Gap plummets on earnings miss, cuts full-year forecast

Yahoo Finance Live anchors discuss quarterly earnings for Gap.

Video Transcript

JARED BLIKRE: Time to move on to some earnings. Retail Gap is trading-- look at that. It's down about 16% ahead of the opening bell after reporting a wider than expected loss in the first quarter. The retailer also cut its full year earnings forecast after the CEO said the brand missed the mark on spring fashion trends, and we're seeing a product acceptance issue. That's in quotes-- "products acceptance issue." We were talking about that, Julie. That just means people don't want their products, right? They don't like them. I mean--

JULIE HYMAN: Yeah, I mean, that's pretty much--

JARED BLIKRE: --they've moved on to other things.

JULIE HYMAN: They've moved on to other things. So there's the numbers, which were terrible, the loss much wider than estimated at $0.44. As you said, the guidance. I mean, the-- let's talk about the numbers of the guidance for just a second here because it is so shockingly poor. So now the company says earnings per share this year are going to be $0.40 to $0.70. The prior forecast was $1.85 to $2.05. I mean, that's a slash of slashes, right? Like, that is a big decrease. Comps were down 14% in this past quarter. So let's talk a little bit more about "product acceptance," quote unquote.

JARED BLIKRE: Yes, what are people wearing?

JULIE HYMAN: It was a particular problem at Old Navy, which saw comparable sales down by 22%. That isn't a special issue because Old Navy had been the strongest of the various Gap brands, along with Athleta, to a smaller degree. So product acceptance means people are going out more. They're not buying fleece as much. They're not buying athleisure as much. Maybe they're not buying sort of basics as much. Guess what Old Navy sells? All of that stuff. So if that's the issue, then it's a problem.

The other big problem for Old Navy is that the company had done this big initiative where they were going to have sizes for everybody, which sounds great, right? It sounds on point. You have a big assortment of different sizes. Well, the problem is, they bought too much of all of that stuff, and there just wasn't enough demand for it. So, yes, inventories up 34%, I think, over the course of the quarter.

JARED BLIKRE: Yeah, something-- another trend we've been watching and getting ready for those Christmas discounts already in May here. I do have some analyst commentary. Here's Morgan Stanley. They downgraded the stock to underweight from equal rate, cut the price target to $8 from $13. And so they're saying they expected the first quarter EPS miss. It materialized. They lowered their full year guidance, which we've been talking about. Proves that full year EPS fears have been well-founded. And consistent mis-execution and likely decelerating macro and industry headwinds, this leaves room for further negative revisions. So looking out--

JULIE HYMAN: And they say the first cut might not be the deepest. So, like, as bad as those numbers I just said were, it could get worse, is what they're saying.

JARED BLIKRE: We're in an earnings rerating cycle to the downside. And that means more pain ahead probably for this quarter and for other core future quarters for some of these retailers. We've seen some exceptions this week, some outperformers, but Gap is just an execution story gone awry.

JULIE HYMAN: Yes, and I think there's a note from Wells Fargo that really puts a fine point on that as well, which says, while the macro is far from good, the majority of Gap's issues seem to be self-inflicted. So that, to me, really illustrates what-- to your point, what we have seen over the past couple of weeks and illustrated by some of the retailers we were showing there, which is that some of this is undoubtedly macro and a shift in consumer spending patterns. And then you have the individual management.

I think you can point the finger at Target and Walmart not really getting it right and anticipating. And then you have other retailers that have pivoted a little bit better. But Gap-- I mean, if Brian Sozzi were here right now, speaking of pounding the table, he might be jumping up on top of it and pounding the table because--

JARED BLIKRE: I miss those days. He's going to be back Monday.



JULIE HYMAN: None of us will be back Monday, I hope.

JARED BLIKRE: Oh, that's right.


JARED BLIKRE: I'm not going to be here.

JULIE HYMAN: --don't come into the office on Monday, Jared.

JARED BLIKRE: I might do that by accident.

JULIE HYMAN: But if he were here, he has been consistently calling out the management of the company. And I think this quarter really illustrates just what they've been doing-- Old Navy, by the way, doesn't have a CEO right now. They got rid of their CEO. They have not replaced that person. And clearly, it needs help.

JARED BLIKRE: We were just talking about traders, and my expectation is that traders are going to be frustrated. I think a lot of companies are going to be frustrated, too. This is an environment where you have to execute to perfection. If you're not executing now, it's not going to get any better.

JULIE HYMAN: Yeah, it's not going to get any easier, unless you learn the lesson of this quarter.

JARED BLIKRE: Everybody learn your lessons.

JULIE HYMAN: And-- yeah.

JARED BLIKRE: Pay attention.

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