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How Starbucks Lost the Top Spot in China’s Coffee Race

Starbucks is losing its prime spot among chains racing to meet China’s growing thirst for coffee.
Luckin Coffee has surpassed Starbucks as China’s biggest coffee chain by sales and units, company reports show, a comeback for the Chinese company after an accounting scandal that stalled its growth.

Flush with capital and under new leadership, Luckin now operates about 13,300 stores, with all but a handful located in China. That is roughly double Starbucks’s 6,800 locations in the country. To fuel its growth, Luckin has tapped rapid delivery services, mobile payment options and offerings such as a cheese-flavored latte that has been a hit with Chinese taste buds.

Seattle-based Starbucks, the world’s largest coffee chain, for decades has counted expansion in the world’s second-most-populous nation among its top priorities. Former CEO Howard Schultz has said China represents one of Starbucks’s biggest opportunities for growth—although it is a complicated place to do business. China is now Starbucks’s second-largest market by stores and revenue after the U.S.

Traditionally a tea-drinking society, China consumes little coffee compared with many other countries, but Chinese demand is growing, companies say. Analysts expect China to become the world’s largest consumer market in the next several years. Big Western brands selling to Chinese consumers face rising competition from local brands, as consumers begin to show a preference for them.

Coffee drinkers gather outside of a Starbucks in Beijing. PHOTO: MARK R. CRISTINO/EPA/SHUTTERSTOCK

Starbucks sales in China are growing, the company said, along with competition from Chinese rivals. Luckin declined to comment.

Kiki Pang, a Guangdong-based marketing executive, drinks coffee about twice a week. She often orders a Luckin latte for delivery to her office in the afternoon while working, and pays through the WeChat app.

“Starbucks used to be quite popular among young Chinese consumers,” said Pang, 26. “Now that young people in China have more beverage options, the dynamics have changed.”

Starbucks sought to establish a first-mover advantage after opening its first cafe in China in 1999. Schultz personally cultivated relationships in the country. The chain branched out from the country’s largest cities into smaller ones, building hundreds of new stores a year in the country and catering to coffee drinkers looking to linger in cafes.

The pandemic badly hurt Starbucks’s Chinese business, with its same-store sales in the country falling 17% in its 2020 fiscal year compared with 2019. Now, many Chinese consumers are continuing belt-tightening habits formed during the pandemic.

Starbucks executives have remained steadfast on China. The company said in November that it aims to add around 1,000 stores in China a year, growing to 9,000 by 2025. Executives said China would one day become Starbucks’s largest market. “I am very confident that is only the beginning,” Starbucks China Co-CEO Belinda Wong said at the November investor event.

Luckin, founded in 2017 and backed by venture capital during a tech funding boom in China, opened bare-bones stores at a faster clip than Starbucks’s more-elaborate cafes did. It centered its strategy around its mobile app and integrated delivery services from the outset, a to-go option Starbucks later added to its Chinese operations. Luckin had 3,680 stores by the fall of 2019, nearing the 4,130 Starbucks had built over two decades by that year. Luckin went public in 2019.

Former Starbucks CEO Howard Schultz recognized the potential for growth in China. PHOTO: CHINA PHOTOS/GETTY IMAGES

In 2020, Luckin admitted that it had fabricated around $310 million of its previous year’s sales. The

 delisted the company later that year. Luckin vowed to rebuild, bringing in new executives and investment from Chinese private-equity firm Centurium Capital. The chain opened its 10,000th store in China this summer, and celebrated by offering millions of customers coffee deals.

Luckin reported $855 million in sales for the quarter ended June 30, ahead of the $822 million Starbucks generated in its China business for the three months ended July 2, company filings show. Luckin’s sales lead widened in company reports in November.

Luckin has touted its value for consumers and some hit flavours, including a collaboration with popular Chinese luxury liquor brand Kweichow Moutai this year.

Another rising competitor is Chinese company Cotti Coffee, launched last year by Luckin founders no longer with the company. Cotti Coffee offers low-cost beverages geared toward young people, and in August said it had opened 5,000 stores in roughly a year.
Luckin uses a strategy that emphasizes integrated delivery services.JADE GAO/AGENCE FRANCE-PRESSE/GETTY IMAGES; YAN CONG FOR THE WALL STREET JOURNAL

Starbucks is pumping out its own new beverages in China, launching 28 there this summer. Executives said that Starbucks is the only coffee brand in China offering a full suite of beverages, food and merchandise, with prime locations around the country. It is building stores in smaller counties and in September opened a $220 million innovation center in China.

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Starbucks CEO Laxman Narasimhan said at the investor event that Starbucks provided a better experience and higher quality to Chinese consumers, compared with lower-priced rivals.

Sunny Shen, a business consultant living in the coastal Jiangsu province north of Shanghai, said she drinks coffee several times a week. Recently, she indulged in one of Luckin’s limited-edition Tom and Jerry mascarpone lattes. She also appreciates Luckin’s value.

She said: “Especially when they issue coupons, Luckin can be a half or a third of a Starbucks coffee.”

A converted oil tank houses a Starbucks store in Hangzhou. PHOTO: CFOTO/ZUMA PRESS
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How Buying a New Home Could Save You Money

For many, buying a new construction home is the dream. Everything is fresh and on-trend, there’s no haggling with emotional sellers, and you may even get a say in the home’s layout, features and amenities. In today’s market, buying new—rather than an existing property—might be an economical choice, too. As the median payment on a new mortgage creeps toward $2,200, most buyers are desperate to save cash wherever they can. And while improving your credit scores or shopping around can often help you snag a lower mortgage payment, builder-offered incentives—which have been on the rise in recent months—can also lead to notable savings.  “We’re seeing builders sweetening the pot for buyers,” says Nick Bailey , president of Re/Max LLC, a real-estate brokerage based in Denver. Those extras—plus some built-in insurance advantages—could theoretically save a buyer with a $500,000 budget $40,000 or more in just the first year of homeownership (though actual savings, if any, will vary quite a bit from buyer to buyer).  Here’s how buying new could help make your home purchase more affordable.

1. Builders are slashing prices

Though new homes typically cost slightly more than existing ones—the median sale price was $418,800 vs. $394,300 in September—builders have increasingly been cutting price tags. In fact, nearly a third of home builders reported reducing their prices in October, according to a survey from the National Association of Home Builders. It’s the highest share in nearly a year and roughly triple the share of price cuts seen July 2022. The size of the reductions are worth mentioning, too. Almost 40% of builders say they cut prices by 6% or more in October. So, a home on the market for $500,000 a month ago could be listed at just $470,000 today.

