Taking Stock - US fashion giant Gap will close 81 stores

In today's Taking Stock we look at US Fashion Giant Gap and the closing 81 stores in the UK and Ireland and go online-only.

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Market Commentary

SOUTH AFRICAN MARKET COMMENTARY

Local stocks continued to vacillate wildly between losses and gains since Monday as investors weighed whether an impact of rising cases of coronavirus would dent the economy more or a strong job data from the US would give a deeper boost. After rising by more than a percentage on Tuesday, stocks pared half of the gains on Wednesday with the benchmark All-Share index closing down 0.45% to 66,249 points. The blue-chip Top 40 index shed 0.55% to end the day at 60,162 points. Stocks of banks and financials, which largely depend on the local economy, however stayed resilient hinting that most of the day's losses were largely in lock step with fall in global stock markets.

US MARKET COMMENTARY

The S&P 500 climbed to a record high on the final day of June to close out a strong first half of the year for Wall Street. The S&P 500 has risen 14.4% year to date, while the Nasdaq Composite and the Dow have each gained more than 12%. For the quarter, the S&P 500 climbed 8.2%. Investors have shrugged off high inflation readings and have kept buying stocks on the hopes an economic comeback from the pandemic would continue and the Federal Reserve would mostly maintain its easy policies.

EUROPEAN MARKET COMMENTARY

European stocks posted solid gains for the first half of 2021, but dipped slightly on the final trading day of the second quarter amid persistent concerns over the coronavirus pandemic and rising inflation. The pan-European Stoxx 600 provisionally closed down by 0.8% on Wednesday, with autos shares sinking 1.9% to lead the losses. The benchmark was still up over 13% year-to-date, however. European investors reacted to a host of economic data on Wednesday. UK first-quarter GDP was confirmed at -1.6% quarter-on-quarter, slightly below expectations, while business investment fell 10.7% quarterly as the country endured stringent lockdown measures.

ASIAN MARKET COMMENTARY

Asian stock markets made a subdued start to the second half of 2021 this morning, weighed by worries about new coronavirus infections and fresh lockdowns, while bond and currency markets were on edge ahead of US labour data. Data in Asia painted a mixed picture, with Japanese manufacturers' mood at a two-and-a-half year high, but factory activity growth there slowing down in the face of difficulty sourcing computer chips.

CURRENCY MARKET COMMENTARY

The rand firmed on Wednesday after data showed the country recorded larger-than-expected trade surplus for the month of May. At the close, the rand was trading around R14.27 to the dollar, 0.6% firmer. The currency mirrored gains in most emerging market currencies, with traders eyeing US jobs data due later this week for clues on the economic recovery there and the Federal Reserve's stance. Data from the South African Revenue Service showed on Wednesday that the trade surplus widened to 54.60 billion rand ($3.83 billion) in May from a surplus of 51.25 billion rand in April, as exports rose and imports fell.

COMMODITIES MARKET COMMENTARY

Gold prices edged lower this morning, as the dollar hovered near a three-month peak, with investors looking ahead to a key US jobs report due later this week for clues on what it might mean for monetary policy. Oil prices traded sideways today as investors waited for a decision from key producers on whether they would maintain or ease supply cuts in the second half of the year.

Company News

LOCAL COMPANIES

Aspen (APN) +1.5%

South African pharmaceutical company Aspen Pharmacare said on Wednesday it had received a loan of 600 million euro ($711.84 million) from global finance institutions to help to refinance existing loans and to develop vaccines. International Finance Institution (IFC), the private sector arm of the World Bank said in a statement that the loan will “refinance existing debt and strengthen the company’s balance sheet, supporting Aspen’s operations including production of vaccines.” Aspen is sourcing Covid-19 vaccine ingredients from Johnson & Johnson to package the vaccines in South Africa, a process known as fill and finish.

Aveng (AEG) 0.0%

In a voluntary pre-close trading update published on Wednesday, Aveng said its open-pit mining business Moolmans continues on its turnaround path and has shown consistent operational and financial improvement over the last 24 months while its Australian-based specialist infrastructure subsidiary McConnell Dowell is expected to deliver a strong full-year profit, “with second half profits exceeding the first half”. Aveng reported a significant increase in group operating earnings to R280 million in the six months to December 2020 from R14 million in the prior period, with McConnell Dowell, Moolmans, Trident Steel and Manufacturing all profitable. McConnell Dowell grew its operating earnings in this reporting period by 136% to Au$13 million from Au$5.5 million and recorded its highest six-months revenue in five years while Moolmans grew its operating earnings by 12.8% to R132 million from R117 million. Aveng said on Wednesday the group’s positive performance has continued into the second half of the financial year with improved revenue and earnings before interest and tax (Ebit). “While cash flow was negative, in line with plan for the second half, it remains strongly positive for both the full year and in comparison, to the prior year,” it said. Aveng said McConnell Dowell is expected to deliver a strong full-year profit, with second-half profits exceeding the first half while revenue for the full year is expected to be more than 30% higher than the prior year. “While demonstrating a return to profitability, the comparative period loss resulted from a decision to accept a settlement offer in respect of two long-outstanding claims, securing important liquidity in the face of the uncertainty of the emerging Covid-19 pandemic at that time,” it said. “Excluding the impact of the settlement offer, McConnell Dowell continues to demonstrate strong growth in operational profit.

INTERNATIONAL COMPANIES

Gap (GPS) +3.3%

US fashion giant Gap has confirmed it plans to close all its 81 stores in the UK and Ireland and go online-only. The firm said it would close all its stores "in a phased manner" between the end of August and the end of September. This includes 19 stores that were already scheduled to close in July as their leases were expiring. The company has not disclosed how many employees the closures will affect, but will shortly start a consultation process with the staff. The firm said it was "not exiting the UK market" and would continue to offer a web-based store when all the shops had closed. A Gap spokesperson said the decision followed a strategic review of its European business. As a result, Gap is also looking to offload its stores in France and Italy. Gap was a big hit when it first opened in the UK back in 1987, famous for its hoodies and sweatshirts. But in recent years, it has struggled to stay relevant, resorting to prolific discounting to pull shoppers in. That left Gap in a weak position to withstand the turmoil of a global pandemic. It launched a strategic review of its entire European operations last autumn, warning that it was considering closing all its UK stores. Just a few weeks ago, 19 store closures were announced - now the rest of them will close as well. Gap blamed what it described as market dynamics - in other words, the huge shift to internet shopping. It's going online-only, just like Debenhams and Sir Philip Green's Arcadia group. It's yet another famous name bidding a retreat from our High Streets, adding to the challenge of what to do with empty shops.

 

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Sasfin Wealth, Media

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