Japan tax hike lifts inflation to 23-year high

TOKYO (AP) — Japan's consumer prices rose 3.2 percent from a year earlier in April to the highest level since 1991, the government said Friday, largely due to a sales tax increase that is expected to dent growth this quarter.

Other April data for the world's third-largest economy were largely in line with forecasts. Industrial production fell 2.5 percent from a year earlier and household spending sank 4.6 percent. Unemployment was 3.6 percent, the same as in March.

Prime Minister Shinzo Abe's policies aimed at ending a deflationary slump that has slowed growth for nearly two decades have made some headway, though the inflation rate remains well below the 2 percent target set by the central bank and government when the tax hike is factored out.

Japan raised its sales tax to 8 percent in April from 5 percent. Japan's central bank estimates that 1.7 percentage points of the inflation rate in April could be attributed to the tax hike. The 3.2 percent figure is for the core consumer price index, which excludes fresh food.

In its latest assessment of Japan's recovery, the International Monetary Fund said Friday that Japan appeared to be weathering the sales tax increase and exports are expected to begin picking up as demand overseas rebounds. It forecast that inflation would remain modest at 1.1 percent in 2014.

But it cautioned that Japan needs deep, structural reforms to support growth.

"Near-term risks to the outlook are balanced, but the sustainability of the recovery over the medium term is at risk," it said.

Consumers and businesses ramped up spending ahead of the tax increase, boosting demand temporarily. The economy is expected to contract or at least slow sharply this quarter.

Economists say wage increases are needed to ensure the strong consumer demand that would prompt companies to begin investing more for future growth.

Shortages of labor in some areas, such as construction and trucking, have been pushing prices and to a limited extent wages higher. But so far overall incomes have not kept pace with the tax hike and price increases.

Prices in Japan rose partly due to higher costs for energy as the yen weakened against the dollar because of massive monetary easing. Many businesses raised prices or offered less for the same price to compensate for their own higher costs.

Revving up consumer demand through stronger purchasing power will be crucial, said Stephan Danninger, Asia and Pacific division chief for the International Monetary Fund.

"The need for inflation to be meaningful in contributing to a stable and faster growing economy is through demand and not through the input of higher prices," he told a seminar in Tokyo on Friday.

The dollar is now buying about 101 yen compared with 80 yen two years ago. But the yen's recent stabilization near 101 to the dollar means inflation is getting less of a push from the exchange rate than it did last year.

"The sharp fall in import price inflation points to a slowdown in consumer inflation in coming months, which should provide some relief to households' battered finances," Capital Economics analyst Marcel Thieliant said in a commentary.

Massive monetary easing by the Bank of Japan has mainly given the government leeway to work on reforms needed to enhance Japan's competitiveness in the longer run and to repair government finances, said Masaaki Kanno, chief economist at JP Morgan in Tokyo.

The April 1 tax hike and a further 2 percentage point increase planned for next year are part of the government's effort to bring under control Japan's huge public debt, which is more than twice the size of the economy.

"One of the most important roles is for the BOJ to buy time," said Kanno.

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Amex sells half of business travel arm for $900m

A half stake in the business travel division of American Express is

being sold for $900 million to partners that include Qatar’s sovereign-wealth fund.

Amex will create a joint venture with an investor group led by Certares International Bank and Qatar Holding.

The business will use the American Express brand and be headed by Bill Glenn, the New York-based firm’s president of global commercial services.

The Amex consumer travel operation is not part of the deal.

The deal is expected to be completed in the second quarter, and Amex may invest some proceeds in growth initiatives, according to the company.

The card issuer cut its travel services staff last year as consumers and businesses relied more on digital technology for bookings.

Travel commissions and fees fell 1.4% to $1.9 billion last year, and Amex said in September it was considering a spinoff valued at $700 million to $1 billion.

Amex chief executive Kenneth Chenault said: “The joint venture reflects our continued commitment to the travel business through a new structure.”

The division employs more than 14,000 people, operates in 139 countries and handles more than $19 billion in spending.

Qatar Holding is a subsidiary of the Qatar Investment Authority that controls more than $100 billion of assets.

New York-based Certares is led by Michael Gregory O’Hara, a former chief investment officer of JPMorgan Chase & Company’s special investments group.

He will serve as chairman of the joint venture.

Source: www.travelweekly.co.uk

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McDonald's game plan to win back customers

NEW YORK (AP) — McDonald's is fighting to hold onto customers amid intensifying competition.

On Monday, the world's biggest hamburger chain said an important sales figure fell again in the U.S. The company blamed bad winter weather in part, but also conceded that "challenging industry dynamics" played a role.

At a time when chains like Chipotle and smaller players like Five Guys Burgers and Fries are growing, here are a few strategies McDonald's Corp. is focusing on:

CUSTOMIZATION

People want to be able to dictate exactly what they want on their orders. It's why chains like Chipotle and Subway have done so well in recent years.

So McDonald's is trying to allow for more customization, in part by rolling out new prep tables at its more than 14,000 U.S. locations. The new tables can hold many more toppings and sauces than the old tables, signaling that McDonald's plans to offer greater variety.

The chain is also testing a "build-your-own-burger" concept in Southern California. Even if the test is successful, however, don't expect to see it at a McDonald's near you anytime soon — rolling out that kind of product across all restaurants would require considerable changes in the kitchens.

