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    Here’s why the minimum wage and some tax breaks don’t budge despite inflation

    Annual 401(k) plan contribution limits and federal income tax brackets get an inflation adjustment each year.
    However, many common financial mechanisms like the minimum wage aren’t indexed to inflation.
    Others include financial thresholds tied to taxes on Social Security benefits, accredited investors and certain tax deductions.

    Martin Barraud | Ojo Images | Getty Images

    Many Americans are likely familiar with financial thresholds that are adjusted for inflation each year.
    They include contribution limits to 401(k) plans, cost-of-living adjustments for Social Security benefits and federal income tax brackets, to name a few.

    These tweaks help households keep pace with the rising cost of living.
    For example, without adjustments, more households would generally creep into higher tax brackets over time and the buying power of Social Security beneficiaries would fall.
    But some thresholds, like the federal minimum wage, aren’t inflation-adjusted.
    What is and isn’t inflation-indexed largely depends on lawmakers’ whims when they drafted respective legislation, said Bill Hoagland, senior vice president at the Bipartisan Policy Center. “It’s all over the map,” he said.
    Inflation adjustments can be a “double-edged sword,” said Mark Zandi, chief economist at Moody’s Analytics.

    During times of high inflation as in 2022, the lack of an adjustment “could quickly become a financial problem” for households, Zandi said.
    If everything were indexed, however, it’d be more difficult “to get inflation back in the bottle when everything takes off,” he added.
    Here are some common thresholds that don’t get an annual inflation adjustment.

    Minimum wage

    The federal minimum wage — $7.25 an hour — has remained unchanged since 2009.
    That’s the longest period in history without an increase from Congress, according to the Economic Policy Institute, a left-leaning think tank.
    The minimum wage has lost 29% of its value since 2009 after accounting for the rising cost of living, according to an EPI analysis. It’s worth less than at any point since February 1956, the group found.

    That said, just 1.3% of all U.S. hourly workers (about 1 million people total) were paid wages at or below the federal minimum in 2022, according to the Bureau of Labor Statistics. That’s “well below” the 13.4% share in 1979, it said.
    Thirty states plus the District of Columbia have adopted a higher minimum for workers. In addition, 58 localities have raised their minimum above their state’s, according to the EPI.
    The minimum wage is indexed for inflation in 19 of the states plus D.C., the EPI said.

    Social Security taxes

    The federal government began taxing Social Security benefits in 1984.
    Social Security benefits are taxed at the federal level once beneficiaries’ income exceeds certain dollar levels. Up to 85% of their benefits may be taxable. (This is explained in more detail below.)
    The dollar thresholds aren’t inflation-adjusted and Congress has never changed them.
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    However, since Americans’ benefits and other income have increased, the share of beneficiaries who pay federal income tax on their benefits has risen over time, according to the Social Security Administration.
    Less than 10% of families paid federal income tax on their benefits in 1984.
    The share has increased significantly: The SSA estimates about 40% of people who get Social Security must pay federal income taxes on their benefits.
    The federal government uses a specific income formula to gauge if benefits are taxable. This “combined income” formula is: adjusted gross income + nontaxable interest + half of your Social Security benefits.
    For example, single tax filers would pay tax on up to 50% of their benefits if their combined income is between $25,000 and $34,000. Up to 85% may be taxable if income exceeds $34,000.
    Married couples filing jointly would pay tax on up to 50% of their benefits if their combined income is between $32,000 and $44,000. Up to 85% may be taxable if income exceeds $44,000.

    Investments for the wealthy

    Americans must generally be “accredited” to invest in private companies and investments like private equity and hedge funds.
    To qualify, households must meet certain requirements, like a minimum net worth or annual income.
    It’s a consumer protection issue: The thresholds aim to ensure buyers are financially sophisticated and can sustain the risk of loss from private investments, according to the Securities and Exchange Commission.

    Individuals can generally become accredited by having a $200,000 annual earned income, or $300,000 for married couples. Individuals or couples can also qualify with a total $1 million net worth, not including the value of their primary residence.
    However, those dollar thresholds haven’t changed since their creation in the early 1980s.
    In 1983, just 1.5 million households — 1.8% — qualified as accredited investors, according to SEC data.
    More than 24 million U.S. households — about 18.5% of them — qualified in 2022, the agency said in a December report.

    Tax deductions for homeowners

    Many common tax breaks, like the standard deduction, get an annual inflation adjustment.
    But others don’t. A tax deduction for home mortgage interest is one example.
    A 2017 tax law signed by President Donald Trump limited the deduction for home mortgage interest to the first $750,000 of new mortgage debt. The cap had previously been $1 million. (Neither of these are pegged to inflation.)
    In 2026, that threshold will revert to $1 million absent congressional action.
    There are now a record number of U.S. cities where the “typical” home is worth $1 million or more, according to a recent study by Zillow.

