Shares of Gap Inc (NYSE: NYSE:GPS) intially dropped more than 5% on Friday after the company reported first-quarter earnings and cut its full-year profit guidance.
On Thursday, Gap reported a first-quarter adjusted EPS loss of 44 cents, missing consensus estimates of a 13-cent loss. Gap reported revenue of $3.48 billion, beating analyst expectations of $3.46 billion. Revenue was down 13% from a year ago.
Overall same-store sales were down 14% from a year ago, missing Wall Street's estimate of a 12.2% drop. Gap store sales were down 11%, Old Navy same-store sales were down 22% and Banana Republic sales were up 27%.
Looking ahead, Gap reduced its full-year EPS guidance from a previous range of between $1.85 and $2.05 to a new range of between 30 cents and 60 cents.
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Reset Year: Telsey Advisory Group analyst Dana Telsey said Gap has made tremendous progress in optimizing and streamlining its business in recent years, but the first-quarter numbers are a clear sign of just how much work must still be done to get all of Gap's brands firing at the same time.
"Reflecting a difficult operating environment globally with macro and inflationary pressure, exacerbated by self-inflicted execution missteps at ON leading to the departure of the brand's CEO, FY22 now appears to be a reset year for the business as it looks to stabilize ON and find new leadership, while managing through a difficult operating environment," Telsey wrote.
Bank of America (NYSE:BAC) analyst Lorraine Hutchinson said Old Navy's assortment problems likely won't be solved until the second half of 2022.
"ON was also negatively impacted by an over-assortment of plus sizes in stores from its BODEQUALITY launch and a lack of fashion newness, with too much casual," Hutchinson wrote.
More Guidance Cuts Coming? Morgan Stanley (NYSE:MS) analyst Kimberly Greenberger said Gap's guidance cut may not be its last.
"Consistent mis-execution & a likely decelerating macro/industry headwinds leaves room for further negative revisions," Greenberger wrote.
Credit Suisse (SIX:CSGN) analyst Michael Binetti said he is "disappointed, but not surprised" by Gap's first-quarter numbers and guidance cut.
"With industry optics suggesting the low income consumer (ON's core) is under pressure, we don't expect an easy path to re-rating for the multiple soon," Binetti wrote.
Ratings And Price Targets:
- Morgan Stanley has an Underweight rating and $8 target.
- Credit Suisse has a Neutral rating and $10 target.
- Bank of America has an Underperform rating and $9.60 target.
- Telsey Advisory Group has a Market Perform rating and $13 target.
Latest Ratings for GPS
| Mar 2022 | BMO Capital | Maintains | Market Perform | |
| Mar 2022 | Credit Suisse | Maintains | Neutral | |
| Mar 2022 | JP Morgan | Maintains | Neutral |
View the Latest Analyst Ratings
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