BREAKFAST

McDonald's has long dominated the breakfast hours and plans to play up favorites like the Egg McMuffin as it faces more competition as people increasingly buy breakfast on the go.

Taco Bell, for instance, is readying for its national breakfast rollout, and Starbucks recently revamped its sandwiches.

To strengthen its No. 1 position in the morning, McDonald's says it will also push the quality of its coffee in marketing. Executives note that quality coffee has become a priority for many people and that it can bring them in the door. It's one of the reasons the chain's coffee cups were recently redesigned.

McDonald's is also testing breakfast pastries in San Diego.

CORE MENU

McDonald's executives have conceded that they rolled out too many new items too quickly in the past year. That led to kitchen operations becoming too complicated and orders taking too long to fill.

So the chain says it will slow its pace of new offerings. It's also trying to add variety using items already on its menu. That might mean introducing McWraps and Quarter Pounders with different toppings and sauces, rather than new burgers entirely.

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J.C. Penney surprises investors with better-than-expected quarter

Vernon Bryant/Staff Photographer

In CEO Mike Ullman’s upbeat presentation, analysts learned that J.C. Penney is nowhere near throwing in the towel. In fact, towels have traditionally been among Penney’s strongest sellers.

J.C. Penney CEO Mike Ullman tried to calm concerns about ongoing cash needs while delivering better-than-expected results on Wednesday.

Penney is on a path to recovery, he told analysts after reporting a smaller-than- expected fourth-quarter loss and a profit when one-time benefits are added in.

The upbeat presentation wasn’t exactly what investors expected, and Penney’s stock is trading at historic lows this year. Results were released after the market closed, and shares will probably trade higher Thursday.

Ullman’s positive outlook included telling analysts that the company doesn’t plan to close more stores this year beyond the 33 previously announced. Those stores will close by May.

Other highlights:

The company expects to fund its turnaround this year without borrowing more money and said it will have $2 billion at year-end.

Penney predicts its sales will increase about 5 percent in 2014, including a first-quarter same-store sales increase in the range of 3 percent to 5 percent.

The effects of deep clearances to discontinue brands won’t be a big factor this year because the old merchandise has been sold.

In the 10 months since he arrived, Ullman said, Penney has been through a period of stabilization and rebuilding. Now it’s in what he called the “go-forward phase” to position the business for long-term growth.

Morningstar analyst Paul Swinand said Ullman has calmed its vendors, whose confidence is crucial to any retailer.

“Ullman has done a lot with his leadership and putting a plan in place and carrying it out. When your vendors have confidence in what you’re doing, that gives a retailer a lot of breathing room,” Swinand said.

Penney chief financial officer Ken Hannah said the company sees a “path forward to generating free cash flow.”

Penney has spent $3 billion in the last couple of years, scaring investors who can’t see an end to Penney’s cash burn. But if sales go up and costs continue to be contained, there’s a chance it could become profitable again, Swinand said.

Plenty of analysts are skeptics. Penney was one of the most shorted stocks in the market because investors were betting that it couldn’t dig out of former CEO Ron Johnson’s failed and costly transformation that started in late 2011 and continued into 2013.

Charles Sizemore, chief investment officer at Sizemore Capital in Dallas, said it bodes well for the chain’s survival if Penney can postpone going to the debt markets.

“The stock is cheap, but no one thinks Penney is going to be a leader in the retail industry anytime soon,” Sizemore said. Investors will be buying the stock Thursday and bidding up the price, he said, and some of those will be covering their short positions.

Penney reported a fourth-quarter net loss of $206 million, or 68 cents a share, which was better than analysts expected. In the fourth quarter of 2012, Penney posted a net loss of $552 million, or $2.51 a share.

With a one-time tax benefit and a gain from the sale of assets, Penney reported a fourth-quarter profit of $35 million, or 11 cents a share. Analysts surveyed by Thomson Reuters had forecast Penney would report a loss of 82 cents a share.

Total sales of $3.78 billion compared with $3.88 billion a year earlier. Same-store sales, a more closely watched measure, were up 2 percent, and online sales increased 26.3 percent to $381 million.

Penney said its gross margin, or rate of profitability, will improve. The fourth-quarter gross margin was 28.4 percent, compared with 23.8 percent a year earlier. Historically, Penney’s gross margin has been around 38 percent.

The most recent profit margin includes the effect of selling clearance merchandise of brands that are being discontinued, Penney said.

Brands going away include JCP Men’s, Stafford Prep, JOE by Joseph Abboud, William Rast, Joe Fresh Kids and JCP Everyday. It’s also downsizing other brands, including Joe Fresh in women’s apparel, Michael Graves Design, Conran and several in the home department.

Home, men’s apparel, women’s accessories and Sephora shops inside Penney were the company’s top-performing merchandise divisions in the fourth quarter.

Separately Wednesday, Penney said in an SEC filing that it received a termination letter from the Security and Exchange Commission’s Fort Worth office saying that it had concluded its investigation and was not recommending SEC action.

That investigation had to do with Penney’s comments and actions about its liquidity, cash position, and debt and equity financing, as well as the company’s underwritten public offering of common stock announced Sept. 26.

Follow Maria Halkias on Twitter at @MariaHalkias.

News Source: www.dallasnews.com

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