The Gap (GPS) Shares off After Weak March Sales Report

Shares of The Gap Inc. (GPS) were trading down -1.91 or -6.90 percent to $25.77 per share in Friday’s premarket after the company reported lower than expected results for March sales after the market close on Thursday. The Gap stock closed at $27.68 per share, down -1.18 or -4.09 percent in Thursday’s regular trading session.

Stock Analysis

San Francisco, California based, The Gap Inc. is the world’s second largest retailer of clothing and accessories.
Founded in 1969, the company operates under five different divisions: The Gap, Banana Republic, Piperlime and Old Navy.  The company operates more than 3,000 stores worldwide with over 2,500 of them located in the United States and employs about 130,000 people. The Gap Inc. owns stores in the U.S., Canada, the UK, Japan, Brazil, France, Italy, Ireland and Puerto Rico, with 3,300 company run stores and 400 stores owned by franchisees. In addition, the company operates a number of e-commerce sites where they market their products.

Gap Inc. reported net sales of $1.43 billion for the five-week period ended on April 2nd, 2016 after yesterday’s market close. This compares to net sales of $1.53 billion in the same five-week period one year ago. Comparable store sales for March were off six percent compared to an increase of two percent last year.

Comp sales by global brands in March had Old Navy Global comparable store sales show a negative six percent compared to a positive 14 percent last year; Gap Global, with a negative three percent versus a negative seven percent in 2015 and Banana Republic Global, which saw a negative -14 percent compared to a negative three percent last year.

The company cited an unexpected surplus of inventory entering April that the Gap expects will put pressure on its gross margin rate for the company’s first quarter of 2016. In the company’s press release, The Gap Chief Financial Officer, Sabrina Simmons noted that, “While March proved challenging, we remain focused on taking the necessary steps to improve results across the portfolio throughout the year”.

The Gap has been under considerable pressure since Art Peck took the helm as Chief Executive Officer in February of 2015. In an effort to turn the business around, the company has had considerable turnover in its senior management. At the end of last year, Stefan Larsson, the head of Old Navy stepped down to become the Chief Executive at Ralph Lauren (RL).

Following Larsson’s departure, Banana Republic’s creative director, Marissa Webb, who was hired to revive the brand resigned after delivering poor results. Nevertheless, Banana Republic brought back Wendi Goldman last year to help the company with product design.

Despite the company’s efforts to cut costs by closing stores and slashing its workforce, The Gap continues to lag competitors. Analysts say the company’s brand have lost relevance with young people who are increasingly shopping online. The Gap stock has been hit hard by the drop in business, showing a -35 percent decline for the last twelve month’s through yesterday’s closing price.

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Published on Apr 8, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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