    Net investment income tax

    Certain taxpayers must pay a 3.8% surtax on their investment income.
    This “net investment income tax,” also known as the Medicare surtax, generally applies if modified adjusted gross income exceeds $200,000 for single tax filers or $250,000 for married joint filers.
    The tax is mostly paid by high-income households by design, according to the Congressional Research Service.
    However, since the dollar thresholds aren’t inflation-indexed, “more taxpayers become subject to the tax over time regardless of whether their real (inflation-adjusted) income has increased, or increased significantly,” the CRS wrote.

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    Bill Ackman selling stake in Pershing Square at $10.5 billion valuation, aiming for IPO one day

    Bill Ackman’s firm is raising $1.05 billion in a funding round, worth 10% of his management company Pershing Square, according to a source familiar with the matter.
    The hedge-fund manager is eyeing an initial public offering in the U.S. down the road, but he hasn’t hired bankers or started that process officially yet, the source said.

    Bill Ackman, Pershing Square Capital Management CEO, speaking at the Delivering Alpha conference in New York City on Sept. 28, 2023.
    Adam Jeffery | CNBC

    Billionaire investor Bill Ackman is selling a 10% stake in Pershing Square, aiming to eventually take his investment firm public.
    Ackman’s firm is raising $1.05 billion in a funding round, worth 10% of the management company and implying a valuation of $10.5 billion, according to a source familiar with the matter. Investors on the deal are institutional and family offices who prefer to remain anonymous, the source said.

    The Wall Street Journal first reported on the moves. Pershing Square declined to comment.
    With the funding round, the hedge-fund manager is eyeing an eventual initial public offering in the U.S., but he hasn’t hired bankers or started that process officially yet, the source said.
    Two years ago, Ackman named Ryan Israel chief investment officer, marking the first time the billionaire hedge-fund manager appointed someone else to run day-to-day investing for the firm. Ackman serves as CEO, with ultimate control over decision-making, although he has said that Israel would be his successor to run the firm if he got hit by a “pie truck.”
    Pershing Square had $18.6 billion in total assets under management as of the end of April. Most of its capital is in Pershing Square Holdings, a closed-end fund that trades on European stock exchanges. 
    Ackman has become one of the world’s most prominent hedge fund investors after years of market-topping returns and vocal activist campaigns. He also gained a wide following on social media platform X with 1.2 million followers, commenting on issues ranging from antisemitism to the presidential election.

    Earlier this year, Ackman unveiled plans to offer a new investment vehicle listed on the New York Stock Exchange, a move to leverage his following among Main Street investors. He is launching a publicly-traded closed end fund, investing in 12 to 24 large-cap, investment grade, “durable growth” companies in North America.
    The popular investor’s hedge fund held only six stocks at the end of March including Alphabet, Chipotle Mexican Grill and Hilton Hotels. It posted a 26.7% gain last year.
    In 2022, Ackman quit activist short selling, a practice he engaged in that led to one of the most colorful battles in Wall Street history against Herbalife.

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    France is aiming to become a global AI superpower — but not without help from U.S. Big Tech

    The Viva Technology conference in Paris last week was buzzing with talk about how far France has come as a leader in AI.
    A great deal of chatter surrounded French AI firm H, which raised $220 million in a seed funding round from investors including U.S. e-commerce giant Amazon.
    A common theme was the boost France’s AI scene has gotten from U.S. tech firms, with Microsoft and Amazon investing billions into the country.

    French President Emmanuel Macron speaks during a meeting with members of the AI sector at the Elysee Presidential Palace in Paris, France, on May 21, 2024.
    Yoan Valat | Afp | Getty Images

    PARIS — France is touting itself as the next artificial intelligence superpower.
    The Viva Technology conference in Paris last week was buzzing with talk about how far France has come as a leader in AI.

    A great deal of chatter surrounded the French AI firm H, previously named Holistic, which raised $220 million in a seed funding round from investors including U.S. tech giant Amazon and Google’s billionaire ex-CEO Eric Schmidt.
    A common theme for French AI firms receiving large sums of money is that they’re adding U.S. tech heavyweights to their shareholder lists.

    Earlier this month, France received a flood of new private investments, led by a commitment from Microsoft of 4 billion euros ($4.4 billion), its largest ever into France.

    AI everywhere at Viva Tech

    At Viva Tech, AI was everywhere. Past the large, bright pink “VIVA” sign toward the front, there was an entire alley called “AI Avenue,” which was surrounded by U.S. tech firms such as Salesforce and AWS.
    Generative AI was on display everywhere — even from companies you wouldn’t expect.

    For example, French beauty giant L’Oreal showed off an AI-powered beauty assistant called “BeautyGenius” at a large booth near the center of the Porte de Versailles conference venue.
    The success of Viva Tech has become symbolically important for France as part of its bid to become a leading tech and AI hub that can rival the likes of the U.S. and China.
    “France is the leader on artificial intelligence in Europe,” Bruno Le Maire, France’s finance minister, told CNBC’s Arjun Kharpal at Viva Tech last week.

