Gap's Shares Drop Due to Weak Sales Guidance Despite Strong Flagship Performance
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 2 days ago
0mins
Source: seekingalpha
- Weak Sales Growth: Comparable sales at Old Navy and Banana Republic rose only 1% and 2%, respectively, significantly below market expectations, resulting in overall comparable sales growth of just 2%, which is less than the 2.93% forecast, indicating substantial brand performance disparities that could undermine investor confidence.
- Revenue Miss: Gap's net sales increased by 1% year-over-year to $3.5 billion, falling short of consensus estimates primarily due to a 12% decline in sales from the struggling Athleta brand, highlighting challenges in the company's multi-brand strategy that may impact future market share.
- Adjusted Profit Outlook: While Gap raised its earnings per share forecast to a range of $2.30 to $2.40, it lowered its sales growth outlook to 1% to 2%, down from the previous 2% to 3% forecast, reflecting the company's caution regarding future market uncertainties, which could affect investor sentiment.
- Mixed Margin Performance: Gap reported a gross margin of 40.5%, exceeding the 40.3% estimate, yet its adjusted operating margin of 5.2% fell short of the 6.1% expectation, indicating ongoing challenges in cost management and profitability that may affect its long-term financial health.
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Analyst Views on GAP
Wall Street analysts forecast GAP stock price to rise
15 Analyst Rating
12 Buy
3 Hold
0 Sell
Strong Buy
Current: 25.000
Low
25.00
Averages
31.07
High
41.00
Current: 25.000
Low
25.00
Averages
31.07
High
41.00
About GAP
The Gap, Inc. is a specialty apparel company in America. The Company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. It is an omni-channel retailer, with sales to customers both in stores and online, through Company-operated and franchise stores, websites, and third-party arrangements. Its omni-channel services, include buying online pick-up in-store, order-in-store, find-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences. Gap includes adult apparel and accessories brands that offer GapKids, babyGap, Gap Maternity, GapBody, and GapFit collections, as well as limited-edition collections with GapStudio and with partner brands. Athleta is a premium performance lifestyle brand for women and girls. Athleta products are available at Company-operated stores across the United States and Canada, franchise retail locations globally, and online.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Weak Revenue Growth: Gap Inc. reported Q1 revenue of $3.5 billion, reflecting a 1% year-over-year increase that fell short of Wall Street expectations, indicating potential weaknesses in market competitiveness that could undermine investor confidence going forward.
- Old Navy Sales Struggles: Comparable sales growth for Old Navy was only 1%, significantly below the 3% analysts had anticipated, suggesting challenges in brand appeal that may lead to continued declines in overall performance.
- Management Guidance Cut: Due to sales pressures, Gap Inc. has lowered its full-year net sales guidance for 2026, reflecting a cautious outlook on future market conditions that could impact its long-term strategic planning.
- Analyst Downgrade: JPMorgan downgraded Gap Inc. from Overweight to Neutral and slashed its price target from $35 to $27, compounding selling pressure that had already driven shares down over 14% in after-hours trading, indicating a loss of market confidence.
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- Old Navy Underperformance: GAP's largest brand, Old Navy, posted only 1% comparable sales growth in the quarter, falling short of analyst expectations of 3%, leading to a 17% plunge in GAP's stock price on Friday and a lowered full-year sales outlook.
- Commitment to Brand Rebuild: Despite the slow progress in Athleta's turnaround, GAP CEO Richard Dickson emphasized that brand CEO Maggie Gauger, who has been leading the business overhaul since August, is committed to improving market performance.
- New Merchandise Launch: GAP has begun rolling out new merchandise, with Dickson noting that these items are resonating well in the market, and although still in early stages, the company believes Athleta has the potential for long-term growth.
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- Sales Performance Decline: Athleta's first-quarter sales fell 12% to $270 million, with comparable sales down 11%, reflecting weakened competitiveness in the market, and management warned that second-quarter trends may mirror the first quarter.
- Overall Gap Performance Issues: Gap's shares plunged 17% on Friday, primarily due to Old Navy's performance falling short of expectations, despite stronger results from other brands, prompting the company to lower its full-year sales outlook.
- Brand Future Outlook: Despite the challenges, Dickson remains optimistic about Athleta's future, believing that under new CEO Maggie Gauger's leadership, the brand has growth potential, with expectations for 'slight improvement' in the second half of the year.
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- Weak Revenue Growth: Gap Inc. reported Q1 revenue of $3.5 billion, reflecting a 1% year-over-year increase that fell short of Wall Street expectations, resulting in a more than 15% drop in share price in a single session.
- Old Navy Sales Disappointment: Comparable sales growth for Old Navy was only 1%, significantly below the 3% analysts had anticipated, indicating substantial challenges in the company's core business that negatively impacted overall performance.
- Management Acknowledges Short-Term Pressure: During the earnings call, management admitted that the company was not starting the year as strongly as expected, with CEO Richard Dickson describing Athleta's performance as
See More
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- Weak Revenue Growth: Gap Inc. reported Q1 revenue of $3.5 billion, reflecting a 1% year-over-year increase that fell short of Wall Street expectations, indicating potential weaknesses in market competitiveness that could undermine investor confidence going forward.