2. They’re offering lower mortgage rates

If slashed prices aren’t enough to get a mortgage payment in your budget, builders have another offer: A lower mortgage rate.  In response to today’s decades-high interest rates , some builders are now offering “buydowns,” chipping in to get home buyers reduced mortgage rates—at least for a time. (Essentially, the builder prepays the lender the interest for the years the mortgage rate is reduced). NAHB’s data shows that 29% of builders offered mortgage rate buydowns in October. “Many builders are using sales incentives—including mortgage rate buydowns—as a method of addressing housing affordability headwinds,” says Robert Dietz, chief economist at NAHB. Buydowns can be permanent, lasting for the entire term of the loan, but more often—at least with builder buydowns—they’re temporary, lasting for the first one to three years of the mortgage. Home builder Lennar, for example, offers what’s called a 2-1 buy-down. This allows home buyers to reduce their mortgage rate by 2 percentage points in the first year—say, down from 7.5% to 5.5%, for instance—and then by one point the following year. By the third year, the loan would revert to that original 7.5% rate (or you could refinance if rates had become more favorable).  In the above scenario, the buy-down would save you over $10,000 in interest during just the first year of a 30-year loan.  Another perk: Builders are also offering to pitch in on closing costs. These typically clock in around 2% to 6% of your total loan amount, or up to $30,000 on a $500,000 loan. According to the NAHB survey, 35% of builders offered to pay closing costs last month.

3. New home insurance is more affordable, too

The last way a new home could save you on your mortgage payment has little to do with builders—but instead, how much it costs to insure a property. And according to insurance pros, home insurance premiums —which are typically paid as part of your monthly mortgage payment—are often much more affordable on newer homes than older ones.  “Older homes may have issues like roof leaks,” says Angel Conlin, chief insurance officer at Kin Insurance in Chicago. “New homes, with fresh materials and construction, pose less risk to insurers.” (Just keep in mind: A new home—and new materials—doesn’t necessarily mean the place is perfect. So if you do opt for new construction, always get a home inspection.)  According to data from Policygenius, a new home costs 13% less to insure annually than a 10-year-old one and 32% less than a 30-year-old home. As of 2022, the average premium on a new home was just $1,200 per year. A 30-year-old home’s premium was $1,776.  “If you’re looking at two properties that have a similar size, construction type, and location with the difference being that one was built 30 years after the other,” says Pat Howard, a home insurance expert at Policygenius, “you can likely bank on the newer home having cheaper home insurance premiums.”

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Sam Altman’s Counter-Rebellion Leaves OpenAI Leadership Hanging in the Balance

SAN FRANCISCO—Two days after Sam Altman was ousted from OpenAI, he was back at the company’s office, trying to negotiate his return.

The former chief executive officer entered with a guest badge on Sunday and posted on X: “first and last time i ever wear one of these.”

The leadership of the company that created the hit AI chatbot ChatGPT remained unclear Sunday, as investors and many employees pushed over the weekend to restore Altman. He has been engineering a countercoup to retake control of one of Silicon Valley’s most valuable and high-profile startups.

The abrupt shake-up at OpenAI turns on one of the oldest tales in Silicon Valley: a breakup between a founder and his board.

But in this case it was a very particular kind of founder—the face of Silicon Valley’s artificial-intelligence revolution—and a very particular kind of board, which was tasked with making social good a priority over profit. The rupture threatens the future of the company and the billions of dollars investors had put into it.

Altman has also been considering starting his own venture, potentially with talent from OpenAI. He is pursuing both tracks: On Sunday morning, Chief Technology Officer and interim CEO Mira Murati sent a note to staff saying Altman would be returning to the San Francisco office later that day as discussions to reinstate him continued.

Over the weekend, Altman made clear to his allies that if he does return, he wants a new board and governance structure, people familiar with the matter said.

Two days after the board fired Altman, different explanations persisted for the initial firing. The board said Friday it pushed out the CEO after it concluded he hadn’t been candid with the company’s directors. It didn’t elaborate.

Over the weekend, people close to Altman said the ouster had more to do with disputes around the safety of the company’s artificial-intelligence efforts and a power struggle with one co-founder and board member in particular, Ilya Sutskever.

On Sunday, a person familiar with the board stood by the board’s statement citing Altman’s lack of candor. This person said there was no single precipitating incident but rather a mounting loss of trust over communications with Altman that led it to remove him as CEO. The person declined to offer examples.

The ouster from OpenAI wasn’t the first time Altman was asked to leave a company. Several years ago, senior leaders at the venture firm Y Combinator asked Altman to step down as president after mounting concerns about the time he was spending on his other business endeavours, including at OpenAI, according to investors briefed by the venture firm’s executives—information not previously reported.

In addition to OpenAI, Altman recently hatched plans for two new business endeavours. He enlisted Apple’s former chief design officer, Jony Ive, to create a consumer hardware device. And he recently spent weeks in the Middle East gauging investor interest for a new startup aiming to create low-cost chips needed to train OpenAI’s artificial-intelligence models, people familiar with the matter said.

It is unclear whether those efforts, or the communication around it, played into Altman’s dismissal. Bloomberg earlier reported on the new chips venture. The Information and the Financial Times earlier reported the new Ive venture.

With his firing from OpenAI, Altman quickly got the upper hand in terms of public messaging. The board didn’t use a communications or law firm in its dealings, people familiar with the board said, expecting that the OpenAI team would help them. But Altman had loyalty from investors and employees.

The board ended up isolated as social media exploded with shock and support for Altman. His largest backers, including Microsoft and Thrive Capital, immediately on Friday began pressing for Altman’s position to be restored. Microsoft CEO Satya Nadella began working with Altman that evening on his next steps, people familiar with Altman said.

Despite his business success, Altman had been losing the support of a board whose constituents changed as the company’s commercial efforts powered ahead. It was a board structure that he had ironically helped create and publicly promoted as he encountered questions about AI safety.

Before Friday’s dust-up, the board consisted of six people, including Altman. Then, it abruptly removed Greg Brockman, OpenAI’s president and a close friend of Altman’s, and voted to oust Altman. None of the four board members remaining were affiliated with the company’s big investors. It isn’t clear whether the vote was unanimous.

The board that took the action was down from the nine seats it had earlier in the year and lacked at least one key prior Altman backer. Earlier this year, Reid Hoffman, a Silicon Valley venture capitalist with a long history of supporting Altman, stepped down after starting a rival company to OpenAI.

Separately, Shivon Zilis, a tech executive at Elon Musk’s brain-implant startup Neuralink, and Will Hurd, who started a presidential campaign, also left this year.

The board had been working to fill those empty seats for months, though the process stalled, according to a person familiar with the matter.

The other four directors are: Adam D’Angelo, a former Facebook executive and the founder of the question-and-answer website Quora; Tasha McCauley, an adjunct senior management scientist at Rand; Helen Toner, a director at a Washington nonprofit; and OpenAI’s chief scientist, Sutskever.

Altman this weekend was furious with himself for not having ensured the board stayed loyal to him and regretted not spending more time managing its various factions, people familiar with his thinking said.

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Are there any affordable homes left in Australia?

Twenty years ago, almost all houses and apartments sold in Australia were priced under $500,000. Ordinary families routinely bought houses on quarter-acre blocks and only the affluent elite were buying real estate above the million-dollar mark. At the time, we called them ‘millionaires’ and the term meant uber-wealth.

