Gap warns on tariffs despite strong quarter, flags up to $300m in costs through 2026

Local Market Commentary

The JSE’s Top 40 index slipped 0.58% to 86,553.4 points on Friday, while the broader All Share index retreated 0.42% to close the week at 94,330.8. Private sector credit in South Africa expanded by 4.6% in April year-on-year, remaining comfortably ahead of the 2.8% inflation rate, according to SA Reserve Bank data. Meanwhile, SARS reported a R14.1bn trade surplus for April — down from March’s downwardly revised R22.6bn — reflecting a drop in exports alongside rising imports. This still positions South Africa as a net exporter for the month, albeit with shrinking momentum. The government’s move to abandon plans for a broader list of VAT zero-rated food items has drawn criticism from consumer bodies, who cite past commitments unrelated to VAT increases.

European Market Commentary

The STOXX 600 ended Friday marginally higher by 0.2%, despite a late-session pullback triggered by U.S. President Trump’s accusations that China had violated a trade agreement. European equity volatility also ticked up, with the V2TX index reaching 19.19. Ukraine signalled its first default on GDP-linked warrants, declining to pay $665 million due June 2 as the country prioritises resources amidst ongoing conflict. German inflation softened to 2.1% in May, slightly above market forecasts of 2.0%, though the pace still supports a broader disinflationary trend. Meanwhile, Portugal’s economy contracted by 0.5% in Q1 versus Q4 2024’s 1.4% growth, with INE confirming a year-on-year expansion of 1.6%. The quarter’s negative print was largely driven by weaker exports and a rise in pre-emptive imports amid tariff uncertainty, highlighting broader vulnerabilities in trade-reliant economies.

U.S. Market Commentary

The S&P 500 closed flat on Friday following a choppy session, capping its strongest monthly performance since November 2023. The Nasdaq also logged its largest monthly gain since that time. Markets opened lower after Trump accused China of breaking a trade deal via Truth Social, though sentiment recovered as he struck a conciliatory tone, hinting at a possible dialogue with President Xi. Despite tariff uncertainty — with average U.S. import duties still near 15% compared to pre-Trump levels of 2–3% — equities were supported by April consumer spending data, which rose 2.1% year-on-year. The Fed’s preferred PCE price index suggests inflation remains near its 2% target, although persistent tariffs and legal uncertainty around their rollback could continue to complicate the policy outlook.

Asia Market Commentary

Asian equity markets were mixed on Monday following Trump’s late-Friday announcement that U.S. steel tariffs will double to 50% from Wednesday. In Australia, manufacturing activity moderated slightly, with May’s PMI easing to 51 from 51.7 — the first contraction in output in three months despite a modest uptick in new export orders. South Korea's manufacturing sector remained under pressure, with May’s PMI at 47.7 — its fourth month in contraction, though slightly improved from April’s 47.5. The downturn reflects both internal economic softness and mounting global trade headwinds. Steel producers across Japan and South Korea underperformed in response to renewed tariff concerns, as investors reassess demand and margin prospects within the region's industrial complex.

Currency Market Commentary

The rand held firm in early Friday trade, maintaining recent gains after the South African Reserve Bank reaffirmed its strong preference for a lower inflation target during its latest policy update. Sterling remained resilient and was poised to close its fourth consecutive month higher against the U.S. dollar, supported by robust UK macro data and diminishing Brexit tail risks. Meanwhile, the dollar retreated modestly on Monday as investors digested Trump’s latest tariff pronouncements, which cast fresh doubt on U.S. growth prospects and inflation dynamics. The market now awaits further clarity on how these measures will evolve in the lead-up to the U.S. election cycle, with safe-haven demand and interest rate differentials continuing to shape short-term currency moves.

Commodity Market Commentary

Gold prices firmed on Monday, buoyed by rising geopolitical risks in Ukraine and heightened trade tensions, as investors rotated into safe-haven assets. Simultaneously, oil prices rose more than $1 per barrel after OPEC+ confirmed a 411,000 bpd production increase for July — consistent with previous months — aiming to stabilise market share and address compliance gaps among producers. This marks the third consecutive month of coordinated output hikes. Traders also remain focused on the impact of subdued oil prices on U.S. production, which peaked at 13.49 million bpd in March. The U.S. rig count fell by four last week, marking a fifth straight weekly decline to the lowest level since November 2021, per Baker Hughes data, potentially signalling future supply-side tightening.