    He made clear that, while France has a helping hand from U.S. tech giants, “we want to have our own artificial intelligence being created and being developed in France.”
    Referring to Microsoft’s investment in France, Le Maire said, “Microsoft is much welcome in our country. But the challenge for us is to have our own devices, our own scientists … and we are working very hard for that.”
    France boasts a strong AI research and development ecosystem, home to key facilities like the Facebook AI Research center from Meta and Google’s AI research hub in Paris, as well as leading universities.
    “France stands as one of Europe’s most vibrant innovation hubs,” Etienne Grass, the France managing director of Capgemini Invent, the digital innovation arm of Capgemini, told CNBC. “The nation nurtures a thriving startup scene, marked by significant strides in AI,” Grass added.
    Imran Ghory, partner at Blossom Capital, said that while France has a great track record when it comes to research and academia, it has struggled to funnel quality talent into “great companies.”
    AI labs from Meta and Google have “created a training ground for students and researchers to learn what leading tech companies look and work like from the inside,” Ghory said.

    “We’re now seeing the fruits of this as many researchers and AI engineers begin spinning out their own companies.”

    Vying for tech leadership

    French President Emmanuel Macron told CNBC’s Andrew Ross Sorkin in an interview last week that his country is “leading the tech industry in Europe.” However, he noted Europe is “lagging behind” the U.S. and that the continent needs more “big players.”
    “It’s insane to have a world where the big giants just come from China and the U.S,” Macron told said at the Elysee Palace. He praised Mistral, the French AI firm backed by U.S. tech giant Microsoft, and H.
    Last week, Macron met with Eric Schmidt, former CEO of Google, Yann LeCun, chief AI scientist of Meta, and James Manyika, Google’s senior vice president of tech and society, among others, at the Elysee to discuss ways to make Paris a global AI hub.
    Maurice Levy, CEO of advertising and public relations giant Publicis Groupe, told CNBC’s Karen Tso he thinks France has the potential to become a top five country for AI development. Levy said France is “determined” to narrow the gap between the U.S. and China and Europe when it comes to AI.
    France “can be part of the five biggest countries on AI in the world,” after the U.S., China, Israel, and the U.K., Levy said in a TV interview last week. He referred to H’s mammoth funding round as an example of the momentum surrounding French AI right now.

    Levy said roughly 40% of the tech demos at Viva Tech were AI. AI is “something which is … not only taking off, but has already taken off quite massively,” he said.
    In a fireside discussion last week, Google’s Manyika said a lot of the innovation the firm has been bringing to the table is sourced from engineers in France.
    He said that Google’s recently introduced Gemma AI, a lightweight, open-source model, was developed heavily at the U.S. internet giant’s Paris AI hub.
    According to data from Dealroom, France claimed a roughly 20% share of overall European AI startup funding in 2023, higher than the 15% average of European funding that goes into AI startups across the bloc.
    France isn’t the European AI leader, though, according to Dealroom, with U.K. firms raising more than double the amount of both AI and GenAI investment than France.

    Innovation versus regulation

    France’s Macron said the challenge for Europe is accelerating AI research and development while also regulating at “appropriate scale.”

    Last week, the EU approved the AI Act, a landmark law regulating artificial intelligence.
    Some tech executives warned Europe could hamper its AI ambitions with regulation that is too restrictive. France has been among the countries to have criticized the EU AI Act for being too restrictive when it comes to innovation.
    Pascal Brier, Capgemini’s chief innovation officer, said while regulation is needed to ensure AI isn’t left to become too powerful, it’s important to ensure new laws like the AI Act don’t accidentally “kill” innovation.
    He said regulators should avoid implementing the “principle of precaution” — the idea that AI makers should avoid doing things that can do harm, as a rule.
    “There’s no way you can stop AI — it’s only the end of the beginning,” Brier told CNBC. “It’s not going to stop there.” More

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    Jeep reveals all-electric Wagoneer S in EV offensive, starting at $72,000

    The Wagoneer S is the beginning of what Stellantis CEO Carlos Tavares this week called the automaker’s EV offensive for the U.S.
    It’s Jeep’s first “global” EV and will be produced at a plant in Mexico.
    “If this is going to be a green vehicle, we had to rethink the materials inside,” renowned car designer Ralph Gilles said. “There was a huge push for sustainable materials everywhere.”

    2024 Jeep Wagoneer S EV

    NEW YORK – The first all-electric Jeep SUV for the U.S. will be the 2024 Wagoneer S, starting at about $72,000 when it’s scheduled to go on sale this fall.
    The Stellantis-owned brand revealed the vehicle and pricing Thursday, portraying it as a “new chapter” for the quintessential American SUV brand that has struggled with domestic sales in recent years.