Over the next decade-and-a-half, the magnitude of change to home values was immense. After a period of very strong price growth over the 2000s and early 2010s, only 50 percent of the housing stock was selling below the half-million mark by 2015. And today, the proportion of homes selling below $500,000 has hit an all-time low at 24 percent of houses and 39 percent of apartments, according to a report by Ray White. Many families are adopting apartment living due to affordability constraints, and first home buyers in Sydney and Melbourne are routinely purchasing starter homes for $1 million or more.

Australia has not always been a rapid-growth property market. Price growth was extremely subdued between 1880 and the 1950s. Prices began moving up in the post-WW2 era due to accelerated population growth and the end of government property price controls in 1949, explains PropTrack economist Paul Ryan. Then came the credit boom after Australia’s finance industry was deregulated in the 1980s and 1990s. Ordinary citizens en masse were able to access funding to buy their own homes, and property prices have grown exponentially ever since, with one of the biggest spikes in values occurring in the late 1990s and early 2000s.

Sydney has been the powerhouse of Australia’s property price growth over the past two decades, with the median value of a house now exceeding $1.1 million. Nerida Conisbee, chief economist at Ray White, says that over the past 12 months, less than 10 percent of all Sydney properties sold for less than $500,000. “Affordability is better in regional Australia, however, finding a low priced home in regional NSW is getting particularly difficult,” Ms Conisbee said. “Well under a third of all properties are now priced under $500,000.”

Nerida Conisbee says regional areas represent greater affordability for buyers, but that is starting to change.

Over time, property prices in large regional towns with good road access to Sydney have boomed as people accepted a commuter lifestyle in exchange for the affordability that regional NSW offered. Today, those satellite cities are expensive themselves. For example, the median house price in Wollongong is $975,000, and on the Central Coast it is $890,000, according to CoreLogic data. A similar phenomenon has occurred in Victoria. The pandemic brought about the work-from-home era, which prompted many people to leave Australia’s two most expensive cities – Sydney and Melbourne – for more affordable markets, pushing up prices significantly in regional areas across the country.

Over the past five years, a change has occurred across the capital cities, with the two most affordable cities recording the strongest price growth. CoreLogic data shows Hobart house values have grown the most over the five years ending 31 July, with a 62.5 percent uplift to the median house price to $710,000, followed by Adelaide with a 46.7 percent increase to a median of $675,000.

Today’s rental crisis and the ongoing affordability challenges faced by young people have caused much political debate about how to boost Australia’s housing supply as quickly as possible. History shows that new supply is the key to keeping property prices affordable, and many experts argue that new high-density housing in areas with established infrastructure such as roads and services is the fastest way to provide more housing for the country’s rapidly growing population.

Ms Conisbee points out that high levels of apartment development in certain markets have kept prices more affordable. “Places where we have seen extremely high levels of apartment development have the most availability of low priced apartments,” Ms Conisbee said. “Gold Coast and Melbourne are expensive places to buy houses but there are a lot of low priced apartments in Melbourne CBD, Surfers Paradise and Southport.

“For houses, a strong development pipeline has kept outer Perth cheap with Baldivis and Armadale having the most houses being sold under $500,000 over the past 12 months. Canberra’s rapid building program has meant that the proportion of apartments sold under $500,000 drastically exceeds the number of houses sold under this price point.”

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The Global Fight Against Inflation Has Turned a Corner

Inflation is falling faster than expected across advanced economies, marking a turning point in central banks’ two-year battle against surging prices.

Declines in consumer price growth, to below 5% in the U.K. last month and around 3% in the U.S. and eurozone, are fueling expectations that central banks could take their feet off the brakes and pivot to cutting interest rates next year.

That would provide welcome relief to a global economy that is struggling outside the U.S., increasing the prospects of a soft landing from a historic series of interest-rate increases without large increases in unemployment. Europe, in particular, is on the brink of recession.

Yields on government debt in Europe and the U.S. have slumped as investors start to price in earlier interest-rate cuts.

For months this year, economists puzzled over why growth and inflation hadn’t slowed more in response to interest-rate hikes. Now, there is growing evidence that higher borrowing costs are biting hard with a delay.

“It’s definitely a turning point for inflation,” said Stefan Gerlach, a former deputy governor of Ireland’s central bank. “Investors may be surprised at how rapidly central banks cut interest rates next year, maybe by one-and-a-half percentage point.”

The sharp declines in inflation across continents underscore how common factors drove up prices in the first place, especially the Covid-19 pandemic and Russia’s war in Ukraine. These crimped global supply chains, reduced the number of people in the workforce and fueled energy price increases, especially in Europe. As those forces subside, price pressures naturally ease.

Inflation was also given a boost by demand-side factors, such as trillions of dollars of government stimulus spending in the U.S., as well as pent-up demand and savings from consumers that accumulated during the pandemic. That, economists say, is why underlying inflation remains strong nearly four years after the start of the pandemic, and why rate increases were needed to bring it down.

Lower inflation “shows the effect of increasing rates by 4 or 5 percentage points,” Gerlach said. “Team Transitory were wrong,” he added, referring to a debate among economists over whether high inflation would subside by itself, a camp to which he belonged. “Our idea was that inflation would fall back without an increase in interest rates.”

Even countries where inflation has proved the most stubborn, such as the U.K., have started to show progress. Consumer prices rose 4.6% in October compared with the year-ago month, a drop from the 6.7% rate of inflation recorded in September and the slowest increase since October 2021, the statistics agency said Wednesday. Economists had expected to see a decline to 4.8%.

“The U.K. no longer looks like such a major outlier when it comes to inflation,” said Bruna Skarica, an economist at Morgan Stanley.

News of the U.K. decline followed Tuesday’s report of a larger than expected drop in U.S. inflation to 3.2% in October. The eurozone also reported a decline in inflation to 2.9% in October from 4.3% in September. Consumer prices were lower than a year earlier in Belgium and the Netherlands.

The cooling of consumer prices has persuaded some European policy makers that the battle to tame inflation has been won, and in a shorter period of time than in the 1970s, when a comparable surge in prices occurred.

“We’re in the process of exiting the inflationary crisis,” said France’s Bruno Le Maire before meeting with his fellow European Union finance ministers last week. “In a little under two years, Europe will have managed to control inflation, which weighs on our citizens, which weighs on households, especially the less wealthy.”

Investors are also more optimistic. They are pricing in interest-rate cuts by the Federal Reserve and European Central Bank starting next spring, and by the Bank of England next summer, according to data from Refinitiv.

Markets had priced a 30% probability of another rate increase by the Fed, from its current level of 5.25% to 5.5%, until publication of U.S. inflation data on Tuesday. That probability has now fallen to 5%, according to Deutsche Bank analysts. The prospect of a Fed rate cut by May soared from 23% on Monday to 86% by Tuesday‘s close.

