edition iv market update
By Sam Nedelman
State of the U.S. Economy
With the swift rollout of vaccinations across the country, many parts of the country are slowly in the process of reopening. While full recovery will take an unknown period of time, there are many signs of progress. The Consumer Confidence Index, for example, has continued to improve since March and April of 2020 when it weakened heavily due to COVID-19. However, low interest rates, quantitative easing by the Federal Reserve, and stimulus checks sent out by the Federal Government have enabled most Americans to remain confident in the economy. This index is calculated using a survey and the planned spending or saving habits of participants. Thus, a high index score reflects higher spending in the economy, helping both private businesses and the government make money.
The success of a full recovery of the U.S. economy depends on a number of things. One of the most important factors is the labor market. The graph below shows the long-term unemployment rate, or the percentage of U.S. workers who are unemployed and have looked for a job for 27 weeks or more. The rate currently stands at 2.59% or 43.4% of all unemployed people. This dramatic rise in long-term unemployment is something that takes a number of years to resolve. For example, the rate following the 2008 financial crisis shows that the overall unemployment rate continues to fall, however at a much more muted pace than mid to late 2020. The recovery from the COVID-19 pandemic will continue for a number of years.
Stock Highlights
GUESS: GES
Market Capitalization: $1.75B
Earnings Per Share (EPS): -$1.26
Price to Earnings: N/A
Dividend Yield: 1.62%
GUESS is an American clothing brand and retailer created in 1981 by Georges Marciano and his brothers. After immigrating from France the same year, the brothers tried recreating their family-owned business from back home in Beverly Hills, California. The company first began by marketing to upscale customers and retailers such Bloomingdales. Within a year, GUESS brought in over $6 million in revenue. They soon began innovating in the fashion space and became very influential in the jean market. The company had some of the most popular jeans at the time and was also the first brand to come out with designer jeans. After a number of years of internal conflict between the brothers, Georges Marciano abruptly sold his stake in the company. In order to finance the transaction the remaining brothers had to bring the company public in August of 1996.
Since then, the company’s stock price has had a tumultuous time on Wall Street. While GUESS has expanded to become a $1.7 billion company, it is still considered a small-cap company. While small-cap companies have room to grow, they often are stemmed by a lack of infrastructure and expertise that comes with larger, better financed companies. Although the company brings over $2 billion in revenue every year, their growth rate has significantly slowed in recent years. Furthermore, their operating and net income have been swung significantly in the past 5 years. The company’s debt to asset ratio has also skyrocketed in the same time period, showing that compared to their assets, the company is taking on a lot of debt. Lastly, the company seems to have conflict on the corporate level, with multiple CEOs in the past decade. Considering these factors, investors might want to look elsewhere in order to get a better return on their investment.
GAP INC: GPS
Market Capitalization: $12.7B
Earnings Per Share (EPS): -$2.12
Forward P/E: 25.49
Dividend Yield: N/A
Gap Inc. is an American multinational clothing retailer headquartered in San Francisco, California. The company has 6 main divisions including Banana Republic, Athleta, Old Navy, Intermix, Hill City and Gap. Created in 1969 by Donald and Doris Fisher, the company has expanded greatly. Gap is now the third largest clothing retailer in terms of store locations, trailing the Inditex Group and H&M. First marketed to teen consumers, the name Gap referred to the generational gap between people. In the 1990s, the company chose to embrace a more upscale theme. Through the 2000s, the company saw strong growth, even over-expanding at some points. The company saw an increase in debt that hampered their ability to be leaders in their market. Through multiple changes to the management of the company, the firm has been able to rebound and is now seeing strong numbers and performance.
With yearly sales of over $15 billion and a positive earnings per share, other than this past year, the company has solid fundamentals. With an expected earnings growth rate of around 5%, the company is farther into its mature phase, where growth slows down. However, the company has invested more heavily in their online business in recent years, which they expect will become the majority of their revenue in the future. Out of 27 analyst recommendations, 22 of them are to hold or sell, showing that most of Wall Street have a bearish, or pessimistic, view on the performance and future of Gap.
NORDSTROM: JWN
Market Capitalization: $5.9B
Earnings Per Share (EPS): -$4.41
Forward P/E: 35.49
Dividend Yield: N/A
Nordstrom is an American department store chain created by John W. Nordstrom in 1901. After immigrating to the United States from Sweden, Nordstrom began his company. First starting out as a shoe shop, Nordstrom soon grew into a large retailer with departments for clothing, footwear, handbags, jewelry and accessories. Headquartered and started in Seattle, Washington, the company now operates over 100 different locations in 32 states and Canada. Just like many other large retailers in the United States, Nordstrom has experienced a growing shift towards online shopping. The slow transition out of malls and the growing influence of technology, coupled with the COVID-19 pandemic has seen most consumers opt for no contact delivery and e-commerce platforms.
Nordstrom, like its peers, has strong sales of over $15 billion. Furthermore, like Gap, the company has reached its mature phase of growth and thus the growth rate of metrics like sales are somewhat low. Nordstrom also has around a 5% sales growth for the next fiscal year. Out of 26 analyst recommendations 22 are to sell or hold, again, showing a bearish view on the stock. Nordstrom’s debt to asset, in particular, is worrisome. Since 2018, when it reached 88%, it has now risen to 96%. This is in part due to the COVID-19 pandemic and financial turbulence that followed as Nordstrom had to take on a substantial amount of debt in order to continue operating.
