Earnings preview: Gap’s struggles are likely to continue in Q2

Gap Inc. (NYSE: GPS) is scheduled to report second quarter 2019 earnings results on Thursday, August 22, after regular hours. Analysts have forecast earnings of $0.53 per share on revenue of $4.02 billion.

Gap has been struggling with weakness in its namesake brand mainly due to operational and assortment issues and this weakness has weighed on the top line in general. The company has been restructuring this business in order to revitalize the Gap brand but these efforts might not be sufficient to drive growth in the second quarter.

Gap has also seen comp sales decline in the past two quarters with decreases across all its brands. These declines are likely to continue in the to-be-reported quarter. The company is also likely to face pressures from the ongoing trade war and the resultant tariffs.

Earlier this year, the management decided to split the company into two separate public entities. The focus of the restructuring is the separation of the Old Navy brand, which accounts for nearly half of its sales.

In the first quarter of 2019, Gap missed sales and earnings estimates due to disappointing comps. Net sales dropped 2% to $3.7 billion while adjusted EPS totaled $0.24. Comp sales declined 4% with decreases across all its brands.

Also see: Gap Inc. Q1 2019 Earnings Conference Call Transcript

For fiscal 2019, Gap expects unadjusted earnings in the range of $2.04-2.14 per share. The forecast for adjusted earnings is $2.05-2.15 per share. Full-year comparable store sales are expected to be down low single digits.

Shares of Gap have dropped 36% year-to-date and 26% in the past three months. The majority of analysts have rated it as Hold and the average price target is $20.54.

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