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Gap shares tumble as earnings fall short, retailer ‘remains optimistic’ about the holidays

Gap reported fiscal third-quarter earnings that fell short of expectations, as higher spending on marketing offset sales gains at Old Navy and Athleta….

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A Gap store in New York, August 2, 2020.

Scott Mlyn | CNBC

Gap Inc. shares fell Tuesday after the company reported fiscal third-quarter earnings that fell short of expectations, as higher spending on marketing offset sales gains at Old Navy and Athleta, while the company’s namesake and Banana Republic brands reported double-digit declines.

Under CEO Sonia Syngal, the retailer has centered investments around new advertising to clearly define each of its core brands. The effort kicked off with recent holiday-themed commercials, in a bid to gain market share in key categories such as women’s workout apparel and denim.

While the global health crisis has made it difficult for many companies to offer a future outlook, Gap said it “remains optimistic” about the future. It expects fourth-quarter sales to be about equal to or slightly higher than a year ago. Analysts had been calling for a decline of 2.8%.

“Fundamentally it seems like the consumer is relatively strong,” CFO Katrina O’Connell said in an interview. “Because the consumer can’t spend on entertainment [and] travel, they’re looking for a place to spend their discretionary dollars. And we believe that they will be using those dollars to provide more compelling gifts to their families over the holiday season as a way to show their love and affection during these tough times.”

The company cautioned, however, that a rising number of Covid cases around the world could still negatively impact sales and traffic in stores. Retailers including Abercrombie & Fitch and Macy’s have cited a similar challenge in recent days, as the threat of additional, temporary store closures due to the pandemic looms.

Shares fell more than 10% in after-hours trading, having risen more than 51% since the start of this year. Gap has a market cap of $10 billion.

Here’s how the retailer did during its fiscal third quarter, compared with what analysts were expecting, based on Refinitiv data:

  • Earnings per share: 25 cents vs. 32 cents, expected
  • Revenue: $3.99 billion vs. $3.82 billion, expected
  • Same-store sales: Up 5% vs. a decline of 0.3%, expected by StreetAccount

Gap Inc.’s same-store sales during the latest quarter grew 5%, with Athleta reporting a record quarterly increase. That came in far better than the 0.3% decline that analysts were expecting.

The company is still working to turn around its Gap and Banana Republic divisions, however, and has named a new chief, who has experience with consumer goods, to lead the latter.

“Gap’s boring and mundane offer provides so little in the way of excitement that it is very easy for consumers to overlook,” GlobalData Retail Managing Director Neil Saunders said in a statement. “The problems of a dull brand image, a lack of clarity about who the customer is, and a constant cycle of discounting all remain fundamental issues that need to be resolved sooner rather than later.”

Gap also on Tuesday named Asheesh Saksena, most recently president of Best Buy‘s health division, to a newly created position of chief growth officer, effective in January.

Online sales surge

For the quarter ended Oct. 31, Gap earned $95 million, or 25 cents per share, compared with $140 million, or 37 cents a share, a year earlier. That came in short of expectations for earnings of 32 cents per share.

Sales for the period were about flat with the prior year at $3.99 billion and outpaced expectations for $3.82 billion.

The 5% gain in same-store sales, which track sales online and at stores open for at least 12 months, were boosted in large part by the company’s digital business, which surged 61% and accounted for 40% of total sales during the quarter. Gap said it added more than 3.4 million new customers online. And it reiterated plans to derive half of its sales from the web by 2023.

Gap said the net sales volume for orders delivered to customers through either curbside pickup or its buy online, pick up in store offering climbed 56% from last year. Many companies have been touting and pushing these options during the pandemic as a way to best use their stores, while cutting back on shipping expenses and limiting contact with consumers.

Within Old Navy, net sales increased 15%, and same-store sales were up 17%. The company said it offered 55% more activewear under the Old Navy brand during the quarter, to meet the needs of customers looking for comfortable clothing as they spend more time at home.

Gap taps Stangl to head Banana Republic

At Gap’s namesake banner, net sales fell 14%, and same-store sales dropped 5%. The company attributed the declines, in part, to store closures that took place during the quarter.

Gap Inc. has previously said it expects to close roughly 30% of its Gap and Banana Republic stores in North America by the end of fiscal 2023.

