Gap Q2 sales miss estimates, cuts earnings outlook

Gap Inc. (NYSE: GPS) continued its disappointing performance from the Q1 period. For the Q2 period, adjusted earnings topped estimates, while top line fell short of consensus. The stock has plunged about 45% in the last 12 months as the retailer is facing multiple headwinds. Last week, the company touched a new 52-week low of $15 mark, but has recovered and trading at $17 level today.

Comp-store sales were down 4% due to tough macros with all its brands recording negative sales growth over the prior year period. Sales decreased 2% to $4 billion while earnings per share plunged 42% to 44 cents. Adjusted EPS came in at 63 cents. Analysts were anticipating sales of $4.02 billion and non-GAAP earnings of 53 cents per share.

Old Navy Global which brings in nearly 50% to the top line saw a 5% drop in comp-store sales, while Gap Global recorded 7% decrease and Banana Republic Global saw a 3% dip compared to last year.

As part of the restructuring efforts, the management has decided to split the company into two public companies. Old Navy brand, which accounts for nearly half of its sales, would become a separate entity. The rest of the brands would be part of a new public company. Gap intends to complete the transaction in 2020.

Before the split up, Gap is investing on improving the offline stores and online for better customer experience, which would result in better customer engagement and loyalty for its brands. The retailer is also making sure that expenses are in check to ensure it’s not impacting the bottom line.

Store Closures

In the current fiscal period, Gap expects to close 30 stores operated by the firm and 130 stores when it comes to Gap brand fleet restructuring. The majority of the store closures are expected in the fourth quarter of 2019.

Outlook

For the full-year period, Gap has scaled down its GAAP earnings numbers from the prior quarter. The retailer now expects GAAP EPS to be between $1.88-2.08 and reiterated the non-GAAP EPS of $2.05-2.15 provided in the first quarter. The street is expecting sales of $16.5 billion and GAAP earnings of $2.06 per share.

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