How Is Gap Expected To Perform In 2016?
While in the recent second quarter results Gap Inc (NYSE:GPS) beat analysts’ expectations on EPS and revenue, the results were still disappointing with over a 6% fall in EPS, a 24% decline in operating income, and a 43% drop in net income. The company also offered a downbeat outlook for the rest of the year, with a forecast of a full-year EPS to be in the $1.87 to $1.92 range, down significantly from its prior expectation of $2.20 to $2.25.
See our complete analysis for Gap Inc.
Gap recently reported its August same store sales, which fell by 3%, driven by a 10% decline in its Banana Republic brand. While comparable sales at Gap Global also was a negative 5%, versus a negative 8% last year, its Old Navy brand reported a positive comparable sales of 1%; however, when compared to a 6% rise last year, this brand also disappointed. For the company, as a whole, the August sales were down 2% to $1.17 billion. Any signs of a rebound, as hinted in the positive comparable sales in June, was indeed a blip on the radar, as following that, the company has reported two consecutive months of declining comps.
One of the main problems the company has is the high initial prices it charges for its products. CEO Art Peck addressed this concern in May, when he stated the company was looking into the starting prices on its merchandise, with some changes being made across the Gap, Banana Republic, and Old Navy brands. However, this is a deep-seated problem, and one which can not be solved overnight. According to Credit Suisse analyst Christian Buss, this would require a substantial overhaul of the supply chain, and would take years to fix. The company’s pricing problem extends further than its initial prices; Gap’s three main brands remain heavily discounted. In May, Peck did address this, and noted steps were being taken to curb such discounts. Competition from brands like H&M, which offer good quality clothing at lower prices, forces the company to offer discounts. However, if the starting price of the company is competitive, there will not be a need to furnish such heavy promotional activities.
Fast fashion retailers, such as Zara, H&M, and Forever 21, are able to move styles from the runway to the stores within weeks, constantly evolving their assortment and keeping their products fresh. Historically, retailers placed their bets on fashion a year in advance, and since they marked their products higher, there was room for markdowns. However, now companies have realized that by cutting the time down to three to six months, they don’t need to price the items higher. As under the previous CEO Glenn Murphy, Peck is also looking to speed up and improve the supply chain, and claims significant progress has been made to accomplish this. Besides the above, Gap is also facing a problem of reduced traffic, which in conjunction with its other problems, is wreaking havoc on its top and bottom line. As a result, not much improvement is expected in the company before the end of the year.
Have more questions about Gap Inc? See the links below:
- Gap Reports Yet Another Month Of Declining Comparable Sales
- Can Old Navy Win The Back-To-School Market?
- What Are The Problems Plaguing Gap Inc.?
- Gap Reports A Weak Outlook For FY 2016
- Fall In Sales To Weigh On Gap In The Second Quarter
- After Positive Results In June, Gap Returns To A Sales Decline
- Are There Signs Of A Turnaround At Gap, Or Is It Just A Blip On The Radar?
- Are Gap Inc’s Earnings Volatile?
- What’s Gap Inc’s Revenue & Net Income Breakdown In Terms Of Different Brands?
- By How Much Did Gap Inc’s Revenue & EBITDA Grow In The Last Five Years?
- What Is Gap Inc’s Fundamental Value Based On Expected 2016 Results?
- By What Percentage Can Gap Inc’s Revenues Grow Over The Next Three Years?
- How Are Gap Inc’s Old Navy Revenues & Earnings Expected To Grow Over The Next Five Years?
- How Are Gap Inc’s Banana Republic Revenues & Earnings Expected To Grow Over The Next Five Years?
- How Much Revenues Can Gap Inc’s Athleta Brand Add By 2020?
- What’s Next For Gap’s Stock?
- Mind The Gap: Underwhelming Q2 Earnings Likely For The Apparel Retailer
- With The Stock Almost Flat This Year, Will Q1 Results Drive Gap’s Stock Higher?
- Gap Stock Almost Flat This Year, What’s Next?
- Does Gap Stock Have More Room To Run After Rising 67% This Year?
- Gap Q2 Earnings: What Are We Watching?
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