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Gap Stock Craters After Catastrophic Quarterly Report

The Gap (GPS) is falling rapidly on Friday after a first quarter report that did not reach the mark on Thursday after closing. Shares of San Francisco-based clothing retailer are ready for their lowest opening in about three years, marking a nearly 14% drop in pre-market operations.

For the three months ended May 4, the company's first fiscal quarter, printing reached 24 cents per share, well below the Street Street forecast of 32 cents, while revenues fell 2% year-over-year and Sales at the same stores fell 4%, the steepest in three years.

"Obviously we are disappointed with our first quarter results," CEO Arthur Peck told badysts on Thursday night. "Not unlike others in the industry, our results highlight some of the macro challenges we all face."

He said that the confluence of climate trends, holiday changes and tax changes were important factors that impacted performance and that were beyond the control of the administration.

"While traffic and sales trends improved as we moved into March and April, it was difficult to overcome the extremely slow business we encountered with others in February," Peck said. "We also lost opportunities on our own, and we could have executed, as always, better places in our brands."

Peck worked to encourage optimism in the call, noting the company's efforts to deliver better results for the second half of the year, as many macroeconomic trends are likely to plummet.

"We recognize that the needs of our clients are changing, and we are not waiting in the hope that we can move forward, we are running towards what we see as an exciting next step in our evolution," he said.

Breaking the break

The key piece of the company's plan to move forward is the separation of its Old Navy brand, a part of the business that many badysts have described as "the best of its kind" despite the results that were as disappointing as the core business in the trimester.

The split is highlighted as management as the next big catalyst that could change the recent bearish trend of the ship. Jim Cramer also recently highlighted the need for the movement to revitalize sales and make Old Navy more capable of success in its unique form from 2020 onwards.

However, many badysts are not convinced that this is very positive, especially as the main brand sinks.

"We consider that Old Navy is the best of its kind, but with a nominal GDP of 5%, unemployment below 4% and wage growth that benefits the US consumer." JP Morgan badyst Matthew Boss , wrote in his review.

Boss downgraded the rating from "Neutral" to "Low weight" in the midst of the company's inability to perform in solid conditions, questioning the sustainability of the main brand in the event that macro trends deteriorate.

Since tariffs are expected to increase by 21% of the goods that the company imports from China are expected to increase shortly and more taxes are added to imports from Mexico, predictable macroeconomic trends are certainly not courting optimism.

Similarly, the president of SW Retail Advisors, Stacey Widlitz, questioned the timing of the split of Old Navy, and said it is not a panacea for the many problems facing the company.

"I wonder if the" break "or as Art Peck, CEO of GPS during his Vegas Shoptalk speech, called it" conscious decoupling "is perhaps more a sign that Old Navy's margins have peaked than they did. it's a way to create value. "she wrote in a recent blog. "The big question is: Will the separation release significant value for shareholders and change the current trajectory of potentially maximum Operating Margins, which were under significant pressure during the fourth quarter? Having covered the retail sector for two decades, the record Retailer tells me that companies often make important decisions it looks as good as it gets. "

Without new financial disclosures about the dynamics of the available spin-off and the weak Old Navy performance reflected in the impression, these questions will persist.

Do not buy the dip?

As such, despite the drastic fall and the comments about a brighter future led by the split, many on Wall Street still do not feel motivated to see The Gap as a buying opportunity as it joins its PVH Corp pair. . (HPV) in anxiety. -At the corner of the clothing sector.

"We remain on the sidelines for now, optimistically expecting greater visibility, as shown by the data received through email receipts, credit card data and shopping center traffic, culminating in a signal that shows a spark in consumer spending, "wrote Wedbush badyst Jen Redding. A note to customers on Friday. "GPS shares are currently traded at a 38% discount to the company's historical P / E multiple, which we consider fair for the shares of a retailer led by a management team that has been trying to change the brand homonymous during the last 4 years with limited success until now ".

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