What Changed Analyst Views on Gap After Earnings
Earnings were not bad in the latest report from the Gap, but guidance disappointed analysts and kept the stock from advancing.
Gap Inc. (NYSE: GPS) reported its fiscal fourth-quarter financial results after the markets closed on Thursday. Earnings were not bad in this report, but guidance kept the stock from advancing. As a result, some analysts issued calls about this retail giant.
The company said it had $0.57 in earnings per share (EPS) on $4.39 billion in revenue. Thomson Reuters consensus estimates called for EPS of $0.57 and $4.46 billion in revenue. The same period from the previous year had $0.75 in EPS on revenue of $4.71 billion.
In terms of fiscal 2016 guidance, the company expects to have EPS in the range of $2.20 to $2.25, and an operating margin of 9.5%. The consensus estimates for the full year call for $2.42 in EPS on $15.86 billion in revenue.
Free cash flow for the fourth quarter totaled $870 million. Also on the books, the company ended fiscal year 2015 with $1.4 billion in cash and cash equivalents, compared to $1.5 billion at the end of the previous year.
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Comparable sales fell 7% in this quarter, compared to an increase of 2% in the fourth quarter of last year. In terms of its segment comparable sales results the company had:
- Gap Global had -6% comparable sales versus -5% in the previous year.
- Banana Republic Global had -10% comparable sales.
- Old Navy Global comparable sales were flat compared to a positive 5% from last year.
Merrill Lynch believes that the outlook from this report disappoints. The firm expects deflation to remain a headwind, so Merrill Lynch reiterated an Underperform and $21 price objective. It detailed in its report:
In 2015 the company spent $1.0 billion on buybacks, but we expect a material decline in share repurchases in 2016. Management indicated that it will prioritize debt repayment as a use of cash and the pace of buybacks will decline significantly. We are modeling free cash flow of $839 million, with $377 million cash funding the unchanged $0.92 annual dividend, $400 million used to repay the term loan, and $400 million for share repurchase. Management reaffirmed goals to keep $1.0 to $1.2 billion of cash on hand.
A few other analysts weighed in on Gap:
- Jefferies has a Buy rating and lowered its price target to $34 from $42.
- Wedbush has a Neutral rating and raised its price target to $26 from $25.
- Goldman Sachs has a Neutral rating and lowered its price target from $25 to $24.
- Baird has a Neutral rating and raised the price target to $27 from $26.
- Credit Suisse has an Underperform rating and lowered its price target to $27 from $30.
- S&P Capital IQ maintained a Hold rating with a price target to $28.
Shares of Gap ended last week at $27.23, with a consensus analyst price target of $26.41 and a 52-week trading range of $21.57 to $43.90.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