At Banana Republic, a brand known for its work apparel, net sales fell 34%, and same-store sales dropped 30%. The company said it has been trying to add more casual attire to this brand, to meet the preferences of women working at home during the pandemic. On Tuesday, Gap named former Williams-Sonoma and RH executive Sandra Stangl as the new president and CEO of Banana Republic, effective next month, as part of its bid to revive the brand.

“The team has been heads down, focused on changing the [Banana Republic] assortment to be more loungewear, more activewear, more comfortable clothing. But it takes a while to shift the assortment,” O’Connell said.

Within Athleta, Gap’s brand for women’s workout clothes, net sales were up 35%, as same-store sales surged 37%, the highest ever recorded in the brand’s history. The company also cited its mask business, sparked by the pandemic, as a contributing factor to attracting new customers to Athleta.

Read the full press release from Gap here.

Under CEO Sonia Syngal, the retailer has centered investments around new advertising to clearly define each of its core brands. The effort kicked off with recent holiday-themed commercials, in a bid to gain market share in key categories such as women’s workout apparel and denim.

Source: https://www.cnbc.com/2020/11/24/gap-gps-reports-q3-2020-earnings.html

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Biden has options beyond a corporate tax hike to pay for infrastructure, as negotiations get underway

As Biden tries to curry favor for a corporate tax hike, the administration has other ways it could fund a $2 trillion infrastructure plan.

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Wind turbines and power transmission lines at a wind farm near Highway 12 in Rio Vista, California, on Tuesday, March 30, 2021.

David Paul Morris | Bloomberg | Getty Images

As President Joe Biden attempts to curry favor for his proposed corporate tax hike, the administration still has other ways it could try to fund and finance its $2 trillion infrastructure legislation.

Biden could decide, for example, to return to a campaign promise to ask the country’s wealthiest households to contribute more in personal income taxes or lobby to increase the federal gasoline tax.

Other funding ideas include a so-called mileage tax and better monetization of the U.S. electrical grid. Democrats may ultimately lean on a special class of bonds to finance their spending plans despite objections from the GOP and concerns about the growing national debt.

While both parties agree that the U.S. is in dire need of infrastructure repair, the GOP has thus far opposed the Biden plan for funding too many projects beyond what they consider critical infrastructure.

Senate Minority Leader Mitch McConnell, R-Ky., has dubbed the American Jobs Plan a “Trojan horse” for liberal policies, while others have balked at the hundreds of billions of dollars earmarked for items other than improvements to roads, bridges, airports and public transit.

Those agenda items, coupled with the administration’s $1.9 trillion Covid-19 relief package signed in March, have convinced Republicans and some moderate Democrats that the White House should seek ways to pay for the plan upfront with new taxes.

Partially to quell funding concerns, Biden has offered a “Made In America” tax plan that includes hiking the corporate tax rate to 28% and removing incentives for corporations to send factories and profits offshore. Treasury Secretary Janet Yellen announced Wednesday that the tax plan would generate about $2.5 trillion over 15 years.

That proposal, however, amounts to a partial rollback of former President Donald Trump’s 2017 tax cuts and is already opposed by Republicans and Democratic Sen. Joe Manchin of West Virginia.

Those concerned about a corporate tax hike say increasing the rate could hinder a fragile economic recovery and make the U.S. a less attractive place for businesses to build factories and hire workers.

Biden, in a speech addressing infrastructure Wednesday, rejected those concerns but said he was open to negotiating on the corporate tax rate. He will meet with Republican and Democratic lawmakers on Monday to kick off infrastructure negotiations in earnest.

“We’ve got to pay for this,” Biden said Wednesday, noting that there are “many other ways we can do it.”

Debt financing

To Tony Fratto, opposition to an infrastructure plan based on cost concerns doesn’t make much sense.

Infrastructure “generates an economic return, and so why exactly are we constraining ourselves with the concept of putting pain on certain segments of the economy?” Fratto, a Treasury official in the George W. Bush administration, said Friday.

With U.S. interest rates still historically low, Fratto argued that it would not take long for the economic benefits generated by faster, more efficient transit to pay for the government’s initial spending.

