressure off the yen. 

United Kingdom: February Nationwide house price index and January consumer credit and mortgage lending is the not the stuff that typically moves sterling. The UK holds its third by-election of the month in Rochdale. The Labour MP passed and hence the byelection. However, what makes it interesting is that both Labour and the Greens have distanced themselves from their respective candidates for comments about the Middle East. Meanwhile a former Labour MP (2010) who was suspended from the party in 2017 (explicit emails to a 17-year-old girl) is running as the Reform Party candidate (led by Nigel Farage). The UK holds local elections in May and a national election is expected to be call later this year. 

Sterling rose last week for the first time since mid-January and its nearly 0.55% gain was the most since mid-December. The weekly settlement was the highest since January 26.  The momentum indicators have turned up and the five-day moving average pushed above the 20-day moving average for the first time since early January. Sterling has recovered from the breakdown to around $1.2520 earlier this month and it has returned to the middle of the $1.26-$1.28 trading range that dominated from mid-December through early February. The $1.2750-$1.2800 area offers what appears to be formidable resistance. 

Australia: The Antipodeans are seen as among the laggards in upcoming easing cycle, ex-Japan. Indeed, the swaps market continues to price odds of another rate hike by the Reserve Bank of New Zealand with around a 60% chance by the end of May, the last meeting of H1 24. That said, the swap market has a cut fully discounted (-90%) by the end of November. The futures market shows a clear easing bias for the Reserve Bank of Australia but does not have the first cut fully discounted until September (though there is around an 85% chance of a cut in August). Australia's month's CPI measure (as opposed to the traditional quarterly report) has fallen from 8.4% at the end of 2022 to 3.4% at the end of last year. The Q4 23 CPI fell to 4.1% from 5.4% in Q3 23. The RBA forecast CPI to fall to 3.2% this year. A faster than expected decline in inflation could spur speculation of an earlier rate cut, but the market, like policymakers, seem to put more stock on the quarterly measures. Australia will also report January retail sales. They were dreadful in January, falling 2.7% month-over-month. This overstates the weakness of the Aussie consumer after the recent rate hikes (last one was in November 2023). 

The Australian dollar has strung together three consecutive weekly gains after falling for first five weeks of the year. It posted its highest settlement since February 1 ahead of the weekend. It will begin the week with an eight-day rally in tow. The five-day moving average crossed above the 20-day moving average for the first time since early January and the momentum indicators are trending higher. The $0.6600-$0.6625 area posted the next technical hurdle. On the downside, a break of the $6520 area would be disappointing. 

Canada: Canada is among the last of the G10 countries to estimate Q4 23 GDP. The December monthly and fourth-quarter GDP will be reported on February 29. The economy contracted by 1.1% in Q3 23 but likely returned to growth in Q4. The economy may have grown by around 0.2% in December after expanding by 0.2% in November, which ended a three-month stagnation. The median forecast in Blomberg's month survey is for 0.3% in each of the first two quarters this year. The swaps market has about a 75% chance of a June cut. It was completely discounted at the start of the month. 

The US dollar traced a range on February 13, the day the January CPI was reported, against the Canadian dollar that has remained intact since then: roughly CAD1.3440-CAD1.3585. Another way to think of the range is that it is between the 50- and 100-day moving averages (~CAD1.3410-CAD1.3540).The 200-day moving is in the middle of the range The Canadian dollar continues to be sensitive to the general risk environment. The rolling 30-day correlation of changes in the exchange rate and the S&P 500 is around 0.56, the upper end of where is has been over the past year.  

Mexico:  The economic diary is jammed in the coming days: January trade figures, the central bank's new inflation report, unemployment, and worker remittances. Also manufacturing PMI and IMEF February surveys are due. However, the data are unlikely to change the impression that the Mexican economy is slowing down. The central bank has already signaled that it is preparing the first rate cut. Even with a quarter-point cut that may be delivered as soon as next month, Mexico's rates are attractive. Its external account is solid. Last year, for example, Mexico recorded an average monthly trade deficit of $455 mln (vs. an average monthly deficit of $2.2 bln in 2022). Worker remittances averaged nearly $5.3 bln in 2023 (~$4.9 bln average in 2022).