    “This represents a lot. It is the first global [all-electric vehicle] built in North America, designed in the U.S. … for the world,” Jeep CEO Antonio Filosa told CNBC during an interview after revealing the vehicle. “It is a milestone in our history.”
    Filosa, who started leading Jeep in December, said the brand is in “fantastic shape” but it’s in the midst of a “transition like all the automotive brands nowadays” involving electrification.
    Despite a slower than expected adoption of EVs in the U.S., Filosa said the brand is not worried about consumer adoption because its additive to the Jeep’s lineup, which will continue to offer traditional gas-powered SUVs, plug-in hybrid electric vehicles and “extended-range” electric vehicles starting next year.

    Jeep Wagoneer S EV concept
    Michael Wayland / CNBC

    A “Launch Edition” of the Wagoneer S will initially be available with a 400-volt, 100-kilowatt-hour battery pack capable of more than 300 miles on a single charge, 600 horsepower and 617 pound-feet of torque for a 0-60 mph acceleration of 3.4 seconds. It is capable of charging from 20%-80% in 23 minutes using a DC Fast charger, according to the company.
    Jeep also revealed a Trailhawk off-road performance concept of the EV, which Filosa said “hopefully soon will become a product.”

    Filosa said less expensive models of the Wagoneer S will start being released roughly six months after the Launch Edition.
    The $71,995 starting price of the Wagoneer S EV sits between gas-powered versions of the Wagoneer, starting at about $63,000, and more luxurious Grand Wagoneer, starting at roughly $92,000.
    Jeep also will introduce a new unnamed midsize SUV next year to replace its discontinued Cherokee, Filosa said.

    2024 Jeep Wagoneer S EV

    He also said the company will release electric, extended-range versions of the traditional gas-powered Wagoneer and Grand Wagoneer in 2025. The technology, which uses an engine as a gas-powered generator in addition to EV batteries, is expected to debut on the upcoming Ram Ramcharger pickup truck.

    U.S. EV offensive

    The Wagoneer S is the beginning of what Stellantis CEO Carlos Tavares this week called the automaker’s EV offensive for the U.S., including six to eight all-electric vehicles this year.
    “There is a huge amount of opportunities here in the U.S. We are just starting the offensive of our electrification,” Tavares said Wednesday during a Bernstein investor conference.
    For Jeep, the Wagoneer S is expected to be followed by a Wrangler-inspired off-road vehicle called the Recon later this year and a new roughly $25,000 EV “very soon,” Tavares said Wednesday without disclosing additional details.

    Stellantis CEO Carlos Tavares holds a news conference after meeting with unions, in Turin, Italy, March 31, 2022.
    Massimo Pinca | Reuters

    For years, Tavares has been outspoken about the company being forced to produce EVs, which cost 40% more, due to regulatory requirements and not consumer demand. On Wednesday, he described EVs as a “cost-cutting exercise” to ensure the vehicles are profitable.
    The EVs are a shift for Jeep in the U.S., where the brand has been focusing on plug-in hybrid electric vehicles, or PHEVs, such as its Wrangler and Grand Cherokee SUVs. The plug-in vehicles accounted for 17.5% of Jeep’s sales this year.
    Filosa said Jeep, which is currently No. 1 in PHEVs in the U.S., expects to continue growing sales of those vehicles in addition to the upcoming EVs.
    “Electrification to us so far has been working very, very well. Basically,” he said during the reveal event, “we built the PHEV industry. We own this part of the market.

     Jeep Wagoneer S Trailhawk EV concept
    Michael Wayland / CNBC

    Stellantis’ total PHEV U.S. sales last year was nearly 143,000, up 124% compared to 2022. Leading the way was Jeep, including 67,429 Jeep Wrangler and 45,684 Jeep Grand Cherokee “4xe” SUVs.
    Jeep is using 4xe badging as a play on the brand’s off-road reputation combined with electrification, including EVs and PHEVs.

    Wagoneer S

    The Wagoneer S is Jeep’s first “global” EV, according to the company. The Jeep brand’s first EV model called the Avenger, a small SUV starting at about 35,000 euros, or about $37,800, went on sale last year in Europe.
    The Wagoneer S, which will be produced at a plant in Mexico, is based on Stellantis’ large EV platform, which is expected to underpin eight vehicles for the company from 2024-2026.

    2024 Jeep Wagoneer S EV “R-Wing”

    Despite sharing the “Wagoneer” name with Jeep’s current gas-powered model, the five-passenger, two-row EV shares little with its three-row traditional internal combustion engine counterpart other than some Jeep styling.
    The most notable difference on the exterior is a more modern interpretation of the brand’s iconic seven-slotted grille, which the EV doesn’t actually need for cooling. It’s indented and the slots are solid and interconnected with one another compared to seven separate slots.
    “We reinvented the traditional seven-slot grille,” said Ralph Gilles, Stellantis head of design. “I am so damn proud of this.”
    The Wagoneer S also features a large “R-Wing,” an open spoiler on the back of the SUV. Gilles said the goal was to not make a “jellybean” like many EVs with good aerodynamics currently being sold in the U.S.
    The Wagoneer S is far less boxy that the gasoline model, assisting in it in being the most aerodynamic Jeep ever produced by the brand, the company said.

