Gap Shares Plummet on Disappointing First Quarter Financial Results

02:53 06/02/2019

Shares of clothing retailer Gap GPS  were in the red last week after the company reported financial results that missed on both lines.

Shares of Gap were down about 11% in after-hours trading on Thursday when the company reported first quarter results that missed on earnings. The company also slashed its annual profit outlook.

According to Gap CEO Art Peck, the quarter was 'extremely challenging.' The Chief Executive also said that he is “not at all satisfied” with the results. “We are committed to improving our execution and performance this year,” he assured.

Peck said the quarter was one of the “coldest, wettest quarters in memory” and this was cited for the poor results. He also added that business was “extremely slow” in the month of February.

He said during the earnings call, 'Obviously we're disappointed in our Q1 results. Not unlike others in the industry, our results highlight some of the macro challenges we all face. As you know, this is one of the coldest, wettest quarters in memory, and while traffic and sales trends improved, as we move through March and April, it was difficult to overcome the extremely slow business that we and others encountered in February.

In addition to the poor weather, we had late spring breaks, a late Easter and delayed and lower tax refunds thrown into the mix, as well. We also missed opportunities on our own, and we could have executed as always better across places in our brands.

We recognized the needs of our customers are changing and we're not waiting around, hoping that we muddle through. We're running towards what we see as an exciting next step in our evolution. As you remember, last quarter we announced our intent to launch two new companies that will be uniquely positioned to compete in the evolving retail environment.'

For the quarter, Gap reported adjusted EPS of $0.24 while $0.32 had been expected. Revenues at $3.71 billion were also behind the $3.77 billion waited for. Same-store sales saw a drop of 4% while only a drop of 1.1% was expected.
Looking ahead, the company cut its annual profit outlook and now expects adjusted earnings per share to fall within a range of $2.05 to $2.15 this year.

This is compared with a prior range of $2.40 to $2.55. Gap has also projected that company-wide same-store sales will be down low single digits in fiscal 2019.

Wall Street also learned that the company is additionally aiming to shut 130 Gap-branded stores in the fiscal fourth quarter.

As far as the Chinese tariffs are concerned, “We’ve been migrating sourcing out of China for the last several years and we’ll continue to do this responsibly going forward,” Peck explained.


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