Central bankers are more cautious after being surprised last year by the persistence of inflation. The Bank of England last month said it is too soon to think about cutting interest rates, having forecast that inflation would reach its 2% target in late 2025. Central bankers also point to the still-rapid rise in wages and the risk of higher energy prices if the conflict between Israel and Hamas spreads to other parts of the Middle East.

Morgan Stanley’s economists expect to see the Bank of England start to cut rates beginning next May, followed by the Federal Reserve and the European Central Bank in June. Regardless of the exact timing, there is a growing consensus that inflation is on the wane and lower interest rates will follow.

“We expect widespread declines in inflation and interest rates in 2024 across advanced economies,” Michael Saunders, a former BOE rate setter, wrote in a note to clients of Oxford Economics.

If so, it would raise the question of whether central banks overdid it with rate increases, especially in Europe.

Economists say those hikes are working their way through the economy, weighing on lending and spending. Job creation is slowing and unemployment is edging higher on both sides of the Atlantic, curbing wage growth. Households are becoming more reluctant to spend, as higher interest rates make it more advantageous to save, economists say. That weighs on growth prospects over the coming months.

U.S. retail sales fell 0.1% in October from a month earlier, the Commerce Department said Wednesday. That is the first decline since March and comes after a 0.9% increase in September. In the eurozone, industrial output declined by 1.1% in September from the previous month, official data showed on Wednesday.

The decline in inflation will be welcome news for political leaders, even if it has yet to boost their popularity.

While global factors contributed to the worst of the inflation surge and most of the recent decline, domestic economic conditions are likely to matter most as central banks enter the final stage—the so-called “last mile”—of getting inflation down to their targets of around 2%.

In the U.S., inflation is ebbing, as the labor market and consumer spending cool but remain solid. This has bolstered forecasts that price pressures will keep easing without a recession.

In Europe, the economic backdrop is more challenging. The continent faces headwinds to growth, from slowing global trade and sluggish growth in China, a critical export market, to efforts by governments to slow spending. Germany’s constitutional court on Wednesday ruled against a move by Chancellor Olaf Scholz‘s government to repurpose €60 billion in unused pandemic funds to finance green energy initiatives, creating a large hole in the state budget.

European households have also been more reluctant than their U.S. counterparts to spend pandemic-era savings. All that could lead to a deeper downturn and sharper drop in inflation in Europe, prompting earlier rate cuts by the ECB.

Despite the likelihood of lower interest rates ahead, a return to the period of ultra low interest rates that preceded the pandemic is deemed unlikely by many economists and investors, reflecting rising geopolitical tensions and demographic pressures.

Workforces are likely to shrink across major economies, including China, over the coming years as millions of baby boomers retire, driving up wages. And friction between China and the West will likely raise manufacturing costs as companies shift factories to other countries.

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Australia’s Unemployment Rate Continues Steady Rise

SYDNEY—Australia’s unemployment rate continued to rise in October, potentially ruling out a further hike in interest rates in December.

The jobless rate climbed to 3.7% in October from 3.6% in September, despite employment jumping by 55,000 over the month, the Australian Bureau of Statistics said Thursday.

The rise in the unemployment rate was expected by economists, but the jump in employment was more than twice the consensus estimate for a 20,000 increase.

The labor force participation rate rose to 67.0% in October from 66.8% in September, the ABS said.

The solid gain in employment in October follows news on Wednesday that wages grew at their fastest pace in more than a quarter of a century in the third quarter as a big rise in the minimum wage helped drive broad strength in new wage agreements.

Still, neither the employment gains nor the rising momentum in wages are likely to be enough to spark a further rise in interest rates at the RBA’s next policy meeting in early December.

The central bank is likely to look at the level of the official cash rate again in February when it reviews its economic forecasts and has seen another quarter of inflation data.

The RBA raised interest rates last week for the first time since June and left open the prospect of further increases if inflation pressures remain resilient. The central bank also revised up its forecasts for inflation in 2024 and 2025.

“It’s a very solid jobs report, highlighting continued tightness in the labor market and illustrating the dilemma the RBA faces as it looks to end its rate hike cycle in line with its global central bank peers,” said Tony Sycamore, market analyst at IG.

“While we don’t think today’s jobs [data] will prompt the RBA to raise rates next month, the RBA will need to see labor market and inflation data ease in the coming months to avoid having to raise rates early in 2024,” he added.

The large increase in employment in October followed a small increase in September of around 8,000 people, the ABS said.

The annual growth rate in hours worked fell to 1.7% in October, down from growth of around 5.0% in the middle of the year, showing that the job market is slowly losing momentum.

The underemployment rate remained at 6.3% in October, the ABS said. While this was 0.4 percentage points higher than October last year, the result was still around 2.4 percentage points lower than before the Covid-19 pandemic.

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Banks Earn Billions Thanks To Higher Interest Rates

Westpac, ANZ and National Australia Bank have reported their full-year results over the past fortnight, delivering billions in profits and splashing out boosted dividends to their shareholders.

Following 13 interest rate rises from the Reserve Bank since May 2022, all three of the big four banks reported a lift in their net interest income, which is the difference between the interest income they earned on loans less the interest they paid on customers’ savings deposits.

Rising interest rates mean the banks can charge more interest on existing and new loans. But they also have to pay higher interest on their wholesale funding to fund new loans, plus they have to pay a higher interest rate to customers with savings accounts. So, the Reserve Bank’s 13 rate rises did not go wholly and directly to the banks’ bottom lines.

In fact, all three banks reported that their business and institutional divisions produced the best results in FY23 – not their home loan divisions. But this is cold comfort to the millions of Australians whose home loan repayments have gone up exponentially over the past two years.

Here is a review of each bank’s full-year results for the 12 months ending 30 September.

Westpac

Westpac reported a 7% increase in net interest income to $18,317 million and a 26% increase in statutory net profit after tax (NPAT) to $7,195 million. The bank declared a final fully franked dividend of 72 cents per share, bringing its full-year dividend to 142 cents per share, up 14% on FY22. Westpac also announced a $1.5 billion share buyback.

National Australia Bank 

NAB reported a 13.2% increase in net interest income to $16,807 million and a 7.6% boost to NPAT at $7.414 million. The bank announced a fully franked final dividend of 84 cents per share, which brought its full-year dividend to 167 cents per share, up 11% on FY22.

ANZ

ANZ reported net interest income of $16,581 million, up 11%, and statutory NPAT of $7,098 million, down 0.3%. The bank declared a final dividend of 94 cents per share, comprising 81 cents with 65% franking and a one-off unfranked dividend of 13 cents. This brought its full-year dividend to 175 cents per share, up 20% on FY22.

The Commonwealth Bank reports on a different cycle to the three smaller players within Australia’s ‘big four’.

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Fisker Stock Tanks After Poor Earnings. EV Concerns Accelerate.

Stock in Fisker was falling sharply after the electric-vehicle start-up reported weaker-than-expected third-quarter numbers and cut full-year production guidance.

It wasn’t a great quarter.

