Gap Inc(NYSE:GPS) in the third quarter FY 16 has reported a 2% fall in the revenue to $3.8 billion year over year. The biggest declines came from Gap Global brand and Banana Republic chains as both of them posted 8% fall in the sales, while Old Navy rose 3% in the period. The sales in the third quarter latest period FY 16 were also affected by a fire at Fishkill distribution center in August, which is one of the company’s largest distribution centers. As a result, Gap stock lost over 16.6% on November 18th, 2016 (Source: Google finance). On the other hand, the translation of foreign currencies into US dollars has positively affected the net sales of the company for the third quarter of FY 16 by about $17 million.
GPS has posted an 18% drop in quarterly profit to $204 million, which is the seventh straight period of declining sales and has absorbed costs tied to store closures. GPS in 3Q FY16 reported a diluted earnings per share were $0.60, excluding the $0.09 impact from restructuring costs related to store closure and streamlining measures, which is in line with the analysts’ estimates at 60 cents a share.
In addition, Gap in the 3Q FY 16 has opened 36 and closed 28 company-operated stores. Gap expects to shut about 65 company-operated stores in FY 16, as compared with its previous forecast of about 50 stores and expects a further drop in traffic during the crucial holiday shopping season as it expects a further drop in traffic during the crucial holiday shopping season. The company has 3,730 locations around the globe.
Store count, openings, closings, and square footage (source: Company Reports)
Ms. Simmons is leaving the company and Teri List-Stoll, former chief financial officer of Dick’s Sporting Goods Inc., will join the board on January 17th, 2017.
Gap also reaffirmed its adjusted earnings per share forecast of $1.87 to $1.92 for the FY 16. Analysts on average were expecting $2.02, according to Thomson Reuters. Excluding restructuring costs, GPS expects its adjusted operating margin to be about 8.5 percent in FY16. This weak guidance raises concerns whether the stock could recover its performance given the challenging conditions. Gap is struggling with a prolonged sales slump as fast-fashion rivals like H&M and Zara steal market share. Therefore, GPS has resorted to discounts to move merchandise and has been shrinking its retail footprint. During the third quarter FY 16, the company has closed all its Old Navy stores in Japan and several Banana Republic stores (in UK it expects to close all). GPS stock already rose over 42.5% in the last six months (as of 9:37AM EST; Source: Google Finance) but the sustenance of this rally is questionable as Friday’s results confirmed the group’s ongoing pressure. Moreover, based on tipranks.com, Gap has an average price target of $25.88, which is a further upside of only 1.05%.