Gap stock punished on the trading floor after disappointing FY16 earnings outlook

Gap shares closed down on Thursday after the retailer issued a disappointing full-year earnings outlook. In an attempt – failed – to cheer its stock, the retailer announced a new one billion dollars buyback plan.

As a consequence of the outlook, weaker than expected, the stock got punished. On the trading floor, Gap shares have declined nearly 35 per cent since the start of last year, further falling by 4.6 percent to a 26.32 dollars close price in extended trading on Thursday.

In an attempt to regain the market’s confidence, Gap also announced on Thursday a new 1 billion dollars share repurchase program, replacing an existing authorisation.

"My team and I have a great deal of urgency," chief executive Art Peck told investors during a conference call on Thursday. "I know what this company is capable of at our best. I know what these brands are capable at their best. I and my team are focused on not just achieving that for a moment, but achieving that with consistency."

Looking ahead, the US apparel group said it expects full-year earnings in the range of 2.20 to 2.25 dollars a share, below Wall Street’s estimates for 2.44 dollars a share, notes the ‘Financial Times’.

Excluding items, the company earned 57 cents per share, in line with the average analyst estimate, who had expected earnings of 51 cents a share, on sales of 4.4 billion dollars.

The forecast includes a pre-tax impact of over 120 million dollars from a strong dollar, which has been plaguing U.S. companies with significant global presence highlights Reuters. Revenue previsions were unchanged from the 4.39 billion dollars figure the company provided on Feb. 8.

It’s not easy for Gap to escape heavy promotional environment

Commenting the news, Nomura analyst Simeon Siegel said the environment is very promotional and it's not easy to "snap your fingers" and come out of the situation. Gap's net income fell by a third to 214 million dollars, or 53 cents per share, in the fourth quarter ended January, 30.

Profits for the fourth quarter came in at 214 million dollars or 53 cents a share, well ahead of same quarter last year’s 319 million dollars or 75 cents a share.

On a brand by brand case, none of the brands of the group didn´t perform any better, with same-store sales at Banana Republic falling 10 percent; Gap noting a 6 percent decline, and flat at Old Navy.

Peck told investors that Gap even has struggled to get the basics right across the board, using as a case in point how at Banana Republic, blazers didn´t fit most of women, who struggled to their arms through the sleeve. But now, the chief executive assured investors that Gap is "buying what's working, rather than guessing what's going to work."

In fact, major pain came from the group’s affordable clothing arm, as Old Navy’s sales fell 6.8 percent in the holiday quarter, hurt by a "couple of style misses" and an unexpected drop in traffic. The line was "over assorted" with sweater styles, CEO Peck said in this regard.

"Given that Old Navy relies heavily on volume and shoppers buying multiple items the impact was probably somewhat worse than it was for rivals," said on this matter Neil Saunders, CEO of research firm Conlumino.

Gap’s CEO remains positive about 2016

But Art Peck remains optimistic, stating that “With a year of transition behind us, I’m confident that we have the right strategies in place to fuel our long-term growth.”

Peck added reminded that “We made significant progress in 2015 transforming our product operating model, enabling us to be more responsive to trends and market conditions, and consistently deliver on-brand product collections.”

 

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