Fisker (ticker: FSR) announced a third-quarter per-share loss of 27 cents from sales of about $72 million on Monday evening. Wall Street was looking for a loss of 23 a share from sales of about $143 million. This was Fisker’s first quarter of significant sales shipping the Ocean, its first EV.

Fisker delivered 1,097 vehicles and produced 4,725 in the quarter. The company added in its news release that 1,200 were delivered in October as well.

Full-year production guidance is now 13,000 to 17,000 units. In August, the company said it planned to build about 20,000 to 23,000 units this year. That was trimmed from earlier guidance. In May, Fisker’s production forecast called for 32,000 to 36,000 units in 2023.

“This is a very prudent change that we need to do to enable our global delivery and logistics platform to scale so we can serve our customers even better and we are not sitting on inventory,” said Chief Financial Officer Geeta Gupta-Fisker during the company’s earnings conference call.

Management expects full-year 2023 research and development, selling, general and administration expenses, and capital spending to be between $565 million and $640 million. That is the same range that was provided in August.

Fisker ended the quarter with some $625 million in cash and investments on its books. Wall Street expects the company to use roughly $75 million a quarter for the coming few quarters, according to FactSet.

“In a separate filing, Fisker warned that it will delay its 10-Q filing after finding material weaknesses in internal controls, stating that it was unable, without reasonable effort and expense, to complete the preparation of its quarterly report by November 9,” wrote CFRA analsyt Garrett Nelson in a research report Monday. That warning followed the departure of a former chief accounting officer, effective Oct 27.

He rates shares Sell and has a $1 price target on the stock. TD Cowen analyst Jeffrey Osborne rates shares Buy. His price target is $11 a share. He cited “growing pains” for weak deliveries adding in a report, “Arguably the key takeaway from results was that once Fisker is able to figure out the delivery end of the equation it should be able to scale production as needed to meet demand.”

Fisker stock was down 22% Tuesday while the market surged ahead following better-than-expected inflation data. The S&P 500 and Nasdaq Composite were up about 2% and 2.3%, respectively.

The stock gained 6.6% in regular trading Monday, closing at $4.11 a share. That is 26 cents away from where the stock closed at on Nov. 7. This earnings report wasn’t typical. Fisker was due to report earnings on Nov. 8, but delayed its report after hiring a new chief accounting officer. Fisker stock slid from $4.37 a share to $3.99 a share after the delay was announced on Nov 8.

Through Monday trading, Fisker stock was down 52% over the past 12 months while the S&P 500 and Nasdaq were up about 11% and 23%, respectively. Higher interest rates and lower prices for EVs, caused mainly by Tesla (TSLA) price cuts, have sapped investor enthusiasm for stock in EV start-ups that aren’t profitable yet.

Options markets implied the stock will move about 15%, up or down, following earnings. Shares have moved an average of about 12%, up or down, after the past four quarterly reports, gaining one time and falling three times over that span.

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8 Strange Things in Today’s Inflation Report

While consumer prices declined more than expected in October, there were some odd parts of the inflation report that stood out more than others.

The consumer price index climbed 3.2% in October from the previous year, which was a decline from September’s 3.7% increase. Growth from the prior month was flat, the Bureau of Labor Statistics said on Tuesday. Economists surveyed by FactSet were expecting gains of 3.3% for the year and 0.1% for the month.

“We need to see more months with soft inflation data, but the stock and bond market is celebrating today. We’re set up nicely for a year-end rally,” Gina Bolvin, president of Bolvin Wealth Management Group, wrote on Tuesday. The Dow Jones Industrial Average rose 461 points, or 1.3%. The S&P 500 gained 1.8% while the Nasdaq Composite jumped 2.1%.

Many investors and economists are focusing on data points such as how the gasoline index decreased from September, or how shelter costs increased. But digging deeper into the report provides some interesting—and arguably strange—details of prices that have changed drastically in the past month.

Overall food prices increased 0.3% in October from September. While that number might not be too noteworthy, there were certain food items that stuck out. For one, the price of uncooked beef roasts increased 4.1% from the previous month, while the cost of pork chops rose 3.5%. According to reports from the Agriculture Department, total cattle and hog inventory has been declining in recent months.

But while beef roasts and pork chops cost more for the American consumer, prices for apples dropped a whopping 7.9% in October from September.

It wasn’t only food that had some funky results. The prices of laundry equipment declined 5% in the month while photographic equipment and supplies increased 6.8%.

For sports fans, admission prices for sporting events jumped 3.6% from the previous month.

“These are things that could be affected by seasonal factors,” Raymond James’ Chief Economist Eugenio Aleman tells Barron’s. The National Hockey League began its regular season schedule on Oct. 10 while the National Basketball Association began its season on Oct. 24.

For people who are looking to buy their loved one a new jacket for the holiday season, women’s outerwear prices dropped 5.9%. But wrapping that coat will cost more as the price of stationary, stationary supplies, and gift wraps was up 3.5%.

Aleman said that these individual items—while interesting outliers—aren’t heavily weighted when looking at the total report.

“There are some of these items that are so small in the overall CPI that basically it’s probably not affecting much of the direction of the overall core CPI,” Aleman said.

Even if these items aren’t heavily weighted against the total inflation outcome, consumers are sure to notice these changes as they head into stores during the holiday season.

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Australians Intend to Spend $30 Billion This Christmas

Despite the cost of living crisis, Australians intend to spend $30 billion this Christmas on presents and festivities, which is about 10% more than they did in 2022. This averages out to about $1,479 per person, up from $1,361 in 2022, according to Finder’s Consumer Sentiment Tracker survey conducted last month.

The survey asked people aged over 18 in Australia’s five biggest states how much they intended to spend across the key categories of presents, food, alcohol, eating out and travel this Christmas. Victorians have the biggest spending budgets of $1,765 per person, followed by those in New South Wales at $1,657. The lowest spending state will be Queensland at $1,067 per person. Among the generational age groups, millennials intend to spend the most this Christmas at $1,924 per person on average, and Gen Z plans to spend the least at $1,023 per person.

The biggest budget category is airfares with an estimated $533 average spend per person. Residents of New South Wales will spend the most at $710 per person, while those living in one of Australia’s most traditionally popular holiday destinations – Queensland – will spend the least at $316 per person. Gen Y Australians will be the biggest travel spenders this season by a large margin, spending $898 per person for flights compared to an average of $440 or less across all other generational age brackets.

Domestic airfares hit a historical high in December 2022. They have since fallen but remain above pre-pandemic levels. A report released by the Australian Competition and Consumer Commission (ACCC) in June found that prices were coming down due to lower jet fuel costs, an easing in post-COVID travel demand and “the rising cost of living becoming a greater concern for consumers”.

But on a long-term view, the ACCC says a lack of industry competition means airfares will remain relatively expensive in Australia. “Without a real threat of losing passengers to other airlines, the Qantas and Virgin Australia airline groups have had less incentive to offer attractive airfares, develop more direct routes, operate more reliable services, and invest in systems to provide high levels of customer service, ACCC Chair Gina Cass-Gottlieb said. “Rex’s expansion onto major intercity routes and Bonza’s launch have been positive developments for competition, but their share of the market is small and there are barriers to growth.”