“You can make a very strong case to borrow the money and pay it back over time on the expected returns,” he added. “We have failed to invest in all of the infrastructure needs that this country has by this fictional argument that it must be paid for for us to do it.”

A study published by the Wharton School this week found that Biden’s infrastructure plan would actually reduce U.S. debt by 6.4% in 2050 relative to current law.

If lawmakers ultimately develop an appetite for debt, the White House could try to resurrect a class of special municipal bonds known as Build America Bonds that allow states and counties to float debt with interest costs subsidized by the federal government.

Income tax

A possible alternative to a corporate tax hike would be adjustments to individual income taxes, as Biden proposed during his 2020 campaign.

Then-candidate Biden proposed raising the top individual income tax rate to 39.6% from its current level of 37%. He also called for the capital gains rate to rise to 39.6% for taxpayers with income over $1 million. Currently, wealthy investors face long-term capital gains rates of up to 20%.

Despite demanding during the campaign that the wealthiest Americans pay more as a percentage of their income, Biden has yet to say when he plans to increase income tax rates.

However, the president doubled down on a red line in his speech Wednesday.

“I will not impose any tax increases on people making less than $400,000 a year,” Biden said. “If others have ideas out there on how to pay for this investment without violating that rule, they should come forward. There’s all kinds of opportunities.”

Gas tax

Another possible revenue generator could be an increase in the federal government’s gas tax. That tax was last raised in late 1993 and is not indexed to inflation, meaning that its effective value has eroded over the last 27-plus years.

The federal government currently collects 18.4 cents per gallon of gasoline sold in the U.S. and 24.4 cents per gallon of diesel fuel. That revenue, which totaled $36.4 billion in fiscal 2016, is used by the Federal Highway Trust Fund, which funds road construction and other surface transportation projects.

Transportation Secretary Pete Buttigieg told CNBC last month that the gasoline tax may soon be an outdated mechanism to raise significant revenue as more Americans switch to electric vehicles and fuel-efficient cars.

Republican Sen. Roy Blunt of Missouri, a supporter of a far-smaller infrastructure bill, told “Fox News Sunday” that funding for repairs to the nation’s roads and bridges needs to evolve over time.

“As we have more electric vehicles, we’re going to have to figure out some way that those electric vehicles pay their fair share,” he said Sunday. “We may even have to figure out a different way that driverless vehicles pay for the increased kind of monitoring that needs to happen with the highway system itself you have with that.”

States, too, have for years imposed their own taxes on the sale of gasoline.

In 2019, the Republican governors of Ohio, Alabama and Arkansas signed fuel tax hikes in an effort to help fund road repair, and in 2018, Michigan’s Democratic governor, Gretchen Whitmer, won election after campaigning on the slogan “Fix the Damn Roads.”

However, several Republican senators opposed increasing the gas tax when former President Donald Trump sought to make a push on infrastructure.

As of Jan. 1, total state taxes and fees on gasoline averaged 30.06 cents per gallon, according to the U.S. Energy Information Administration.

Mileage tax

Buttigieg said a mileage tax could be a more attractive option than a gas tax for lawmakers who support the idea that consumers should pay for infrastructure based on how often they use it.

“I’m hearing a lot of appetite to make sure that there are sustainable funding streams,” the Transportation secretary said in March. A mileage tax “shows a lot of promise if we believe in that so-called user-pays principle: The idea that part of how we pay for roads is you pay based on how much you drive.”

The mileage tax is a relatively new idea, and so there are a few barriers to it becoming a reality in the near term. Questions remain over how to record the distances individuals travel, how and where fees would be collected, and whether the introduction of such a tax would disproportionately impact low-income or rural communities that rely on cars to get to work.

Still, a vehicle miles tax, or VMT, does enjoy bipartisan support on the key House Transportation and Infrastructure committee. Both Chairman Peter DeFazio, D-Ore., and Ranking Member Sam Graves, R-Mo., have voiced support for VMT measures in the past.

“It’s become abundantly clear that we need to move on from the gas tax and diesel tax as the primary means of building infrastructure,” Graves wrote in March. “Although critics will say that we’re not ready for VMT, we’ve heard that same argument for too long. The Highway Trust Fund continues to lose more and more revenue because not all users are paying their fair share given increased fuel efficiency and electric vehicle technology.”

