Shares of retailer Gap (GPS 28.64, -4.55, -13.79%) sink to two-week
lows on Friday after first quarter earnings and comparable store sales missed
Simply put, Gap’s first quarter earnings of $0.42 per share weren’t up to snuff. The company also reported revenue growth of 10.0% to $3.78 bln with worse than expected comps of +1%.
Margins were 36.7% in the quarter, a decline of 120 basis points compared to last year, largely due to weakness at the company’s flagship Gap brand.
This weakness, which according to management was discussed in March, called for pressure at the Gap brand in the first half of the year. The weakness stemmed from a carryover of operational missteps that impacted the previous fiscal year.
As a caveat to the margin pressure and worse than expected comps, management pointed to a span of colder weather during the past three months in parts of the country. Specifically, management called out one of the coldest winters in several years and the snowiest April in 21 years. This adverse weather impacted the Northeast, where weather was particularly unseasonable.
More specifically, on comps, Gap noted that despite the unseasonably cold weather in the first quarter, Old Navy delivered positive 3% comps against last year’s 8%. Banana Republic delivered positive 3% comps against a negative 4% result a year ago. At the company’s Gap stores, comps were down 4% against a negative 4% period last year.
Management also affirmed the company’s previous full-year earnings and comp outlook. Gap continues to expect EPS of $2.55-2.70 for the year, with comps in the range of flat to up slightly. The FY18 tax rate is still anticipated at about 26%, and the company anticipates repurchasing about $100 mln in shares through the end of FY18.
Gap shares held a nearly 12.7% gain in the month of May into the last night’s print, so it is likely that some investors opted to sell the results. The company reported its sixth consecutive quarter of positive comp growth, a result which still fell short of Street expectations. Investors also seem to be scrutinizing the earnings miss and reaffirmed guidance, a reality many retailers have had to come to terms with over the past few months as peers Nordstrom (JWN 49.22, +0.48, +1.0%), and Kohl's (KSS 65.44, +0.93, +1.4%) too have felt the reality of a full year outlook that failed to impress Wall Street.
The stock opened near its 200-day simple moving average (30.01) and quickly fell lower, down now about 13.8% into the holiday weekend.
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