After flights, the next most expensive Christmas category was presents, with Australians planning to spend an average of $373. Among the remaining categories, Australians will spend an average of $249 on food, $192 on alcohol and $133 on dining out. Baby boomers are planning the booziest Christmas with an average alcohol spend of $524 per person, which is vastly higher than all other age groups who intend to spend $110 or less.

Many Australians say they are trying to rein in their spending by planning their Christmas celebrations early. The survey found 26% of respondents planned to take advantage of Black Friday sales and 25% will buy food and presents early to help control their spending. Almost one in five Aussies say they will implement a gift-giving limit, while 8% plan to make gifts and 7% plan to re-gift unwanted presents. Some families are giving up on gifts altogether, with 6% saying they’ve agreed to a present-free Christmas this year.

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China’s Spending on Green Energy Is Causing a Global Glut

China’s newest solar-energy manufacturers include a dairy farmer and a toy maker.

The new entrants are examples of a green-energy spending binge in China that is fueling the country’s rapid build-out of renewable energy while also creating a glut of solar components that is rippling through the industry and stymying attempts to build such manufacturing elsewhere, particularly in Europe.

Since the start of the year, prices for Chinese polysilicon, the building block of solar panels, are down 50% and panels down 40%, according to data tracker OPIS, which is owned by Dow Jones.

Inside China, some companies fear a green bubble is about to pop.

China’s state-guided economy spent nearly $80 billion on clean-energy manufacturing last year, around 90% of all such investment worldwide, BloombergNEF estimates. The country’s annual spending on green energy overall has increased by more than $180 billion a year since 2019, the International Energy Agency says.

The rush of funding hasattracted an unusual array of companies to the bustling business.

Last summer, Chinese dairy giant Royal Group unveiled plans for three new projects. There was a farm with 10,000 milk cows, a dairy processing plant and a $1.5 billion factory to make solar cells and panels.

“The solar industry is improving over the long term, and the market potential is huge,” Royal Group wrote in a document outlining the project last year. More recently, Royal Group said it wants to create synergies between its core agricultural business and photovoltaics, “and promote solar technology to empower dairy owners to reduce costs and increase efficiency,” the company said in a response to The Wall Street Journal.

The milk manufacturer wasn’t alone in jumping on China’s solar bandwagon in the past two years. Other newbies include a jewelry chain, a producer of pollution-control equipment and a pharmaceutical company.

The newcomers are helping an ambitious wind and solar push in China—this year alone the country is set to install roughly as much solar as the U.S. has in total, Rystad Energy estimates.

Meanwhile, Chinese exports of everything from batteries and electric vehicles to solar panels and wind turbines have surged, raising hackles in places such as Europe and the U.S., which are trying to grow their own domestic clean-energy manufacturing.

In solar, the investment is an important reason for the huge oversupply of components, and falling prices that are pummeling profits at manufacturers around the world. Many established Chinese solar companies are warning that the fallout could be grim, with losses or bankruptcies looming.

“The entire industry is about to enter a knockout round,” said Longi Green Energy Technology, one of China’s biggest solar-manufacturing companies, in its half-year financial report in August.

At least 13 companies, including Chinese industry leaders such as Jinko Solar, Trina Solar and Canadian Solar, have put capacity expansion plans on hold, according to TrendForce, a Taiwan-based market intelligence firm.

Many Chinese manufacturers have been trying to unload inventory at bargain prices in Europe, one of the few big solar markets without tariffs or other barriers to panel imports. While European solar developers are delighted, the region’s already hard-pressed manufacturers are crying foul.

Some European producers were already struggling with homegrown challenges such as slow permitting, a lack of skilled labor and high energy costs, making it difficult to compete with Chinese counterparts.

The oversupply was exacerbated by barriers to imports in India and the U.S., which threw off Chinese manufacturers’ forecasts and left their panels languishing in ports and warehouses. The U.S. proved particularly unpredictable with the threatened imposition of antidumping duties and the implementation of the Uyghur Forced Labor Prevention Act, which ended up preventing panels made with Chinese polysilicon from entering the country.

The Chinese solar-manufacturing industry has gone through booms and busts before and had its share of odd new entrants. Tongwei Solar began as a fish-feed supplier that acquired a solar-panel maker during the downturn of 2013 to complement its aquaculture business with solar parks. Tongwei is now the largest polysilicon maker in the world.

This time, more than 70 listed companies—ranging from fashion, chemicals and real estate to electrical appliances—have entered the solar sector in 2022, according to data intelligence company InfoLink.

In February, Zhejiang Ming Jewelry, which runs 1,000 gold jewelry stores in China, announced plans to invest $1.5 billion to build a solar-cell factory. Last August, toy maker Mubang High-Tech announced a joint venture with the local government for a $660 million solar-cell production base.

Supply-chain disruptions from the pandemic squeezed inventories and pushed up prices in previous years. European solar buyers ordered large amounts of panels as they became available, while many Chinese manufacturers overestimated demand, said Matthias Taft, chief executive of BayWa r.e., Europe’s biggest solar distributor.

“We and others ordered massively” during the second half of 2022, he said.

The recent drop in solar prices meant Chinese panels are selling for around half of manufacturing cost for members of Europe’s solar-manufacturing industry association, said Johan Lindahl, the group’s secretary-general. Around 40% of the panels manufactured this year by members who responded to the association’s survey were languishing in inventory.

One Norwegian producer of solar wafers, a key panel component, went bankrupt in August. Its sole remaining European rival, NorSun, stopped production in recent weeks because its customers—mostly European solar cell and panel manufacturers—weren’t able to sell their products, said Carsten Rohr, NorSun’s chief commercial officer.

At this rate, Europe’s dependence on Chinese solar is increasing rather than decreasing, said Gunter Erfurt, chief executive of Swiss solar cell and panel manufacturer Meyer Burger. The company has opted to postpone its planned European expansion and instead ship the manufacturing equipment to a new factory in the U.S., which has offered big government subsidies to solar manufacturers.

Market watchers say the oversupply may work itself out faster than expected, because some companies are likely to cancel or postpone expansion plans and others are retiring old factories in favor of new ones.

Still, some Chinese industry executives such as Liu Yiyang, deputy secretary-general of the China Photovoltaic Association, are calling for local governments to tap the brakes on green-tech investment.

In January, the Shenzhen Stock Exchange issued a letter of concern to Suzhou Shijing Technology, known for its pollution-control equipment. The exchange asked Shijing from where it was drawing its investment capital of $1.5 billion to build a solar-cell factory. The company’s total assets are valued at only $450 million.

In its reply, Shijing said 60% of the investment would be provided by the local government, including building the factory infrastructure and dormitories as well as granting equipment and electricity subsidies.

When asked about the progress of the solar project, Shijing referred to its public statements. In the latest quarterly report in October, the company noted it was proceeding in an orderly manner.

