Business

Since Gap CEO Sonia Syngal abruptly stepped down in July, the company has yet to name a permanent replacement.
The retailer also needs to fix its Old Navy business, which was previously a driver of growth.
Analysts and investors are looking for signs Gap is addressing the problems when the company reports its second-quarter results Thursday.

A pedestrian passes in front of a Gap Inc. store in Miami Beach, Florida.
Scott McIntyre | Bloomberg | Getty Images

Gap needs a new game plan — and fast.
In April, the retailer announced the departure of the head of its Old Navy business, which was hit by marketing missteps and supply chain snarls after being a driver of company growth during the pandemic.

Then in July, Gap CEO Sonia Syngal abruptly stepped down after about two years on the job as sales continued slumping and challenges mounted.
Gap has since named a new leader for Old Navy, who took over just earlier this month. But it still needs a permanent leader to guide the overarching business — which includes its namesake brand, Banana Republic and Athleta — back to expanding its revenue.
Gap is scheduled to report its fiscal second-quarter results Thursday afternoon, and the company has said it expects sales for the period to decline a high single-digit percentage from a year ago.
Steep markdowns to clear bloated inventories are expected to hurt gross margins, with Gap forecasting its adjusted operating margin in the quarter to be flat to slightly negative.
Analysts are forecasting the company to report a loss of five cents per share on sales of $3.82 billion, according to Refinitiv estimates. That would represent a 9% drop in revenue from the year-earlier period.

Gap shares are down more than 40% so far this year, as of Tuesday’s market close.
Dana Telsey, chief executive officer at Telsey Advisory Group, described the company as suffering from “choppy performances across brands, uncertainties in leadership and direction, and a lack of visibility to stabilization with a clear plan for recovery.”
Here are three things that Gap needs to get its business in better shape.

1. Find a CEO

The company has been without a leader since Syngal left last month, casting uncertainty over its future.
Bob Martin, Gap’s executive chairman, has been serving as interim president and CEO, with Syngal helping out for a brief transition period. But analysts and investors want to see a permanent replacement with a strong track record.
Jane Hali & Associates retail analyst Jessica Ramirez said she would like to see a CEO with a strong background in retail merchandising who will push the company to innovate — particularly at its Banana Republic division, which she said needs to find a new identity coming out of the pandemic.
Banana Republic, once a destination for workwear, is trying to adapt as more people work from home or opt for more laid-back styles.
“Gap seems to just constantly miss what the consumer is looking for,” Ramirez said. “There’s something that just doesn’t stick.”

2. Get Old Navy back on track

Old Navy, know for its budget-friendly clothing for kids and adults, has been crucial to Gap’s success and accounted for more than half of the company’s global net sales of $16.7 billion in fiscal 2021.
The business was on such a tear that in 2019 Gap said it was going to spin Old Navy into a separate publicly traded entity. But those plans were called off in January 2020, with the company saying its performance had softened and that the costs to complete such a separation would outweigh the benefits.
Then the Covid-19 pandemic hit, and even bigger cracks started to form.
Old Navy’s net sales in the three-month period ended April 30 fell 19% from the prior year to $1.8 billion. Same-store sales, which track revenue online and at stores open for at least 12 months, fell a whopping 22%.
Gap chalked up the losses to imbalances in sizing and assortment due to ongoing inventory delays. It also acknowledged that a push to sell more plus-size items at Old Navy resulted in the retailer having too many of the extended sizes and not enough of its core sizes.
In July, Deutsche Bank downgraded shares of Gap to “hold” from “buy” due to “low visibility” around the top-line recovery at Old Navy. Increased promotions in the apparel space are also likely to have a negative impact on Old Navy, it said.
Earlier this month, Horacio “Haio” Barbeito — most recently president and CEO of Walmart Canada — took over as head of the business.