    Stellantis design chief Ralph Gilles during the unveiling of the Jeep Wagoneer S EV on May 30, 2024 in New York City.
    Michael Wayland / CNBC

    Gilles said the Wagoneer name is more representative of the luxuriousness of the vehicle rather than a singular design.
    Inside the vehicle more than 45 inches of screens, including a 12.3-inch center display, and a mix of metal, fake leather and other sustainable materials.
    Gilles, a longtime renowned car designer with the company, said wood was banned from the interior of the vehicle. It also doesn’t feature any chrome on the exterior of the SUV. Those decisions were made following input from younger designers to make the vehicle more sustainable and attractive for more youthful buyers.
    “If this is going to be a green vehicle, we had to rethink the materials inside,” Gilles said. “There was a huge push for sustainable materials everywhere.” More

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    Gap shares pop 20% as earnings beat on sales growth at all four brands

    Gap beat quarterly estimates on the top and bottom lines, leading the retailer to raise its full-year guidance.
    The apparel company’s CEO Richard Dickson told CNBC, “we’re delivering what we said we were going to deliver to our shareholders.”
    All four of Gap’s brands — its namesake banner, Old Navy, Athleta and Banana Republic — posted positive comparable sales for the first time in years.

    A Gap store in New York, US, on Monday, May 27, 2024. Gap Inc. is scheduled to release earnings figures on May 30. 
    Bloomberg | Bloomberg | Getty Images

    Gap posted positive comparable sales at all four of its brands on Thursday, leading the apparel giant to raise its full-year guidance as CEO Richard Dickson’s turnaround strategy starts to take effect. 
    The retailer behind Gap, Banana Republic, Athleta and Old Navy blew past earnings estimates and beat on revenue, too. 

    Here’s how Gap did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: 41 cents vs. 14 cents expected
    Revenue: $3.39 billion vs. $3.29 billion expected

    Gap shares spiked more than 20% in extended trading Thursday.
    The company reported fiscal first-quarter net income of $158 million, or 41 cents per share, compared to a loss of $18 million, or 5 cents per share, in the year-earlier period. 
    Sales in the period ended May 4 rose about 3% to $3.39 billion from $3.28 billion a year earlier.
    It’s “the first time that all four brands have reflected positive comps in many years. In fact, we were sort of looking for when they had and it was difficult to find,” CEO Richard Dickson told CNBC in an interview.

    “We’re feeling very confident about our quarter and it has given us the confidence to raise our guidance for full year 2024, both the outlook for revenue and operating margin. … It continues, if you will, to really demonstrate our confidence that our priorities are really taking shape,” he added. “The culture is being energized and we’re delivering what we said we were going to deliver to our shareholders.” 
    Gap is now expecting net sales to be up “slightly,” compared to its previous forecast of flat. The company is expecting gross margins to grow by at least 1.5 percentage points, compared to earlier guidance of at least a half a percent.
    The biggest change to Gap’s forecast is in its operating income outlook. It now expects operating income to be in the mid-40% growth range, compared to previous guidance of low-to-mid teens growth. 
    Dickson, who took the helm of Gap in late August, is a marketing guru who has been working to reinvigorate the company’s portfolio of brands. His work has focused on brand storytelling and positioning names like Gap and Old Navy back into the center of culture.
    Some of that has already started to show up. 
    Earlier this month, actress Da’Vine Joy Randolph wore a denim ball gown designed by Gap’s new creative director, Zac Posen, to the Met Gala in Manhattan. A few weeks later, actor Anne Hathaway sported a white Gap shirt dress to a Bulgari party that had also been designed by Posen. 
    “We were so excited to see [Hathaway’s dress] in the marketplace and also dropped to consumers so that they had an opportunity to buy it,” said Dickson. “We continue to believe again, that the better storytelling through marketing and innovative media is resonating.” 
    He told CNBC the quarter’s success was driven “by consistency and financial and operational rigor,” adding the company’s average selling prices are back to pre-pandemic levels thanks to leaner inventory levels that are leading to better sell throughs. But with better designs and marketing, consumers are just buying more, too. 
    Here’s a breakdown of how each of Gap’s banners performed during the quarter, compared with Wall Street estimates compiled by FactSet, which revised its estimates after Gap’s report:

    Old Navy: Net sales of $1.9 billion were up 5% compared to last year while comparable sales were up 3%, ahead of the 2.3% uptick expected according to the revised FactSet estimate. Dickson said the brand saw its “highest quarterly comp in three years” — a major win for Gap’s most important brand by revenue. He noted there was strength in the women’s business and “positive results in active” – a “key category” for the company. 

