- Gap reported first-quarter earnings after Thursday’s closing bell that missed analyst expectations.
- The weak quarter was driven by slow sales at Old Navy.
- The company reiterated its plan to separate Old Navy into its own company in 2020.
- Watch shares of Gap trade live.
Shares of Gap are down more than 17% early Friday after the company reported its sharpest sales decline in 10 years.
Here’s what Gap reported, compared to what analysts surveyed by Bloomberg were anticipating:
- Adjusted earnings per share: $0.24 reported versus $0.32 expected
- Revenue: $3.7 billion reported versus $3.8 billion expected
- Comparable sales: -4% reported versus -1.1% expected
- Full-year 2019 EPS outlook: $2.05 to $2.15 reported
“This quarter was extremely challenging, and we are not at all satisfied with our results,” said Art Peck, president and CEO of Gap. “We are committed to improving our execution and performance this year.”
The weak report comes after Gap announced in February that it would separate Old Navy in 2020, spinning it away from other portfolio brands which include Gap and Banana Republic. Old Navy, which accounts for nearly half of Gap’s sales, struggled this quarter as comparable sales slid 1%. A year ago they were up 3%.
“As you know, this is one of the coldest, wettest quarters in memory, and while traffic and sales trends improved, as we move through March and April, it was difficult to overcome the extremely slow business that we and others encountered in February,” Peck said Thursday on the company’s earnings call. “Late spring breaks, a late Easter holiday and delayed lower tax refunds also impacted the quarterly performance.”
Gap also missed opportunities to better its brands on its own, he said, reiterating that a shifting consumer base is the main reason to separate Old Navy into its own new company.
But the timeline for that separation is well into the future, and with weak performance, the stock is likely to drop, analysts said. The company said that it now expects comparable sales for the year to be in the low single digits.
“While that brand’s turnaround is likely to take some time, the shares are likely to have a floor owing to the planned 2020 Old Navy spin,” wrote analysts from RBC in a note.
Gap also announced the addition of Janie and Jack, a high-end children’s clothing brand to its portfolio Thursday. The brand sits a higher price point than what is offered at Gap and Old Navy.
Shares of Gap are down 20% year to date.