Life

Shake Shack Shares Are Finally On The Rise, Plus Empty Fitting Rooms: A Retail Story

#Morning Brew
by Last Updated

This week’s Morning Brew quiz is live! Psst: we’ll be taking a break from the weekly quizzes for a portion of the summer, so this may be your last chance to win an exclusive Brew shout-out and some sweet Brew swag for a few months. It’s now or never—good luck!

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“It is not true” — Apple, in typical no-BS fashion, responding to rumors that iTunes would stop offering music downloads. Side note: Apple stock fell below $90 yesterday to hit a new 52-week low, briefly losing its spot as the world’s largest publicly-traded company to Alphabet.

 

MARKET SNAPSHOT
Big Picture

  • U.S. stocks wrapped up an up-and-down Thursday with the Dow barely finishing positive and the S&P and Nasdaq both posting losses, with tech stocks having a particularly rough day

Alternatives to Watch

  • The Bank of England voted yesterday to hold its interest rate at 0.5%, aka where it’s been since 2009. In other news, the Bank also stated that a Brexit (Great Britain exiting the European Union) could launch the country’s economy into a recession

Market Movers

  • Shares of GMO giant Monsanto jumped 8% after rumors surfaced that rival Bayer AG was considering purchasing the company, which would create the largest seed manufacturer in the world

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WORLD MACRO
Rousseff Gets Booted

Yesterday, Brazilian President Dilma Rousseff received a political yellow card from the Brazilian Senate, which voted to put her on trial for impeachment. Where’s the foul? The embattled leader is accused of illegally moving money from state banks to make the government deficit seem smaller. VP Michel Temer will act as President during the trial, which could last six months (get the red card ready). Temer inherits basically an utter mess: Brazil went from one of the fastest-growing emerging markets a decade ago to an economy set to contract around 4% this year, with inflation in the double-digits, lagging oil prices and a massive embezzlement scandal by national oil company Petrobras. Who’s excited for the Olympics?

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CORPORATE PRIMER
Shake Shack Finally Shines

It never feels good to fall short of expectations. With Shake Shack’s much-anticipated IPO in 2015, hopes were high that the fast-food chain would revolutionize the burger and shake experience. Unfortunately, things haven’t panned out—shares were down 60% over the past year. But that was yesteryear. The company’s Q1 earnings report yesterday handily beat analyst expectations, sending shares up over 7% after-hours. Favorable weather conditions drew in more customers than expected, and the launch of the “Chick’n Shack” sandwich (a stab at competitor Chick-fil-A) and the opening of three new domestic stores are off to strong starts.

Retailer Woes

No sugarcoating here: it sucks to be a retailer these days. The latest victims: Kohl’s and Nordstrom. Profits and revenues for both companies declined, and their stock prices hit freefall mode—9% for Kohl’s and a whopping 17% for Nordstrom. Don’t blame them, blame the market: large retailers are facing several hurdles to stay in business, including dwindling store traffic, increased competition from discount and online retailers and lower consumer spending. So what’s next? Kohl’s is planning to stock more national brands and tailor merchandise to suit local tastes—but will that cut it? Many are skeptical that the move will be enough to keep the company afloat, and are expecting more drastic actions to take place (company sale, anyone?). What’s the outlook? Unless Amazon and online shopping somehow disappear, don’t expect these brick and mortar retailers to pick it up.

Nissan Saves the Day

Mitsubishi failed to follow lesson #1 in the automotive industry—don’t do what Volkswagen did—and the Japanese carmaker has been paying the price ever since. After faking data to make its cars seem more fuel-efficient than they are, Mitsubishi is in a world of hurt. Thankfully, Nissan is here to pick up the pieces. Yesterday, the automaker announced that it would buy one-third of Mitsubishi. Nissan is hoping that the purchase will help save billions of dollars through combined development efforts while still allowing both corporations to remain intact. Can synergy save the sinner? We shall see.

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OTHER STORIES

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ECONOMIC CALENDAR

M&A BENDER COMES TO AN END

2015 was a mergers and acquisitions feast, with a record $4.6 trillion (with a T) in announced M&A deals. Unfortunately, we have some bad news: according to data provider Dealogic, more than $395.4 billion in U.S. mergers have already failed to materialize in 2016. Turbulent markets, reluctant targets and strict regulators have all helped to suppress the appetite for M&A:

  • Three of the largest collapsed deals this year: Staples’ merger with Office Depot, Pfizer’s takeover of Allergan and Halliburton’s purchase of Baker Hughes. Who loses? Mostly banks, with more than $300 million in advisory fees down the drain.
  • Allergan, a deal-making machine over the past five years, indicated this week that it’s stepping back from M&A. It announced a $10 billion share buyback, which typically indicates no big transactions on the horizon.
  • And let’s not forget about inversions here: the Pfizer-Allergan $150 billion pharmaceutical mega-merger, which would have moved Pfizer abroad for tax purposes, collapsed after regulators introduced new rules that made such “inversion” deals much more difficult to pull off, leading to its cancellation.

INTERVIEW QUESTION OF THE DAY

You have a balance and need to weigh objects. The weight of each object will be between one and 40 pounds inclusive and will be a round number. What’s the fewest number of weights that you need to be able to balance any of these objects? (Answer)

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BUSINESS PERSON OF THE DAY

Daniel Tully, a 42-year veteran of Merrill Lynch who served as CEO until 1996, passed away this week at the age of 84. Tully is credited with building Merrill Lynch into a top investment bank. During his six-year tenure as CEO, shares of Merrill’s stock tripled. He famously spoke out against Merrill’s mismanagement during the 2008 subprime mortgage crisis and supported Bank of America’s takeover of the firm.

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FOOD FOR THOUGHT

Our most loyal of Brewers may remember a November water cooler in which we discussed the growing trend of restaurants eliminating tipping. We specifically noted Joe’s Crab Shack, the nation’s first major restaurant chain to pilot a no-tipping policy. So how’d it go? Not well: the number of Crab Shack customers dropped 10%, causing the Shack to eliminate the policy.

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