    Banana Republic: Sales of $440 million rose 2% compared to last year. Comparable sales were up 1%, well ahead of the 4% decline expected, according to the revised FactSet estimate. The growth also comes on top of an 8% decline in the year-ago period.   

    Athleta: Sales of $329 million climbed 2% compared to last year. Comparable sales were up 5% after being down a staggering 13% in the year-ago period. Analysts didn’t have expectations for Athleta’s comparable sales.  

    Gap: Sales of $689 million were flat compared to last year. Comparable sales were up 3%, ahead of an expected 2% gain, according to the revised FactSet estimate. “Gap’s performance was primarily driven by strong marketing and product execution centered around its Linen Moves campaign,” the company said.

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    Ulta Beauty CEO outlines plans to boost sales after first-quarter slowdown, shares jump 11%

    Ulta Beauty reported on Thursday fiscal first-quarter earnings that showed the effects of a slowdown its CEO had previously warned about.
    Comparable sales, a metric that tracks Ulta stores open at least 14 months along with online sales, increased 1.6% year over year, a stark slowdown from the same period a year earlier.
    Ulta Beauty has been a strong performer for retailers as they face a consumer pullback in light of persistently higher costs.

    Ulta Beauty
    Chicago Tribune | Tribune News Service | Getty Images

    Ulta Beauty on Thursday laid out plans to boost sales and gain market share after a first-quarter sales slowdown.
    Comparable sales, a metric that tracks Ulta stores open at least 14 months along with online sales, increased 1.6% year over year, a stark slowdown from the same period a year earlier when Ulta reported comparable sales growth of 9.3%

    “We expect growth to accelerate in the second half of the year, to be between 2% and 4% reflecting the impact of our sales-driving initiatives,” finance chief Paula Oyibo said during the company’s earnings call.
    Ulta CEO Dave Kimbell in April warned of cooling demand in the beauty category at an investor conference. And while the slowdown was largely anticipated, Kimbell said it hit the company “a bit earlier and bit bigger” than expected.
    Kimbell on Thursday acknowledged market share has been challenged in the past quarters, particularly within the prestige beauty category.
    “We are not satisfied with our market share trends and we’re taking actions to reinforce our leadership position and accelerate growth,” Kimbell said during the earnings call, adding the company will share further long-term plans at its analyst day in October.
    Kimbell outlined five key areas in which the company is planning on taking concrete action: strengthening assortment through 25 new brands including Ulta-exclusives with celebrities like Serena Williams and Bella Hadid; accelerating social relevance through scaling its creator network; enhancing the consumer digital experience; leveraging the loyalty program; and evolving promotional levers.

    The company will also expand its partnership with delivery service DoorDash, where it offers same-day delivery from its stores, and lean in on their app adoption. The Ulta app accounted for 57% of e-commerce sales in the quarter, Kimbell said.
    Kimbell also announced the company is testing new gamification platforms and later this year will activate new marketing technology that will help guests personalize their shopping experience.
    Shares of Ulta gained about 11% in extended trading Thursday.
    Here’s how the beauty company performed during the period compared to what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: $6.47 vs. $6.24 expected
    Revenue: $2.73 billion vs. $2.72 billion expected

    Ulta reported net income for the quarter ended May 4 of $313.1 million, or $6.47 per share, compared with $347.1 million, or $6.88 per share, a year earlier. 
    Net sales rose slightly to $2.73 billion from $2.63 billion a year earlier.
    The company lowered its guidance for the fiscal year. Ulta reported that it is now expecting net sales in the range of $11.5 billion to $11.6 billion and comparable sales in the range of 2% to 3%. It had previously guided to full-year net sales of $11.7 billion to $11.8 billion and comparable sales of 4% to 5%.
    Ulta also revised its full-year earnings per share guidance to a range of $25.20 to $26, down from its previous guidance of $26.20 to $27.
    Ulta Beauty has been a strong performer for retailers as they face a consumer pullback in light of persistently higher costs. Beauty brand e.l.f recently reported its first billion-dollar fiscal year, blowing past Wall Street estimates and sending shares soaring.
    Artificial intelligence-powered beauty company Oddity Tech recently told CNBC the industry isn’t seeing so much a slowdown but rather a shift in the business.
    “What we do see is an industry that’s transforming. So the consumer is moving online and the consumer is moving to high-efficacy products that really solve their problems,” Oddity finance chief Lindsay Drucker Mann told CNBC.
    The Wall Street view of Ulta has been cooling ahead of the company’s earnings report, with analysts at Baird and Canaccord Genuity lowering their price targets in recent days.
    “We believe the beauty category is resilient. Despite reduced spending on discretionary items, consumers continue to prioritize beauty products, leading to significant growth in this category,” analysts at Jane Hali & Associates said in a recent note on Ulta, adding that although they view the wellness category as a key strength, they are cautious on the makeup category.
    Shares of the company closed at $385.58 per share on Thursday, bringing the company’s market value to about $18.5 billion.