Since mid-January, the US dollar has recorded lower highs and found support near MXN17.00. We continue to detect a change in sentiment toward the peso. A down trendline off the late January high and early February high comes in near MXN17.1170 at the start of the new week and falls to about MXN17.07 by the end of the week. This month, the greenback has not closed outside of the MXN17.03-MXN17.20 range. Our bias is toward an upside break as overweight positions are trimmed. In the futures market, speculators have the largest net long peso since early 2020. Three-month implied volatility has fallen below 9% for the first time since before the pandemic.

 

 

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Apparel Retailer Express Moving Toward Bankruptcy

Apparel Retailer Express Moving Toward Bankruptcy

During the company’s last earnings call in November, recently appointed CEO Stewart Glendinning…

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Apparel Retailer Express Moving Toward Bankruptcy

During the company’s last earnings call in November, recently appointed CEO Stewart Glendinning acknowledged the company made some missteps: Among other factors, there was a misalignment between its assortment and customer demand, Retail Dive's Nate Delesline reports.

An Express storefront at King of Prussia mall in Pennsylvania. The retailer said this week that it plans to initiate an international brand expansion starting next year

Express took a hit during the pandemic as its core offering — business casual — fell out of favor as work-from-home surged.

“Unfortunately, my previous assessment of Express’ fragile financial situation leading to a possible bankruptcy due to declining revenue, gross margin profits and ballooning debt of $280 million is a foregone conclusion,” Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University, said in an email to Retail Dive. “With high-interest rates, the retail company must decide between the ‘lesser of two evils.’ Moreover, until they fix the waning consumer demand for their merchandise and elevate the brand and product mix, financial wizardry will not resolve their retail woes.”

Over the past several years, the company has undergone a number of changes as it works to improve its performance. Last January, WHP Global closed on a strategic partnership with Express. The two entities formed an intellectual property joint venture under which WHP contributed $235 million for a 60% stake, while Express retained the remaining 40%. The two entities in November announced plans to expand Express internationally, including in Indonesia and Paraguay, and grow its presence in Central America and Mexico. 

And after the New York Stock Exchange warned of a potential delisting in late March, Express executed a 1-for-20 reverse stock split, which decreased outstanding shares to 3.7 million from 74.9 million. That stock split enabled Express to regain listing compliance with the New York Stock Exchange. Around the same time, Express said it planned to cut 150 jobs by the end of the third quarter.

The company also expanded its portfolio last year through a deal with WHP to acquire Bonobos from Walmart for $75 million. That acquisition helped guide the retailer to a 5% year-over-year uptick in Q3 net sales to $454.1 million from $434.1 million a year earlier. However, comparable sales for Express stores and e-commerce fell 4% and net loss grew to $36.8 million from $34.4 million in the year-ago period. Inventory was also up 14% for the quarter, rising to nearly $481 million from $422.7 million a year earlier. 

“Express has the right building blocks in place with a strong portfolio of brands, a high-potential partnership with WHP and a premier omnichannel platform,” Glendinning said in the earnings announcement. “Our efforts to unlock our full potential and improve our performance are already underway.”

The apparel retailer in late November lowered its full-year 2023 guidance, now expecting net sales to be between $1.84 billion and $1.87 billion, with Bonobos driving $150 million in net sales. 

Finally, on Friday, Bloomberg reported that at least one lender to Express has approached the retailer to put aside a pool of money for expenses tied to a potential future bankruptcy filing.

A demand to set aside so-called cash reserves, if enforced, could push Express into Chapter 11 as it would eat into limited liquidity available for necessary payments to vendors, landlords and other parties.

