GAP (NYSE:GPS) Facing a Major Slump


For apparel retailer GAP (NYSE:GPS), the situation on the market is anything but good, as its shares have fallen to their lowest level in 52 weeks. Its current sales slump is not only continuing, but accelerated in March, which has forced its stock to its current low of $30 and looks to fall further. After reporting terrible Q4 earnings and offering weak guidance for this year, the company’s recent press release did not offer much hope of future improvement.

Sales in Freefall

GAP’s comparative sales dropped 6% in March and this was not the only bad news, as the company’s key brands performed badly. Major brands such as Banana Republic and Old Navy lost 14 and 6 percent respectively. The fact that all of its three major brands suffered a measurable sales drop is another sign of trouble.

Old Navy went down 20% compared to March last year and combined with the struggling results from its other major brands, this puts GAP in an even worse position than it was after its troubling Q4 report. GAP is also drowning in inventory after over purchasing without a realistic sales plan, the kind of scenario that is the last thing the company needs at the moment.

Financially Struggling

The combination of the awful results from the last fiscal year and its ongoing downward trend in 2016 means the company is struggling to keep its head above water. If the sales predictions of a 3 to 5 percent decline in total sales for this year become reality, it is facing a huge earnings miss. Without a visible strategy to turn things around and the stock continuing to fall, management needs to come up with a brilliant turnaround strategy but there is still no sign of that.

With sales and margin pressure, GAP (NYSE:GPS) is facing a dramatic earnings decline. If earnings per share hit $2 or less, the stock will slide to $16-18. If the negative sales continue into April and beyond, the shares will continue to fall, meaning that there are definitely better investment options at the moment.


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