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How Long Does It Takes To Build A House? Construction Times Are At A 10-year High

The average time it takes to build a new house in Australia has risen to its highest level in more than a decade, according to peak industry body Master Builders Australia. Average building times have blown out from 8.7 months in 2020-21 to 11.7 months in 2022-23 amid labour shortages, higher costs of materials, and a slew of building companies going bust.

The average length of time between approval and completion of townhouses has also expanded from 12.7 months in 2020-21 to 14.9 months today. Apartment building times hit a record high of 30.6 months in 2020-21 but this has now moderated to 28.8 months. Master Builders Australia CEO Denita Wawn said this was still far too long. “When our output of new apartments was at record levels back in 2015-16, it took just 21 months to complete a build,” she said.

The cost of building materials initially rose in the period immediately after COVID, with shipping costs exploding and then global inflation pushing prices even further. “Since the pandemic, building product prices have increased 33 percent,” Ms Wawn said. “While we are seeing a stabilisation of some building product prices primarily around steel, some products such as cement continue to escalate.”

Rising costs are a key reason why many small building companies have become insolvent. The fixed-price contracts they signed with some homeowners prior to the materials pricing surge meant many builders were forced to complete projects at a loss or on a very small margin.

But Ms Wawn said the industry’s challenges go far beyond temporary COVID-related impacts with a “formidable set of impediments in the form of planning delays, insufficient land release and red tape”. As a result, housing construction has not kept pace with Australia’s traditionally strong population growth, leading to a critical point today. Master Builders forecasts that new home starts will decline by 2.1 percent to about 170,100 in 2023-24, which it says is well below the 200,000 needed per year to meet population growth. Nerida Conisbee, the chief economist at Ray White, said the population rose by 500,000 people in 2022, which meant 200,000 new homes were needed but only 172,000 were built. 

Amid surprisingly strong property price growth in 2023 and a national rental crisis, the Federal Government has set a target of building 1.2 million homes over five years from 2024. However, many industry insiders question how this is going to get done. Ms Conisbee said the closest Australia has ever gone to building 1.2 million homes over five years was in 2015-20 when 1.05 million homes were built.

“This was a period in which we saw the biggest influx of Chinese capital ever recorded and there were thousands of apartments built across our CBDs and close to universities,” Ms Conisbee said. “The Chinese capital has mostly evaporated and there is nothing as significant to replace it. Ultimately, most of the money will come from households, whether in the form of people buying homes to live in or to invest in. The problem right now is high interest rates are preventing many from being able to buy new homes. Monetary policy is choking housing supply.”

Additionally, Ms Conisbee said an entrenched NIMBY (not in my backyard) attitude makes it tough for local councils to approve medium to high-density projects. “There continues to be a resistance to densities in our suburbs and this makes it difficult for town planners to get projects approved,” Ms Conisbee said. “Fortunately this is one area that the Government can more easily control and we have seen the announcement of many rezonings across Australia in recent months.”

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Room to breathe at the Bend

Escaping the city may have become a priority for many in Melbourne, but sacrificing the joys of city living is not.

Less than 10 kms from Melbourne Mills Townhouse at YarraBend, deftly balances the best of both worlds. It has a location with easy access to nature trails and community gardens, but also offers all the modern convenience of city living.

Located just 6.5 km from Melbourne, it’s close to Heidelberg Road shopping precinct for essential groceries, plus generous fitness options. Want to improve your tennis game? You can practice at Tennis Lessons Melbourne. What about a quick nine holes of golf of Friday morning? There’s a great course at Yarrabend.

While going out is easy, there’s still plenty of room to cocoon at home.

Designed by Conrad Architects the interiors are crisp and timeless. Natural, high-quality finishes make this home a blank canvas to stamp your style on.

An urban floor plan is split over three levels. The ground floor allows access to the home via a rear, secure double garage and up above there are three bedrooms and three bathrooms to play with. Thanks to a clever floor plan, there’s plenty of space to unwind and cocoon.

One of the best features is the sense of privacy on each level.

A cinch for weekend entertaining, the sleek island kitchen is a highlight. Here you’ll find dual Miele ovens, stone marble benchtops and splashbacks, as well as a double sink and lots of storage. Wide engineered floorboards in living areas keep the interior clean and fresh, while soft, plush carpet in the bedrooms, make it cosy in the more intimate spaces. A separate laundry room, study nook, and ensuites in two of the bedrooms – including a master with bathtub and walk in robe – give it the feel of a full-sized house without the high maintenance.

The location is also, close to an emerging dining precinct called The Bend which has already attracted hot chef talent like Adam Da Sylva from Tonka, on Flinders Lane.

Need to drop children to school? The hood is blessed with a quick drop off for the kids at Alphington Primary school or, Alphington Grammar.

As part of the YarraBend area, residents can also look forward to easy access to future amenities, including casual laneway eateries and a wellness centre with yoga and massage room, private pools, and on site co-working spaces.

Attractive to remote and hybrid workers Alphington is on the doorstep of a burgeoning hub, where purchasers will enjoy green spaces to breathe in and plenty of distraction around The Bend.

Uncover a new lifestyle mix here.

The listed price is $1.525m, but email property@kanebridge.com.au for developer discounts.

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What Aussies Are Doing To Cope With The Cost-of-living Crisis

Mortgage holders are limiting household spending and refinancing their loans, while a rising number of young Australians are moving back home with their parents. These are some of the ways in which people are dealing with today’s cost-of-living crisis, which has been caused by the highest inflation rate in two decades along with rising interest rates and rents, according to research by Finder.

Three in four Australians surveyed in September said they were somewhat or extremely stressed about their financial situation. This includes 84% of mortgage holders, up from 76% in September 2021. Finder says almost $15,000 in extra interest costs have been added to the annual repayments of an average Australian home loan. And that was before the Reserve Bank of Australia raised the official cash rate again this week. The RBA raised rates by 25 basis points to 4.35%. That was the 13th increase since May 2022 and takes the cash rate to its highest level since 2011.

The research cites data from the Australian Bureau of Statistics showing the total monthly value of refinanced home loans peaked at $22 billion in June. Finder says more than 70% of refinancing borrowers were going to a new lender rather than renegotiating with the existing one. However, the savings were fairly small. On average, refinancers went from a variable rate of 5.01% to 4.78%.

Graham Cooke, Finder’s Head of Consumer Research, said “the willingness of homeowners to refinance for even marginal gains underscores the pervasive cost-of-living crisis, reflecting a desperate search for any fiscal relief.” He added that millennial homeowners were struggling the most today. “This could be a sign that they jumped in when rates were at record lows and were unprepared for an environment where rates and repayments increased.”

Finder says young renters are increasingly moving back in with their parents to escape rising rents or to save to buy a home. Unaffordable rents prompted 30% to move back home. A further 30% did so to save money for a home deposit, while 14% said the loss of a job forced a change in living arrangements. Mr Cooke said interest rate rises were actually having a higher impact on renters, given landlords typically pass on higher costs to tenants through rent increases.