3. Prove out Yeezy bet

It was June of 2020 when rapper Kanye West first touted that he would be collaborating with Gap on a line of clothing under the Yeezy name. More than two years later, it’s unclear just how much the Yeezy gear will move the needle for Gap, if at all.
The first item from the highly anticipated Yeezy Gap line, a $200 nylon puffer jacket, didn’t go on sale online until June 2021. But then in November, Syngal told analysts on an earnings call that one of the Yeezy hoodies had the highest single-day sales online in Gap’s history.
Items that have since debuted through a partnership with luxury fashion house Balenciaga are mostly unisex in fit and monochromatic in style: a $340 parka, a $120 three-fourth sleeve Y-shirt and $300 overalls.
Gap has recently started to hawk the products in some of its stores, including its flagship Times Square outlet in New York City. But the presentation of giant trash bags full of the Yeezy Gap merchandise in malls around the country has created confusion and been mocked online.
A representative from Gap didn’t respond to CNBC’s request for comment about the display.
An analyst at Wells Fargo had estimated the Yeezy line would add roughly $1 billion in incremental revenue for Gap. But West’s creations need to get people to spend money, once they draw fans into stores.
“No matter what Kanye does, people will follow Kanye. He can bring people through the door,” said Ramirez. “But if Gap’s actual assortment isn’t something that the consumer wants to stick around for, they’re not going to.”

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Currently, fully-vaccinated travelers can enter Singapore without taking Covid-19 tests or undergoing quarantine.
Singapore is also set to remove indoor mask requirements from Aug. 29, as the city-state seeks to take another step toward living with Covid.

People sit outside a bar at Emily Hill in Singapore, on Monday, Aug. 22, 2022.
Ore Huiying | Bloomberg | Getty Images

SINGAPORE — Singapore is set to allow non-fully vaccinated travelers to skip quarantine on arrival starting Monday, authorities announced Wednesday.
The country is also set to remove indoor mask requirements from Aug. 29, as it seeks to take another step toward living with Covid.

While the further easing of safety and border measures is a “significant milestone,” the country must still “be mentally prepared for any sudden change because we don’t know how this virus will mutate and what the next variant will look like,” said Singapore’s deputy prime minister Lawrence Wong, who is also co-chair of the Covid task force in Singapore.
Visitors who are not fully vaccinated will still be required to test negative for Covid within 2 days prior to their departure for Singapore. But they will no longer need to serve a 7-day quarantine at home or at their place of residence.
Currently, fully vaccinated travelers can enter Singapore without taking Covid-19 tests or undergoing quarantine.
Non-vaccinated long-term visitors and short-term visitors who are 13 years and above are currently required to apply for entry approval to enter Singapore. This requirement will also be lifted from Monday, according to the Ministry of Health.

Easing of mask requirements

Masks will be optional indoors and required in special settings, such as on public transportation and in health-care settings like hospitals, residential care homes and ambulances from Monday, the health ministry said. They are optional in taxis, private hires and in the airport.

“The reason is that, we have identified areas where essential services are being carried out in enclosed, crowded spaces and which are frequently used by vulnerable persons,” said Wong, who is also the country’s finance minister.
The decision to lift mask requirements was first announced by Prime Minster Lee Hsien Loong on Sunday.

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Currently, masks are required in nearly all indoor settings, with the exception of workplaces where there are no physical interaction or customer-facing areas.
“For business and employers, they have the discretion to decide whether or not they might want to do this [from] a workplace safety point of view … we are lifting a mandatory requirement for mask-wearing but it is optional,” said Wong.

Boosters

In preparation for the next wave of omicron, the health ministry said a second mRNA Covid booster is now recommended for those who are 60 years and above.
Previously, second boosters were only recommended for those who were 80 years and older.
Around 93% of the population completed the primary vaccination series as of Monday, while 79% of the total population received boosters.

The high booster rate is a “key reason” that the nation has been able to ride through the current Covid wave, said Singapore’s health minister Ong Ye Kung.
Ong stressed the need to expand recommendations of second boosters to those who are 60 to 79 years old — five months after their first booster — even though the first booster has provided strong protection against severe illnesses for those in this age group.
The health ministry also recommended that children between 5 to 11 years old receive one booster — five months after the second dose of their primary vaccination series — to boost their protection.

Covid situation in Singapore

Plans are in place for a potential new Covid wave, perhaps in the winter, said Wong.
“We are continuing to monitor closely and we have drawer plans in place for various contingencies including scaling up our healthcare capacity as well as … vaccination operations if and when the need arises,” Wong said at the press conference on Wednesday.
He added that those plans would “buy us time,” should there be a Covid wave that is aggressive and dangerous.
Average daily infections over a 7-day period fell to 2,700 as of Tuesday, as daily infections continued to fall from a record 26,032 infections on Feb. 22. Most of those infected in Singapore have mild or no symptoms.
The Southeast Asian country further eased Covid measures at the end of April. Social gatherings will no longer be limited to 10 people and people will not need to keep 1 meter apart. 