- Old Navy Sales Struggles: Comparable sales growth for Old Navy was only 1%, significantly below the 3% analysts had anticipated, suggesting challenges in brand appeal that may lead to continued declines in overall performance.
- Management Guidance Cut: Due to sales pressures, Gap Inc. has lowered its full-year net sales guidance for 2026, reflecting a cautious outlook on future market conditions that could impact its long-term strategic planning.
- Analyst Downgrade: JPMorgan downgraded Gap Inc. from Overweight to Neutral and slashed its price target from $35 to $27, compounding selling pressure that had already driven shares down over 14% in after-hours trading, indicating a loss of market confidence.
See More
GAP CEO Discusses Athleta Brand Turnaround Challenges
- Athleta Sales Decline: GAP reported a 12% drop in Athleta's first-quarter sales to $270 million, with comparable sales down 11%, indicating significant challenges in the brand's turnaround that could impact overall performance.
- Old Navy Underperformance: GAP's largest brand, Old Navy, posted only 1% comparable sales growth in the quarter, falling short of analyst expectations of 3%, leading to a 17% plunge in GAP's stock price on Friday and a lowered full-year sales outlook.
- Commitment to Brand Rebuild: Despite the slow progress in Athleta's turnaround, GAP CEO Richard Dickson emphasized that brand CEO Maggie Gauger, who has been leading the business overhaul since August, is committed to improving market performance.
- New Merchandise Launch: GAP has begun rolling out new merchandise, with Dickson noting that these items are resonating well in the market, and although still in early stages, the company believes Athleta has the potential for long-term growth.
See More
Rita Ferro Takes Charge of Disney's Global Advertising
- Leadership in Advertising: Rita Ferro, as President of Global Advertising at Disney, leverages her 29 years of industry experience to enhance the company's advertising sales across traditional TV, streaming, and digital platforms, thereby strengthening its position in a competitive media landscape.
- Strategic Integration: Ferro emphasizes the 'One Disney' strategy, creating more compelling advertising opportunities by integrating brand partnerships with movie studios and park activations, which enhances customer engagement and brand loyalty.
- International Expansion: Ferro plans to promote ad-supported streaming business internationally, particularly focusing on local content investments for Disney+, aiming to capitalize on the diversity and growth potential of international markets to drive global business development.
- Tech-Driven Approach: Ferro has spearheaded the restructuring of Disney's ad tech stack, enabling advertisers to target more effectively and improving measurement capabilities, thus enhancing the company's competitiveness in the digital advertising space.
See More
Gap CEO: Athleta's Turnaround Requires Time
- Athleta Turnaround Delayed: Gap CEO Richard Dickson stated that the turnaround for Athleta is taking longer than expected, with 2026 designated as a 'rebuild year', indicating ongoing challenges in brand recovery.
- Sales Performance Decline: Athleta's first-quarter sales fell 12% to $270 million, with comparable sales down 11%, reflecting weakened competitiveness in the market, and management warned that second-quarter trends may mirror the first quarter.
- Overall Gap Performance Issues: Gap's shares plunged 17% on Friday, primarily due to Old Navy's performance falling short of expectations, despite stronger results from other brands, prompting the company to lower its full-year sales outlook.
- Brand Future Outlook: Despite the challenges, Dickson remains optimistic about Athleta's future, believing that under new CEO Maggie Gauger's leadership, the brand has growth potential, with expectations for 'slight improvement' in the second half of the year.
See More
US Stock Indices Reach All-Time Highs Amid Positive Economic Signals
- Strong Market Performance: The S&P 500 rose by 0.22%, the Dow Jones Industrial Average increased by 0.72%, and the Nasdaq 100 climbed by 0.36%, with all three indices reaching new all-time highs, reflecting market confidence in economic recovery.
- Tech Stocks Lead Gains: Dell Technologies surged 32% after reporting Q1 total revenue of $43.84 billion, significantly exceeding the consensus estimate of $35.52 billion, and raised its 2027 revenue forecast to between $165 billion and $169 billion, indicating strong market demand and growth potential.
- Positive Economic Data: The May Chicago PMI rose by 13.5 to 62.7, far surpassing expectations of 50.3, marking the fastest expansion pace in 4.25 years, which further bolstered market confidence in stocks.
- Oil Price Decline Benefits Stocks: Crude oil prices fell over 1% to a five-week low due to a preliminary agreement between the US and Iran, easing inflation concerns and supporting the upward trend in the stock market.
See More
Gap Inc. Reports Weak Q1 Revenue Growth, Shares Plunge
- Weak Revenue Growth: Gap Inc. reported Q1 revenue of $3.5 billion, reflecting a 1% year-over-year increase that fell short of Wall Street expectations, resulting in a more than 15% drop in share price in a single session.
- Old Navy Sales Disappointment: Comparable sales growth for Old Navy was only 1%, significantly below the 3% analysts had anticipated, indicating substantial challenges in the company's core business that negatively impacted overall performance.
- Management Acknowledges Short-Term Pressure: During the earnings call, management admitted that the company was not starting the year as strongly as expected, with CEO Richard Dickson describing Athleta's performance as
See More
