Why Gap Lost Despite an Earnings Beat
Gap reported its fiscal second-quarter financial results after the markets closed on Thursday, but what really pulled its shares down was a less than favorable outlook.
Gap Inc. (NYSE: GPS) reported its fiscal second-quarter financial results after the markets closed on Thursday. Its shares took a step back early on Friday, despite the company beating on both the top and bottom lines. What really pulled Gap down was a less than favorable outlook.
The company said that it had $0.60 in earnings per share (EPS) on $3.85 billion in revenue. The consensus estimates from Thomson Reuters had called for $0.59 in EPS on revenue of $3.79 billion. The same period of last year reportedly had EPS of $0.64 and $3.9 billion in revenue.
In terms of the outlook for the 2016 full year, the company expects to have EPS in the range of $1.87 to $1.92, excluding the negative impact of restructuring costs. The consensus analysts are calling for $1.94 in EPS.
Gap’s comparable sales for the second quarter were down 2%, compared to a 2% decrease last year. The company’s segments reported (compared to the same period from last year):
- Gap Global posted negative 3% comps, versus negative 6%.
- Banana Republic Global had negative 9% comps, versus negative 4%.
- Old Navy comps were flat, versus a gain of 3% from last year.
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Art Peck, CEO of Gap, commented:
During the quarter, we took critical steps to execute our restructuring plans and to build a more efficient global brand model with greater potential for growth. While I remain unsatisfied with the pace of improvement across the business, I am encouraged by the underlying signs of progress in Q2, as demonstrated by healthier merchandise margins. Our management teams share my urgency to create fundamental change that will drive long-term performance.
On the books, Gap cash and cash equivalents totaled $1.68 billion at the end of the quarter, versus $1.04 billion at the end of the same period from last year.
Shares of Gap closed Thursday up 1.7% at $25.88, with a consensus analyst price target of $22.30 and a 52-week trading range of $17.00 to $33.80. Following the release of the earnings report, the stock was initially down about 3% at $25.11 in early trading indications on Friday.
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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.