People wearing face masks as a preventive measure against the spread of Covid-19 in Singapore.
Maverick Asio | SOPA Images | LightRocket | Getty Images

In April, separate rules for unvaccinated people were also removed, with some exceptions.
Those who are not vaccinated will still not be allowed to dine in, or participate in events with more than 500 people. Neither can they visit nightlife establishments where dancing is involved.
However, food and beverage outlets won’t be required to check the vaccination statuses of customers, the health ministry said in a press release.

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Technical analysis from the veteran chartist Ralph Vince indicates the stock market should be able to keep trending higher in the near term, CNBC’s Jim Cramer said Tuesday.
“Please don’t get too complacent as there are signs that not all is well as we go into the final third of the year,” the “Mad Money” host cautioned.

Technical analysis from the veteran chartist Ralph Vince indicates the stock market should be able to keep trending higher in the near term, CNBC’s Jim Cramer said Tuesday.
“The charts, as interpreted by … Ralph Vince, suggest that this market can keep drifting higher for the next few months as long as employment stays strong,” the “Mad Money” host said before cautioning: “Please don’t get too complacent as there are signs that not all is well as we go into the final third of the year.”

One reason for Vince’s current outlook is his model focused on continuing unemployment claims, which are part of the Labor Department’s weekly jobs reports. Cramer said the technician looks at that piece of jobs data for insights into the health of the economy and, by extension, whether it makes sense to be invested in the S&P 500. Strong labor markets are correlated with ascending stock markets, Cramer said, while recessions tend to be bad news.

Arrows pointing outwards

Technical analysis Ralph Vince has a model that uses continuing jobless claims to identify risk-on and risk-off periods for the S&P 500.
Mad Money with Jim Cramer

“Right now, Vince says the continuing claims data remains in bull mode. Even though we’re very worried about a Fed-mandated recession, we’ve got an insanely strong labor market here,” Cramer said. “That’s good news for the broader economy, even if it makes the Fed more likely to raise rates aggressively down the road. But this stubbornly resilient job market also offsets some of the damage from those rate hikes.”
“Of course, employment is not the be-all end-all,” Cramer cautioned. “You’ve also got to keep an eye on earnings and dividends and the market’s overall valuation.
For more analysis on those factors, watch the full video of Cramer’s explanation below.

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It’s that time again! “Mad Money” host Jim Cramer rings the lightning round bell, which means he’s giving his answers to callers’ stock questions at rapid speed.

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Cleveland-Cliffs: “If we’re going to do steels, I like Cleveland-Cliffs very cheap, but Nucor is almost has cheap, and it’s got a much better record and is a cleaner steel producer. That’s what we want right now.”
Enbridge: “I think that is a great stock. I am tempted to add it to the bullpen for …. the Investing Club.”

HighPeak Energy: “Oh my god, at $22, I mean come on. [Buy, buy, buy].”
Marathon Oil: “No, we went over that this morning on our ‘Morning Meeting’ that’s part of the CNBC Investing Club at 10:20 [a.m. ET.]. We continue to like Devon here. We think Devon goes higher. That’s the horse to bet on.”
Standard Lithium: “No, no. That’s a Canadian company that don’t make any money. We got to stick with money-making companies. How about Tesla? They’re also in the lithium business.”
Watsco: “I have not looked at Watsco recently enough. I did love it because my friend Matt Horween, writing partner, introduced it to me. Three percent yield, doing incredibly well. But we’re going to double down on the homework on Watsco.”
Nokia: “That is just the definition of dead money, and I’m done with that. We’re going to try to make money with our money, not do nothing with our money. I want that reinvested in some of the things we like for the Investing Club.”

Rocket Lab USA: “[Sell, sell, sell]. We only like to invest in companies that make money.”
Carnival Corp.: Does not recommend
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The S&P 500 has so far in 2022 followed a path that looks similar to its trajectory in 2001 and 2008.
However, CNBC’s Jim Cramer said Tuesday he’s not expecting stocks to slide into year-end like in those other two years.

CNBC’s Jim Cramer said Tuesday he’s not taking seriously any comparisons drawn between the current stock market and the years 2001 and 2008, both of which saw steep sell-offs into year-end.
The “Mad Money” host acknowledged the S&P 500 has so far in 2022 followed a path that looks similar to its trajectory in 2001 and 2008. For example, it’s down roughly 13% year to date after mounting a comeback since mid-June, when it recorded its much-steeper lows of the year.