Monetizing the electrical grid

Fratto suggested the federal government could look to tax Americans’ electricity consumption as a greater percentage of the U.S. population switches to electric vehicles.

That could take the form of at-home grid use or fees levied at charging stations akin to a gas tax for petroleum-powered cars. That may be an appealing option in the future, Fratto said, since utility companies have already established and installed ways to keep track of and charge for the energy consumed by each household.

“There are lots of other user fees that we have across all these systems that we could use, including the electricity sector,” the former Treasury official said. “We can take some fee off the use of the grid in order to pay back the federal government for its investment in those areas.”

“You could easily attach a fee that power companies would have to pay, and the same goes for the availability of electricity,” he added.

Smaller corporate tax hike

Ultimately, how Biden finances his plan and the degree to which he relies on a corporate tax hike will depend on how much he wants bipartisan support from a Republican Party that is calling for him to scale back his ambitions and focus on a package closer to $600 billion.

The president and the Democratic leadership in Congress could opt to use the reconciliation process, as they did for the Covid relief bill, which would allow them to pass the legislation with a simple majority in the evenly divided Senate.

In that case, Biden could bypass Republican objections and he would play largely to an audience of one in the Senate — Sen. Joe Manchin.

Though the conservative West Virginia Democrat opposes raising the corporate rate to 28%, he might be willing to meet Biden in the middle.

“As the bill exists today, it needs to be changed,” Manchin told Hoppy Kercheval, the host of West Virginia Metro News’ “Talkline” show. “I think [the corporate rate] should have never been under 25%, that’s the worldwide average. And that’s what basically every corporation would have told you was fair.”

Source: https://www.cnbc.com/2021/04/09/biden-has-options-beyond-a-corporate-tax-hike-to-pay-for-infrastructure.html

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Levi’s shares rise as denim retailer boosts outlook for first half of 2021

Levi Strauss & Co. reported a double-digit sales decline for its fiscal first quarter, as ongoing store closures in Europe weighed on results.

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An employee holds a shopping bag while ringing up a customer at the Levi Strauss & Co. flagship store in San Francisco, March 18, 2019.

David Paul Morris | Bloomberg | Getty Images

Levi Strauss & Co. on Thursday reported a double-digit sales decline for its fiscal first quarter, as ongoing store closures in Europe and lightened foot traffic in the U.S. due to the Covid pandemic weighed on results.

But the denim maker boosted its sales and profit outlook for the first half of the year, assuming the global health crisis doesn’t become worse from here. CFO Harmit Singh said in an interview with CNBC that the company is anticipating sales will return to 2019, pre-pandemic levels by the fourth quarter.

Its shares jumped more than 6% in after-hours trading.

“These results point to really good evidence that we will emerge from the pandemic a stronger company,” CEO Chip Bergh told CNBC. “We beat our own expectations internally [and] beat external expectations, despite having a third of our stores closed in Europe over the entire quarter.”

Here’s how the company did for its quarter ended Feb. 28, compared with what analysts were anticipating, based on a survey by Refinitiv:

  • Earnings per share: 34 cents adjusted vs. 25 cents expected
  • Revenue: $1.31 billion vs. $1.25 billion expected

Levi’s net income declined slightly to $142.5 million, or 35 cents per share, from $152.7 million, or 37 cents per share, a year earlier. Excluding one-time charges, the company earned 34 cents per share, better than the 25 cents forecast by analysts, according to Refinitiv.

Total revenue fell about 13% to $1.31 billion from $1.51 billion a year earlier. That came in better than the $1.25 billion forecast by analysts.

The retailer said the double-digit drop in sales year over year was primarily due to the reduced foot traffic in its stores during the pandemic, as well as ongoing store closures in some markets where Covid restrictions have remained in place. In Europe, for example, more than 40% of Levi’s stores currently are closed, with others operating on reduced hours, the company said.

Levi’s wholesale revenue fell 4% during the latest quarter, marking an improvement from the prior period.

Direct-to-consumer sales were down 26%, due to fewer customers visiting Levi’s stores and especially in markets that rely on tourism. The decline was partially offset by a 25% increase in the company’s owned e-commerce sales during the quarter, Levi’s said. Total online revenue, which includes digital sales from wholesale partners, was up 41%.