Creditors have been growing increasingly antsy and considering whether to push the company to file for bankruptcy, Bloomberg previously reported.

Express, which is burning through a short supply of cash as it attempts to fix troubled operations, is looking to avoid any move to fund reserves for as long as possible, other people familiar with the matter said. The retailer lost over $150 million in three quarters through late October as it faced an escalating competitive threat from fast-fashion rivals.

Tyler Durden Fri, 02/23/2024 - 18:00

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Apparel Retailer Express Moving Toward Bankruptcy

Apparel Retailer Express Moving Toward Bankruptcy

During the company’s last earnings call in November, recently appointed CEO Stewart Glendinning…

Published

on

Apparel Retailer Express Moving Toward Bankruptcy

During the company’s last earnings call in November, recently appointed CEO Stewart Glendinning acknowledged the company made some missteps: Among other factors, there was a misalignment between its assortment and customer demand, Retail Dive's Nate Delesline reports.

An Express storefront at King of Prussia mall in Pennsylvania. The retailer said this week that it plans to initiate an international brand expansion starting next year

Express took a hit during the pandemic as its core offering — business casual — fell out of favor as work-from-home surged.

“Unfortunately, my previous assessment of Express’ fragile financial situation leading to a possible bankruptcy due to declining revenue, gross margin profits and ballooning debt of $280 million is a foregone conclusion,” Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University, said in an email to Retail Dive. “With high-interest rates, the retail company must decide between the ‘lesser of two evils.’ Moreover, until they fix the waning consumer demand for their merchandise and elevate the brand and product mix, financial wizardry will not resolve their retail woes.”

Over the past several years, the company has undergone a number of changes as it works to improve its performance. Last January, WHP Global closed on a strategic partnership with Express. The two entities formed an intellectual property joint venture under which WHP contributed $235 million for a 60% stake, while Express retained the remaining 40%. The two entities in November announced plans to expand Express internationally, including in Indonesia and Paraguay, and grow its presence in Central America and Mexico. 

And after the New York Stock Exchange warned of a potential delisting in late March, Express executed a 1-for-20 reverse stock split, which decreased outstanding shares to 3.7 million from 74.9 million. That stock split enabled Express to regain listing compliance with the New York Stock Exchange. Around the same time, Express said it planned to cut 150 jobs by the end of the third quarter.

The company also expanded its portfolio last year through a deal with WHP to acquire Bonobos from Walmart for $75 million. That acquisition helped guide the retailer to a 5% year-over-year uptick in Q3 net sales to $454.1 million from $434.1 million a year earlier. However, comparable sales for Express stores and e-commerce fell 4% and net loss grew to $36.8 million from $34.4 million in the year-ago period. Inventory was also up 14% for the quarter, rising to nearly $481 million from $422.7 million a year earlier. 

“Express has the right building blocks in place with a strong portfolio of brands, a high-potential partnership with WHP and a premier omnichannel platform,” Glendinning said in the earnings announcement. “Our efforts to unlock our full potential and improve our performance are already underway.”

The apparel retailer in late November lowered its full-year 2023 guidance, now expecting net sales to be between $1.84 billion and $1.87 billion, with Bonobos driving $150 million in net sales. 

Finally, on Friday, Bloomberg reported that at least one lender to Express has approached the retailer to put aside a pool of money for expenses tied to a potential future bankruptcy filing.

A demand to set aside so-called cash reserves, if enforced, could push Express into Chapter 11 as it would eat into limited liquidity available for necessary payments to vendors, landlords and other parties.

Creditors have been growing increasingly antsy and considering whether to push the company to file for bankruptcy, Bloomberg previously reported.

Express, which is burning through a short supply of cash as it attempts to fix troubled operations, is looking to avoid any move to fund reserves for as long as possible, other people familiar with the matter said. The retailer lost over $150 million in three quarters through late October as it faced an escalating competitive threat from fast-fashion rivals.

Tyler Durden Fri, 02/23/2024 - 18:00

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