In 2008, the S&P 500 was down about 12% at this point and, in 2001, the broad U.S. stock index was lower by nearly 12%, Cramer said. In both years, the S&P 500 had bounced off earlier lows to get to where it was in late August.

However, Cramer said it’s incredibly important to go beneath the chart-level surface before concluding the stock market will end 2022 on a sour note. Not only is the U.S. economy at a much different part of the business cycle than in 2001 and 2008, but Cramer said “major destabilizing events” were primary drivers of the end-of-the-year slides.
“I just don’t see a parallel in this year. 2008, it was the reverberations from the Lehman Brothers collapse nearly bringing down the financial system. In 2001, of course, it was 9/11,” Cramer said.
Cramer said there is always a possibility of a so-called black swan event, noting there is inherent uncertainty about what lies ahead. “If something terrible happens on the scale of the Lehman Brothers collapse … then I would indeed change my mind,” he said.
However, he added, “here’s the bottom line: Unless something terrible comes out of nowhere, I’m feeling pretty sanguine about this market, because 2022 is not 2008 and not 2001.”

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Nordstrom slashed its financial forecast for the full year as the department store chain faces a glut of inventory.
The retailer’s lowered forecast came even as it reported fiscal second-quarter earnings and sales ahead of analysts’ estimates.

Shoppers leave a Nordstrom store on May 26, 2021 in Chicago, Illinois.
Scott Olson | Getty Images News | Getty Images

Nordstrom on Tuesday slashed its financial forecast for the full year as the department store chain faces a glut of inventory and slowing demand.
The retailer’s lowered forecast came even as it reported fiscal second-quarter earnings and sales ahead of analysts’ estimates. Its shares were down 14% in extended trading. Earlier in the day, Macy’s also slashed its full-year outlook, saying it expects that deteriorating consumer spending on discretionary items like apparel will force it to use heavy markdowns to move items off shelves.

“Customer traffic and demand decelerated significantly beginning in late June, predominantly at Nordstrom Rack,” Nordstrom CEO Erik Nordstrom said in a statement. “We are adjusting our plans and taking action to navigate this dynamic in the short term, including aligning inventory and expenses to recent trends.”
Nordstrom now sees annual sales, including credit card revenue, up 5% to 7%, compared with a prior range calling for a 6% to 8% increase. It’s calling for adjusted earnings per share to be in a range of $2.30 to $2.60, down from a prior forecast of $3.20 to $3.50.

Analysts had been looking for adjusted earnings per share of $3.04, with year-over-year revenue growth of 6.7%, according to Refinitiv data.
Here’s how Nordstrom did in its fiscal second quarter compared with what analysts were anticipating, based on Refinitiv estimates:

Earnings per share: 81 cents adjusted vs. 80 cents expected
Revenue: $4.1 billion vs. $3.97 billion expected

Nordstrom’s net income in the three-month period ended July 30 grew to $126 million, or 77 cents a share, from $80 million, or 49 cents a share, a year earlier.

Sales rose to $4.10 billion from $3.66 billion; digital sales rose 6.3%, making up 38% of total revenue.
Nordstrom said its men’s apparel division had the strongest growth versus 2021, with footwear, women’s clothing and beauty booking double-digit gains as shoppers searched for outfits for special occasions.
Net sales for the Nordstrom banner grew 14.7%, boosted in part by the timing of the company’s annual anniversary sale. At Nordstrom Rack, the company’s off-price banner, net sales rose 6.3% from the prior year but were down compared with pre-pandemic levels.
Nordstrom Rack rivals retailers such as TJ Maxx and Ross Stores, and it targets more lower-income customers who have been pressured by higher inflation than the company’s full-price banner.
Management said on a conference call Tuesday that it plans to reset the merchandise at Nordstrom Rack to include more of the premium brands that shoppers are looking for.
Companywide inventory levels increased nearly 10% compared with the year-ago period, driven by growth at both banners. Nordstrom said it aims to be “clean” on its current inventory levels by the end of the third quarter.

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CNBC’s Jim Cramer on Tuesday lamented the languishing stocks of pandemic winners like DocuSign.
However, Cramer said the window of reinvention has not been slammed shut just yet.

