Starbucks Faces Fourth Quarter of Declining Sales Amid U.S. and China Challenges

LOCAL MARKET COMMENTARY
The JSE Top 40 edged up 0.18% to close at 76,109.9 yesterday, while the All Share Index slipped 0.12% to 84,187.7. Investor attention is on the South African Reserve Bank's Monetary Policy Meeting this Thursday, with expectations of a 25-basis-point rate cut—the third consecutive reduction following similar moves in September and November. Meanwhile, the ruling ANC is urging the National Treasury to explore a one-time debt-relief package for Transnet ahead of next month’s national budget.

EUROPEAN MARKET COMMENTARY
European tech stocks came under pressure on Monday after Chinese startup DeepSeek introduced a low-cost AI model, raising concerns about returns on AI investments and dependency on expensive semiconductor technology. The STOXX 600 index fell as much as 0.8% in early trading. In the UK, retail prices declined at a slower pace in January compared to December, though food prices surged, according to the British Retail Consortium. Businesses are bracing for additional cost pressures from employer tax increases introduced in the October budget.

US MARKET COMMENTARY
The Nasdaq experienced its steepest decline since mid-December on Monday, driven by a sharp selloff in chipmakers following DeepSeek's AI model launch. Nvidia led the drop, plunging 17% and erasing $593 billion in market value, marking its worst single-day loss. Investors are now focused on this week’s tech earnings, including Microsoft, as well as the Federal Reserve’s interest rate decision on Wednesday. On a geopolitical front, U.S.-Colombia trade tensions eased after Colombia agreed to accept deported migrants via U.S. military aircraft.

ASIA MARKET COMMENTARY
Hong Kong markets posted gains this morning despite the sharp declines in U.S. tech stocks. Many Asia-Pacific markets, including China, South Korea, and Australia, remained closed for Lunar New Year. Indian markets gained attention as the Reserve Bank of India announced measures to inject over $17 billion into the financial system through bond purchases and currency swaps.

CURRENCY MARKET COMMENTARY
The South African rand weakened on Monday as traders geared up for a data-heavy week, including interest rate decisions from the SARB and the Federal Reserve. Globally, the yen briefly gained on safe-haven demand amid market volatility, while the dollar stabilized after Monday’s broad selloff, driven by concerns over AI developments and geopolitical tensions.

COMMODITY MARKET COMMENTARY
Gold prices held steady as investors awaited the Federal Reserve’s policy announcement, with global economic developments being closely monitored. China’s net gold imports via Hong Kong dropped in December to their lowest level since April 2022, signalling weaker demand. Oil prices hovered near a two-week low due to disappointing Chinese economic data and improved weather forecasts, which tempered demand expectations.

Lewis Group Limited (LEW) +3.48%

Lewis Group reported a 13.6% increase in total revenue for the nine months ended December 2024, driven by robust growth in merchandise sales and other revenue streams. Merchandise sales grew by 9.1%, with credit sales rising 13.1%, now accounting for 68.2% of total sales (up from 65.8% in December 2023). Cash sales rebounded significantly in Q3, achieving double-digit growth across all three months and contributing to a 14.4% increase for the quarter and 1.5% year-to-date. Q3 merchandise sales increased by 9.9%, bolstered by strong Black Friday performance, following growth of 7.7% in Q1 and 9.3% in Q2. Comparable store sales improved by 6.2% year-to-date and 6.3% in Q3. Other revenue, including interest income and ancillary services, surged 20.1% year-to-date, reflecting the impact of strong credit sales in recent years. Collection rates remained stable at 79.6% (versus 80.7% in 2023), while debtor cost growth was contained at 2.0% year-to-date and declined by 10.3% in Q3. Annual results for FY2025 are expected on SENS around May 22, 2025.

Vukile Property Fund (VKE) -1.91%

Vukile's retail property portfolios in South Africa and Iberia showed strong performance during November and December 2024, supported by robust Black Friday and festive season trading. In South Africa, trading density grew by 6.1%, driven by township shopping centers (+9.6%) and categories like unisex wear, groceries, and fast food. November footfall increased by 5%, while December matched prior-year levels. Iberia’s performance was bolstered by private consumption, with Spanish turnover up 4.9% in November and 4.8% in December, led by leisure and food & beverage sectors. In Portugal, November sales rose by 8.5%, driven by household and electronics, while December increased by 2.8%, with leisure up 26.9%. Notable transactions included the acquisition of Spain’s Bonaire Shopping Centre and a 50% stake in Lisbon’s Alegro Sintra, offering significant value-add opportunities. Castellana also exited its stake in Lar España, achieving a €108 million profit and a 45% IRR, providing capital for future growth.

Grindrod Limited (GND) -0.89%

Grindrod Limited provided an update on its acquisition of the remaining 35% interest in Terminal de Carvão da Matola Limitada (TCM). While several conditions precedent from the 18 September 2024 announcement have been fulfilled, outstanding conditions include a binding tax ruling from the Mozambican Tax Authority, finalisation of the bank guarantee, and Mozambique competition authority approval. To address these, the Long-Stop Date has been extended to 17 March 2025. The purchase consideration of USD 55 million, plus USD 1 million interest and an SOFR-linked amount from 17 September 2024 to the Closing Date, will be payable upon finalisation. Further updates will follow as conditions are resolved.

Starbucks Corporation (SBUX) +1.22%

Starbucks is poised to report its fourth consecutive quarter of declining comparable sales, reflecting ongoing challenges in the U.S. and China. CEO Brian Niccol, four months into his tenure, has introduced initiatives such as reducing wait times and implementing a "coffeehouse code of conduct" to drive recovery. However, these measures are unlikely to yield immediate results. For the first quarter, analysts project a 4.6% drop in comparable store sales and a 26% decline in profits, marking continued pressure on the coffee chain. Despite this, investor confidence has improved, with shares rising 28% since Niccol's appointment, offsetting a 20% decline earlier in 2024.

Mercedes-Benz Group AG (MBG) +1.46%

Mercedes-Benz anticipates exceeding its fourth-quarter adjusted margin forecast of 6%-7% for its passenger car division, according to analysts at Bernstein Research and Jefferies. The automaker remains on track to achieve its full-year margin target of 7.5%-8.5%, driven by strong sales of top-end vehicles. Despite a 3% drop in core car sales for 2024, fourth-quarter sales rose 1% year-on-year. Mercedes-Benz has twice revised its full-year profit margin guidance due to pressures from a weakening Chinese market and has pledged additional cost-cutting measures to address declining profitability.

Ryanair Holdings plc (RYA) +3.24%

Ryanair delivered better-than-expected profits of €149 million for the final quarter of 2024, outperforming the €60 million forecast by analysts. CEO Michael O’Leary expressed cautious optimism for summer fares, citing constrained European capacity. However, the airline reduced its passenger forecast for the year ending March 2026 from 210 million to 206 million due to delays in Boeing 737 MAX deliveries. Ryanair expects to receive nine aircraft ahead of the summer season, with the remaining 29 of its 210 MAX order arriving by March 2027. The airline’s fares improved modestly, rising 1% in the latest quarter after falling during the summer due to a dispute with online travel agents, which has since been largely resolved.

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