Dis-Chem Pharmacies Limited (DCP) -6.29%

Dis-Chem delivered a strong FY2025 performance, with operating profit up 18.3% on revenue growth of 8.0%, underpinned by disciplined cost control via its Staffing Framework 1.0. EPS and HEPS grew 20.0% to 137.6c and 137.5c, respectively (normalised growth of 12.2% and 12.3% excluding a once-off property gain). Group revenue reached R39.2bn, with retail and wholesale segments up 5.9% and 9.9%, respectively. Notably, external wholesale revenue surged 22.1%, supported by TLC franchise growth and greater independent pharmacy demand. Retail and wholesale margin gains lifted total income by 9.2%. A dividend of 27.85c was declared (+23.8% YoY). Capex of R1.4bn included investment in new stores and the Midrand warehouse acquisition. For the first three months of FY2026, revenue rose 8.6%, with plans to open 39 new pharmacies and roll out store modernisation, loyalty upgrades, and Staffing Framework 2.0 in a challenging consumer environment.

Mahube Infrastructure (MHB) 0.00%

Mahube Infrastructure posted a decline in dividends received to R21.0 million (FY24) from R50.1 million (FY23), with total revenue down to R49.8 million from R68.2 million. Basic and headline EPS decreased to 61.26c (FY23: 95.85c), though tangible NAV per share edged up to R10.73 (FY23: R10.52). A final dividend of 15.00c per share was declared. The portfolio remains focused on two wind and three solar PV farms (~400 MW) operating under 20-year Eskom PPAs, providing long-term exposure to regulated renewable energy assets.

Copper 360 Limited (CPR) +8.11%

Copper 360 expects basic and headline loss per share for the year ended 28 February 2025 to more than double from FY24 levels. Losses were driven by underperformance at the SXEW plant—now in care and maintenance—slower-than-planned ramp-up of MFP2, and delayed sulphide ore production at Rietberg mine. While costs were contained within budget, construction and commissioning delays curtailed revenue generation, leading to deepened operational losses. Provisional results are expected by 30 June 2025.

Capital Appreciation Limited (CTA) +10.88%

Capital Appreciation anticipates EPS and HEPS for FY25 to rise by at least 20% (or 2.73c) from 13.59c and 13.61c in FY24, led by strong growth in the Payments division. The Software division delivered improved but still below-target performance. Both divisions remained cash-generative with high operational cash conversion. Final audited results are expected by 24 June 2025.

Gap Inc. (GAP) -20.18%

Gap’s shares dropped sharply after the company warned that rising U.S. tariffs could pressure profitability despite efforts to mitigate risks by diversifying its supply chain and increasing the use of American-grown cotton. Although it maintained full-year guidance excluding tariff impacts, Gap disclosed potential tariff-related costs up to $300 million that may affect margins into 2026. Under CEO Richard Dickson, the company targets reducing reliance on China, aiming for no single country to exceed 25% of its supply by 2026. Gap’s recent quarterly results exceeded expectations, driven by strong full-price sales, and it trades at a forward P/E of 11.7, higher than some peers like Abercrombie & Fitch and American Eagle Outfitters.

Real Madrid

Real Madrid remains the world’s most valuable football club for the fourth consecutive year, with a valuation of $6.6 billion, driven by record-breaking revenues of $1.13 billion in the 2023-24 season. The club is the first in football history to surpass $1 billion in annual revenue and only the second global sports franchise after the NFL’s Dallas Cowboys to reach a ten-figure revenue threshold. Manchester United ranks second in value despite an underwhelming league campaign, while Barcelona, Liverpool, and Manchester City round out the top five. The collective worth of the 30 most valuable football teams has increased by 5% year-on-year to over $72 billion, highlighting the sport’s robust commercial growth.

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