CNBC’s Jim Cramer on Tuesday lamented the languishing stocks of pandemic winners like DocuSign — but suggested the window of reinvention has not been slammed shut just yet.
“We know it hasn’t been long since the pandemic effectively ended, but we’re so quick to fault the Fed for providing too much liquidity or Congress for doing too much deficit spending,” the “Mad Money” host said. “The truth is, we’d be in a much better situation if the private sector had been proactive about transitioning to a post-Covid world.”

Cramer highlighted a number of companies with Covid-fueled businesses that he believes have not done enough to thrive in an operating environment without significant public-health disruptions. He said he also puts Zoom Video, Clorox and Peloton within this classification, although he acknowledged at this point Peloton’s balance sheet complicates reinvention efforts.

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With DocuSign, for example, Cramer said he wishes the company used the roughly $1 billion in cash and short-term investments on its balance sheet to be more aggressive in the acquisitions realm.
“There are so many ancillary identity and cybersecurity deals they could’ve done that it is just painful,” he said. “The bottom line is that it’s not too late for some of these outfits, like Zoom, that are sitting on big piles of cash, to reinvent. They just can’t seem to point the camera at themselves and see the truth,” he added.

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Rent growth for apartments looks to have peaked after a tremendous run in 2021.
That could boost some of the real estate stocks that were the early darlings of the pandemic.
The cooling comes amid a downturn in affordability and as younger renters return to the market.

An Apartment For Rent sign seen in the Upper East Side of Manhattan.
Adam Jeffery | CNBC

Rent growth for apartments looks to have peaked after a tremendous run in 2021, and that could boost some of the real estate stocks that were the early darlings of the pandemic.
Nationally, rents rose just 0.8% between June and July, one-third the growth seen across the same period a year ago, according to RealPage. On an annual basis, rents in July were up 12.2%, compared with 13.8% year-over-year growth in June.

The cooling comes amid a downturn in affordability. Rent growth has outpaced income growth for the past 20 years but the coronavirus pandemic pushed that divide, especially in the more expensive coastal markets.

Landlords dramatically slashed rents in 2020, as renters fled urban areas only to return in 2021 and even more strongly this year. The new renters are younger and tend to have lower incomes, squeezing landlords to ease off on higher rates.
Plus, landlords offered incentives such as free months or adjusted lease terms in 2020 to get tenants in the door. Removing some of those incentives last year sets up tougher growth comparisons from 2021 to 2022 as the baseline stabilized.
What’s more, a massive amount of new supply is flooding the market, with roughly 420,000 new apartment units expected to be completed this year, according to RentCafe. The last time completions passed 400,000 was in 1972. Much of that new inventory is in New York City, as well as in the Sunbelt region.
The shift sets up an interesting opportunity for investors in apartment REITs, which soared in the first two years of the pandemic but have recently fallen off — in large part due to rising interest rates rather than fundamentals. REITs in general are high yield, so they tend to be a low-interest-rate play for investors.

But not all apartment REITs are equal: The pricey coastal markets could see further easing in rates, while the Sunbelt, which was cheaper to begin with and is still seeing strong demand, could see sustained higher rents.

“The Sunbelt never had the Covid discounts,” said Alexander Goldfarb, managing director at Piper Sandler.
Rent as a percentage of income saw a boost in that region, Goldfarb said, suggesting potential long-term equalizing across other areas.
“Everyone says people are just willing to pay in the city, but what we found is that Sunbelt rents grew faster and rent as a percent of income — that number normalized between the Sunbelt and the coasts. People in the Sunbelt were willing to pay more. Coasts stagnated,” he said.
As a result, Goldfarb said he is bullish on REITs that are more concentrated in the Sunbelt, like Camden Property Trust and Mid-America Apartment Communities. The same isn’t true, he said, of coastal REITs like AvalonBay, Equity Residential and UDR, Inc. He also likes Essex Property Trust, because while it’s a largely West Coast REIT, its properties are mostly in the suburbs.
In addition to apartments, rents on single-family homes are also softening. Rents were up 13.4% year over year in June, according to CoreLogic, a smaller annual growth rate than in May.
Strong rental demand for both single- and multifamily rentals is unlikely to ease too much, though, given that home sales are dropping so dramatically. With mortgage rates still significantly higher than they were at the start of this year and home prices still hot, some consumers have no choice but to rent.

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