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Gap's April Sales Were More Painful Than Expected

Gap, Inc. The NYSE:GPS - Gap's April Sales Were More Painful Than Expected

Bernstein analyst Anne-Charlotte Windal believes Gap Inc GPS 11.88% has not only reported disappointing sales for April, but indicated that the sales were more painful than expected. The most important figure was that April comparable store sales growth fell shy of the consensus for all three of its flagship brands – Old Navy, Banana Republic and Gap itself. The company blamed "tepid macroeconomic demand for apparel retail" for missing the consensus.

The analyst said that Gap announced a -4 percent comp and Banana Republic a -7 percent comp. However, Old Navy's -10 percent comp was the biggest surprise, "as it came against an easy -6 percent compare last year." Windal said that it "signals a sharp negative inflection in comp trend for the brand, which had been a relative outperformer in the portfolio."

Related Link: Deutsche Bank's Retail Pro Talks Gap As Stock Hits New 52-Week Lows

Bernstein pointed out that the retailer's management provided 1Q16 EPS guidance of $0.31–$0.32, which was significantly below consensus estimates of $0.44. Windal continued, "While it looks like April was indeed a horrible month for the entire Apparel category (with weather not cooperating and benefit from Easter shift not materializing), the GPS numbers are concerning. With Old Navy losing steam and no sign of improvement on the Gap brand (where turnaround efforts have focused), it is increasingly difficult to see what management can do to turn the ship around."

As a result of the April sales, Bernstein said it was adjusting its model to reflect Q1 results and a concerning deceleration in the comp trend. Therefore, the brokerage slashed its price target to $17 from $23 on the company's shares. The brokerage maintains a Market Perform rating on Gap.

At time of writing, Gap shares were down 11.92 percent on the day, trading at $19.21.

DateFirmActionFromTo
May 2016Topeka CapitalDowngradesBuyHold
Apr 2016Deutsche BankInitiates Coverage onSell
Apr 2016CitigroupMaintainsNeutral

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