Cutting discretionary spending is another method of coping with rising costs. The Finder research shows 45% of Australians have cut back on dining out or ordering home delivery, 32% are shopping around for better prices, 23% have reduced beauty and self-care treatments, and 19% have cancelled a holiday. A small proportion (3%) have moved their child to a different school with lower fees.

Refinancing advice

Mr Cooke said it was important not to rush a refinancing decision. “There is a significant gap in rates offered by different lenders for comparable loan products. The best thing you can do is take the time to review and compare your home loan options to ensure you’re getting the most competitive rate. It’s never too late to find a better home loan deal.”

Advice if you’re moving back home

Mr Cooke said there was no point ‘returning to the nest’ without changing your spending habits. “Prioritising a budget is critical. Start cutting out non-essentials and look for ways you can save money. Working out all your expenses to the smallest detail will give you an idea of how much capacity you have to save.”

Tips for cutting spending

Finder says shopping around can help reduce non-discretionary spending as well. Finder recommends that consumers consider switching energy providers and insurers, and use a high-interest account for savings. RateCity recently reported that nine financial institutions on its panel are now offering savings account interest rates that are above inflation at 5.5% or more.

Take up a side hustle

Finder research also shows 35% of Australians are earning extra income through side hustle jobs like dog walking, mystery shopping, tutoring, freelancing and ride-share driving. Popular non-employed side hustles include recycling cans and bottles, making and selling goods, selling pre-owned goods and renting out a spare room or garage.

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Iger Lays Out Vision for Disney’s Future

Nearly a year after returning to Disney as chief executive, Bob Iger laid out his vision of the company’s future, putting streaming and live entertainment at the centre, fed by a studio business that he plans to personally help reinvent.

Iger told investors in a fourth-quarter earnings call that Disney will focus on four “building blocks” that provide the foundation for future growth: streaming, theme parks and cruises, studios and the ESPN sports network.

Disney said Wednesday it would slash $2 billion more in costs than previously planned as the company sharply narrowed losses in its streaming business.

There are still major challenges to overcome. Disney’s streaming business has lost nearly $11 billion since the launch of Disney+ in late 2019. Its movie studio is in the midst of a box-office slump that has been exacerbated by delays caused by Hollywood strikes, and ESPN is looking for strategic partners as it plans to eventually transform into a streaming-only business by 2025.

“A lot of time and effort was spent on fixing in the last year,” Iger said during a conference call Wednesday. The company’s progress means Disney can “move beyond this period of fixing and begin building our businesses again,” he said.

Iger said the studio would focus more on quality than quantity and that it lost some of its focus during and after the pandemic. “We’re all rolling up our sleeves, including myself, to do just that,” he said.

Some of Disney’s core franchises, including its Marvel superhero movies and series, have struggled to attract big audiences to theaters in recent years.

Lucasfilm, the Disney-owned studio behind the lucrative and popular “Star Wars” movies, hasn’t released a feature film since 2019 and doesn’t have one in production currently, meaning it will likely be several years before the next one comes out. And Pixar, the marquee computer animation studio that has dominated the box office for the last several decades, has had a series of box-office flops.

The common thread underlying Disney’s recent challenges and potential opportunities is the transition from traditional media like film and legacy TV to streaming, which has upended Hollywood’s business model and roiled nearly every entertainment company.

In his comments Wednesday, Iger stressed the importance of getting streaming right. The company’s main streaming service, Disney+, added 6.9 million “core” subscribers—those in North America and other markets such as Europe and Asia, excluding India, where it is able to charge higher subscription prices—in the most recent quarter, about twice what Wall Street analysts polled by FactSet predicted. Disney+ added 500,000 domestic subscribers.

The company highlighted the popularity on Disney+ of recent movies including “Elemental,” the Marvel superhero film “Guardians of the Galaxy Vol. 3” and the recent live-action remake of “The Little Mermaid.”

“One thing that we have recently really come to appreciate is the performance of our big title films,” Iger said. The strength of its films on streaming means Disney can spend less on TV series, which is a differentiator for the company, Iger said.

The entertainment giant said Wednesday it is seeking $7.5 billion in cost cuts, up from the $5.5 billion it targeted at the beginning of this year.

Disney reported that its streaming business is making progress in narrowing its losses. The business, which also includes Hulu and ESPN+, lost $387 million in the most recent quarter, down from $1.47 billion a year earlier. The company reiterated that it believes streaming will break even by next September.

Disney has begun reporting more detailed results from its ESPN sports network as it seeks strategic partners to invest in the flagship sports network’s future.

ESPN’s operating income for fiscal 2023 fell 1.7% to $2.8 billion, while revenue rose 2% to $16.4 billion. Disney owns 80% of ESPN through a joint venture with Hearst, and Iger has said the company is working to transform the network into a fully direct-to-consumer platform, with live sports and other sports content streamed to consumers outside the cable bundle.

Excluding ESPN, Disney’s traditional TV networks saw revenue fall 9.1% for the quarter to $2.62 billion. Operating income from the networks was flat at $805 million.

During a CNBC interview Wednesday, Iger said the company has been considering strategic options for each of its TV networks, though “not necessarily all of them,” and has been reviewing its TV operations for opportunities to reduce costs and improve the business. This past summer, he said the legacy networks may not be core to Disney, suggesting it could sell them.

Other bright spots in Wednesday’s quarterly earnings included Disney’s experiences segment, which includes theme parks, cruise ships, a family-adventure travel-guide business and merchandise licensing. The unit’s operating income rose 31% from the year-earlier quarter to $1.76 billion. Disney has raised prices at its theme parks and announced major investments in its cruise ship business in the hopes of capitalising on rising demand for in-person entertainment experiences.

The entertainment giant, which just passed its 100th birthday, generated sales of $21.2 billion for the quarter, up 5% from a year earlier. Revenue for the period was slightly below the $21.4 billion predicted by analysts polled by FactSet.

Disney’s net income rose to $264 million in the September quarter, from $162 million a year earlier. Disney’s earnings per share, excluding certain items, were 82 cents, beating Wall Street’s projections by 11 cents.

Disney shares rose nearly 3% in after-hours trading. Before the earnings report, the stock had fallen 2.7% in 2023.

Overall, Disney+ ended the quarter with 150.2 million global subscribers, including those signed up to its Hotstar service in India. That service has shed millions of customers over the last year after Disney lost a bidding war for the rights to stream matches from a popular cricket league, and Disney is exploring a sale of its India unit, The Journal has reported.

Although the company fended off an activist campaign by Nelson Peltz earlier this year, Iger now faces the specter of another battle.

The Wall Street Journal reported in October that Peltz’s Trian Fund Management is planning a fresh push for board seats. Billionaire and former Marvel executive Isaac “Ike” Perlmutter has said he has entrusted his stake in Disney to Trian for that effort, giving the investment fund control over a stake worth upward of $2.5 billion.

Iger said in the CNBC interview that he had spoken recently with Peltz but he doesn’t “know what Nelson is really after.”