Though trends in the business are improving, earnings and sales are expected to continue to be “significantly adversely impacted” at least through the second quarter of 2021, Levi’s said.

The company raised its outlook for both revenue and profit in the first half of the year, assuming that the pandemic doesn’t worsen.

Sales are now expected to grow 24% to 25%, and adjusted earnings are forecast to be in a range of 41 cents to 42 cents, which implies earnings of 7 cents to 8 cents during the fiscal second quarter. Analysts had been calling for second-quarter earnings of 5 cents a share.

Levi’s shares are up nearly 25% year to date. The company has a market cap of $10 billion.

Find the full press release from Levi’s here.

Its shares jumped more than 6% in after-hours trading.

Source: https://www.cnbc.com/2021/04/08/levis-levi-reports-q1-2021-earnings.html

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Biden open to negotiating on corporate tax hike, but says U.S. must take bold action on infrastructure

“I’m willing to listen to that,” Biden said when asked if he would consider a lower corporate tax rate than 28%, as his plan currently calls for.

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President Joe Biden said Wednesday that he is willing to negotiate on the proposed corporate tax rate hike in his $2 trillion infrastructure plan.

“I’m willing to listen to that,” Biden said at the White House when asked if he would consider a lower corporate tax rate than 28%, as his plan currently calls for.

“We’ve got to pay for this,” Biden added, noting that there are “many other ways we can do it.”

“But I’m willing to negotiate that,” he said.

The president’s remark about the corporate tax rate came after he delivered a sweeping defense of the size and scope of his proposed infrastructure overhaul.

Republicans have been quick to criticize the plan for funding too many projects that, in their view, fall outside the definition of infrastructure. Senate Minority Leader Mitch McConnell, R-Ky., has tried to brand the plan a “Trojan Horse” for liberal policies, and other GOP lawmakers have claimed that only a small fraction of the massive bill goes toward “real infrastructure.”

But Biden argued Wednesday afternoon that “the idea of infrastructure has always evolved to meet the aspirations of the American people and their needs. And it is evolving again today.”

The president said he welcomes debate about the specifics of the bill, and said “any Republican who wants to get this done” is invited to the White House.

But he noted that his own view is that infrastructure reform should be crafted with the future in mind, rather than focused on repairing existing structures.

“We don’t just fix for today. We build for tomorrow,” Biden said.

“It’s not a plan that tinkers around the edges. It’s a once-in-a-generation investment in America, unlike anything we’ve done since we built the interstate highway system and won the Space Race decades ago,” the president said.

“It’s a plan that puts millions of Americans to work to fix what’s broken in our country: Tens of thousands of miles of roads and highways, thousands of bridges in desperate need of repair. It’s also a blueprint of infrastructure needed for tomorrow,” he added.

Biden’s proposal, dubbed the American Jobs Plan, includes roughly $2 trillion in spending over eight years. The White House offered a 15-year path to funding the plan, in part by hiking the corporate tax rate to 28%. Republicans had slashed the levy to 21% from 35% as part of former President Donald Trump’s 2017 tax law.

The infrastructure plan would also implement other measures, such as boosting the global minimum tax for multinational corporations and closing so-called offshoring loopholes, for funding.

“Building the infrastructure of tomorrow requires major investments today,” Biden said. “The divisions of the moment shouldn’t stop us from doing the right thing for the future.”

The ambitious, expensive push to update U.S. infrastructure kicked off just weeks after Biden signed a $1.9 trillion coronavirus relief bill into law. That package passed through Congress without any GOP support, and it’s likely to be even tougher for the White House to convince Republicans to back another huge bill that also includes tax increases.

But Biden also faces pressure from Democratic Sen. Joe Manchin of West Virginia, who has already come out against a 28% corporate rate. In a Senate split 50-50 between the two parties, Manchin’s vote could make all the difference.

“But I’m willing to negotiate that,” he said.

Source: https://www.cnbc.com/2021/04/07/biden-willing-to-negotiate-on-corporate-tax-rate-but-says-inaction-not-an-option-on-infrastructure-.html

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