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    Nordstrom misses Wall Street’s earnings expectations as off-price chain Rack lifts sales

    Nordstrom missed quarterly estimates but stuck by its full-year forecast.
    The company’s off-price chain Rack outperformed its banner stores.
    The Nordstrom family is considering taking the company private.

    A Citi Bike docking station outside the Nordstrom flagship store in New York on Feb. 21, 2024.
    Bing Guan | Bloomberg | Getty Images

    Nordstrom on Thursday fell short of Wall Street’s quarterly earnings expectations as its off-price chain Rack outperformed the rest of its stores.
    Despite the earnings miss, the Seattle-based department store operator posted sales growth and stuck by its full-year forecast.

    Here is what the retailer reported for its fiscal first quarter compared to what Wall Street was expecting, based on a survey of analysts by LSEG:

    Loss per share: 24 cents vs. 8 cents expected
    Revenue: $3.34 billion vs. $3.20 billion expected

    Nordstrom shares slid about 7% in extended trading.
    Nordstrom has leaned on its off-price chain, Nordstrom Rack, to drive growth. It has been opening more Rack stores, including nine during the quarter. It is on track to open a total of 22 new Rack stores this year.
    Yet, Rack, which offers brand names at cheaper prices, has lagged behind rivals such as TJX-owned T.J. Maxx and Marshalls.
    In the quarter, however, the off-price chain showed signs of progress. It outperformed Nordstrom’s flagship brand with comparable sales rising 7.9% year over year. Comparable sales for the company’s flagship brand climbed 1.8%.

    The retailer reaffirmed that it expects earnings of $1.65 to $2.05 for the full fiscal year. Nordstrom anticipates full-year revenue will be in a range of a 2% decline to 1% growth from the prior year.
    For its fiscal first quarter, Nordstrom posted a net loss of $39 million, versus a net loss of $205 million in the prior-year period. The company’s total revenue rose to $3.34 billion from $3.18 billion in the previous year.
    Sales of activewear led the company’s performance in the quarter with double-digit growth, as customers bought clothing and shoes from brands including Adidas, Vuori and Hoka, President Pete Nordstrom said on the company’s earnings call.
    Kids’ and women’s apparel also had double-digit growth and beauty sales increased by high single digits, the company said.
    The results come as the Nordstrom family again considers taking the company private. Last month, it said it formed a special committee to evaluate bids.
    The company’s quarterly results Thursday were the first since former chairman Bruce Nordstrom, the father of CEO Erik Nordstrom and Pete Nordstrom, died earlier this month.
    Nordstrom, similar to its department store rivals, is trying to win over young consumers as it relies on aging customers.

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    AI cancer screening programs are booming, but you’ll likely have to pay for them yourself

    The FDA has approved nearly 600 radiology artificial intelligence and machine learning programs and devices over the last five years, but most aren’t covered by insurance.
    Medical associations and regulators are taking a cautious approach to designating new programs for reimbursement.
    Startup Avenda Health has received a provisional code for its prostate cancer screening, but its CEO worries the slow path to insurance reimbursement will impede adoption of the technology
    Without a billing code, radiology provider RadNet charges patients a cash fee to access its AI-enhanced breast cancer screening program

    Artificial intelligence for cancer screening has taken off.
    Yet most of those new programs aren’t covered by Medicare or private insurers, which creates headwinds for companies looking to boost adoption and for patients who could benefit from the new technology.  

    “Traditionally, for medical devices it takes up to seven years after a product that’s approved by the FDA to get reimbursed. So, it is quite a challenge,” said Brittany Berry-Pusey, co-founder and COO of AI screening startup Avenda Health.
    As AI capabilities accelerate, the Food and Drug Administration has authorized 882 AI and machine learning-enabled devices and programs. Nearly 600 of them have been radiology AI applications approved in the last five years. Most do not yet have billing codes that would allow them to get reimbursement and prevent patients from paying out of pocket.
    While some tools have shown early promise in helping to improve diagnosis and care for cancer patients, more data may be needed to determine whether they are more effective than conventional screening before major insurers will be willing to cover them.

    A medical robot of French start up SquareMind, designed to facilitate cancer screening using artificial intelligence is displayed during the Vivatech technology startups and innovation fair, at the Porte de Versailles exhibition center in Paris, on May 22, 2024.
    Julien De Rosa | Afp | Getty Images

    One of Avenda’s products illustrates the complex process that has to take place before insurers cover AI tools.
    The company’s Unfold AI prostate cancer platform helps urologists find more cancer cells than traditional MRI screenings. It can aid in identifying the best treatment to reduce the risk of prostate cancer surgery side effects like incontinence and impotence.