With the swift rollout of vaccinations across the country, many parts of the country are slowly in the process of reopening. While full recovery will take an unknown period of time, there are many signs of progress. The Consumer Confidence Index, for example, has continued to improve since March and April of 2020 when it weakened heavily due to COVID-19. However, low interest rates, quantitative easing by the Federal Reserve, and stimulus checks sent out by the Federal Government have enabled most Americans to remain confident in the economy. This index is calculated using a survey and the planned spending or saving habits of participants. Thus, a high index score reflects higher spending in the economy, helping both private businesses and the government make money.
The success of a full recovery of the U.S. economy depends on a number of things. One of the most important factors is the labor market. The graph below shows the long-term unemployment rate, or the percentage of U.S. workers who are unemployed and have looked for a job for 27 weeks or more. The rate currently stands at 2.59% or 43.4% of all unemployed people. This dramatic rise in long-term unemployment is something that takes a number of years to resolve. For example, the rate following the 2008 financial crisis shows that the overall unemployment rate continues to fall, however at a much more muted pace than mid to late 2020. The recovery from the COVID-19 pandemic will continue for a number of years.
Stock Highlights
GUESS: GES
Market Capitalization: $1.75B
Earnings Per Share (EPS): -$1.26
Price to Earnings: N/A
Dividend Yield: 1.62%
GUESS is an American clothing brand and retailer created in 1981 by Georges Marciano and his brothers. After immigrating from France the same year, the brothers tried recreating their family-owned business from back home in Beverly Hills, California. The company first began by marketing to upscale customers and retailers such Bloomingdales. Within a year, GUESS brought in over $6 million in revenue. They soon began innovating in the fashion space and became very influential in the jean market. The company had some of the most popular jeans at the time and was also the first brand to come out with designer jeans. After a number of years of internal conflict between the brothers, Georges Marciano abruptly sold his stake in the company. In order to finance the transaction the remaining brothers had to bring the company public in August of 1996.
Since then, the company’s stock price has had a tumultuous time on Wall Street. While GUESS has expanded to become a $1.7 billion company, it is still considered a small-cap company. While small-cap companies have room to grow, they often are stemmed by a lack of infrastructure and expertise that comes with larger, better financed companies. Although the company brings over $2 billion in revenue every year, their growth rate has significantly slowed in recent years. Furthermore, their operating and net income have been swung significantly in the past 5 years. The company’s debt to asset ratio has also skyrocketed in the same time period, showing that compared to their assets, the company is taking on a lot of debt. Lastly, the company seems to have conflict on the corporate level, with multiple CEOs in the past decade. Considering these factors, investors might want to look elsewhere in order to get a better return on their investment.
GAP INC: GPS
Market Capitalization: $12.7B
Earnings Per Share (EPS): -$2.12
Forward P/E: 25.49
Dividend Yield: N/A
Gap Inc. is an American multinational clothing retailer headquartered in San Francisco, California. The company has 6 main divisions including Banana Republic, Athleta, Old Navy, Intermix, Hill City and Gap. Created in 1969 by Donald and Doris Fisher, the company has expanded greatly. Gap is now the third largest clothing retailer in terms of store locations, trailing the Inditex Group and H&M. First marketed to teen consumers, the name Gap referred to the generational gap between people. In the 1990s, the company chose to embrace a more upscale theme. Through the 2000s, the company saw strong growth, even over-expanding at some points. The company saw an increase in debt that hampered their ability to be leaders in their market. Through multiple changes to the management of the company, the firm has been able to rebound and is now seeing strong numbers and performance.
With yearly sales of over $15 billion and a positive earnings per share, other than this past year, the company has solid fundamentals. With an expected earnings growth rate of around 5%, the company is farther into its mature phase, where growth slows down. However, the company has invested more heavily in their online business in recent years, which they expect will become the majority of their revenue in the future. Out of 27 analyst recommendations, 22 of them are to hold or sell, showing that most of Wall Street have a bearish, or pessimistic, view on the performance and future of Gap.
NORDSTROM: JWN
Market Capitalization: $5.9B
Earnings Per Share (EPS): -$4.41
Forward P/E: 35.49
Dividend Yield: N/A
Nordstrom is an American department store chain created by John W. Nordstrom in 1901. After immigrating to the United States from Sweden, Nordstrom began his company. First starting out as a shoe shop, Nordstrom soon grew into a large retailer with departments for clothing, footwear, handbags, jewelry and accessories. Headquartered and started in Seattle, Washington, the company now operates over 100 different locations in 32 states and Canada. Just like many other large retailers in the United States, Nordstrom has experienced a growing shift towards online shopping. The slow transition out of malls and the growing influence of technology, coupled with the COVID-19 pandemic has seen most consumers opt for no contact delivery and e-commerce platforms.
Nordstrom, like its peers, has strong sales of over $15 billion. Furthermore, like Gap, the company has reached its mature phase of growth and thus the growth rate of metrics like sales are somewhat low. Nordstrom also has around a 5% sales growth for the next fiscal year. Out of 26 analyst recommendations 22 are to sell or hold, again, showing a bearish view on the stock. Nordstrom’s debt to asset, in particular, is worrisome. Since 2018, when it reached 88%, it has now risen to 96%. This is in part due to the COVID-19 pandemic and financial turbulence that followed as Nordstrom had to take on a substantial amount of debt in order to continue operating.