May 25, 2018 / 12:29 PM / 4 months ago

Smell of stagnation sends Gap shares down 14 percent

(Reuters) - Shares of clothing retailer Gap Inc (GPS.N) slumped 14 percent on Friday after a surprisingly large fall in same-store sales of its flagship brand weakened overall revenue and dragged quarterly profits down below Wall Street forecasts.

FILE PHOTO: People pass by the GAP clothing retail store in Manhattan, New York, U.S., August 15, 2016. REUTERS/Eduardo Munoz/File Photo

At least seven brokerages cut their targets for the stock after what was the first same-store sales miss compared to consensus estimates in six quarters.

Shares last traded down 13.3 percent at $28.54, putting it on course for its biggest one-day percentage fall in 18 months.

Strong results for the apparel retailer’s ever reliable Old Navy brand of clothing failed to offset a fall in comparable store sales for the GAP brand, which has now been struggling to excite shoppers for years.

“Gap brand (is) just plain disappointing; no way to sugarcoat it,” Jefferies analyst Randal Konik said in a note cutting his target for the stock.

Gap Chief Executive Art Peck fired the head of the GAP brand in February citing disappointment with the unit’s performance, and the store has long been heavily discounting its trademark trousers and sweatshirts.

The brand, the company’s second biggest revenue generator, had only just returned to positive comparable sales in the previous two quarters after years of declines.

“The blunt truth is that on the ground little seems to have changed at Gap,” said Neil Saunders from research house GlobalData Retail.

“The product mix still consists of the same boring basics, there is an absence of fashion trends, base prices remain out of kilter, and discounting is rife.”

The San Francisco-based company said in a results call with analysts that it had struggled to clear inventories in an unusually cold quarter, forcing it to discount many of its products.

Overall same-store sales rose 1 percent in the three months ended May 5 compared to analysts expectations of 1.7 percent growth.

Analysts at RBC Capital Markets, cutting their share price target for Gap to $35, said the stock would continue to remain pressured until investors had more confidence that efforts to turn around the Gap brand were having an impact.

Reporting by Uday Sampath in Bengaluru

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