    The FDA approved the program for medical decision support last year. Just as important, the American Medical Association designated a provisional billing code for it — which most AI radiology products have not yet received.
    Now, Avenda is working on getting Medicare and insurers to provide coverage, which can take years in many cases.
    “If there’s no payment, that means patients have to pay out of pocket, which can be challenging … especially for our patients. This is an older patient population,” said Berry-Pusey.

    Hurdles to reimbursement

    The American Medical Association, the medical professional organization that assigns the Current Procedural Terminology codes that allow reimbursement, issued guidelines for establishing AI CPT codes last fall. The group said different medical specialties should help determine the standards for use in their fields.    
    The lack of reimbursement is hindering adoption of new AI programs for cancer screening, especially for smaller hospitals and physician practices, said Dr. William Thorwarth, CEO of the American College of Radiology, which represents thousands of professionals in the field. Yet, in a letter to a congressional committee assessing the use of AI in health care, he cautioned against moving too quickly.
    Thorwarth wrote that AI reimbursement is complex and establishing billing codes for every approved AI tool is “problematic.”  He added that it is “unclear” whether the AI platforms currently covered are “adding value to patients or the health system.”
    Medicare and private health insurers have expressed similar caution. A spokesperson for the Centers for Medicare & Medicaid Services told CNBC that the agency takes CPT codes into account for reimbursement and “continually assesses opportunities to leverage new, innovative strategies and technologies safely and responsibly, including Artificial Intelligence.”
    Part of that caution may stem from an earlier experience with computer-aided mammography in the late 1990s. Doctors since have said it led to false positives and unnecessary biopsies.  
    Independence Blue Cross Chief Medical Officer Dr. Rodrigo Cerda said the verdict is still out on the effectiveness of the newest programs.
    “The evidence hasn’t quite met the bar to say it clearly makes a benefit of positive difference for our members and doesn’t introduce other risks that might be false positives or sort of gives confidence to the false negatives,” Cerda said.

    Charging patients out of pocket

    Without insurance reimbursement, radiology provider RadNet has resorted to charging patients a fee for its proprietary Enhanced Breast Cancer Detection AI screening, which was launched in 2022. RadNet has published data indicating the tool helps to improve cancer detection.
    The company recently cut the price of the test from $59 to $40. It said its AI digital health revenue more than doubled in the first quarter from a year ago, and patient adoption of AI screening increased from around 25% to 39% of mammogram patients.
    RadNet’s executives compare the process with AI screening to the radiology industry’s experience with digital breast Tomosynthesis, known as 3D mammography. It was approved by the FDA in 2011, and women were initially offered the screening for an out-of-pocket fee. By the end of the decade, it was widely covered by insurers.
    “The question is, can we eventually get the [insurers] to step up for that? And I think driving the adoption and the value propositions of finding more cancers, I think will eventually convince them,” said Dr. Greg Sorensen, RadNet’s chief science officer.  
    Sorensen said RadNet has enrolled an employer in New Jersey, which will start covering the breast cancer scans for its workers.
    The company will also soon launch an AI-enhanced prostate MRI screening for $250. But at that price, it may pose a bigger barrier to adoption — and access for patients who can’t afford it.

    Concerns about access

    UCLA neurology professor Josh Trachtenberg was willing to pay for an AI prostate cancer screening, which he feels made a world of difference to his own care.  
    Trachtenburg says when he was diagnosed with prostate cancer last year, several doctors told him he would need to have his prostate removed, a procedure that would have left him with incontinence and impotence problems.
    He turned to a urologist at the UCLA medical school who was using Avenda Health’s Unfold AI program. The program more accurately measured the scope of his tumor, which allowed the doctor to get at the cancer cells in surgery while preserving healthy tissue.
    Trachtenberg worries that patients who can’t afford the extra costs for certain AI tools will pay the price with poorer outcomes.
    “I think most men who aren’t faculty in a medical school … are just put through the meat grinder because that’s what insurance covers and that’s the ‘go to’ procedure,” he said.
    Avenda Health’s Berry-Pusey worries that patients will lose out on new technologies altogether because the uncertainty of reimbursement could stymie funding for innovation.
    “As a startup, we’re always looking for investors, and so making sure that there is a clear path to revenue — it’s important for us to survive,” she said.  
    Investors are backing health-care AI developers despite the payment hurdles. Alex Morgan, a partner at Khosla Ventures, is upbeat about the sector, and recently participated in large funding round for a radiology AI firm.
    “If you just have a human do a bunch of activities, and then you stick AI on … you’re not getting any efficiency gains,” Morgan said, adding that the key to getting paid is to “provide differentiated, powerful outcomes.”
    He said that in the end, the technology that improves the quality of care and outcomes for patients will win out.
    Correction: Brittany Berry-Pusey is the COO of Avenda Health. An earlier version of this story misstated her position. More