Gap Stock Plunges After Cutting Outlook, Announcing Nancy Green Will Leave the Company, Analysts Disappointed
2022.04.22 15:32
Gap (GPS) Stock Plunges After Cutting Outlook, Announcing Nancy Green Will Leave the Company, Analysts Disappointed
Gap Inc (NYSE:GPS) announced the departure of Nancy Green, CEO of the company’s Old Navy business. Green is set to step down from her role this week, while Gap CEO Sonia Syngal and the Old Navy team will work together to find Green’s replacement.
Furthermore, the clothing retailer also lowered the net sales outlook for its Old Navy division in Q1 2022, with the company now expecting low-to mid-teens declines from the year-ago period, compared to the previous guidance that projected mid- to high-single-digit declines.
Green’s unexpected exit from Gap comes amid a challenging period for the company as it continues to grapple with logistics issues and rising inflation that could weigh on consumer spending.
Supply chain disruptions have particularly affected Gap’s Old Navy business, whose target audience includes low-income consumers. Delays in the supply chain have prevented Old Navy from meeting shopper demand on several occasions.
The business division reported flat same-store sales compared to 2019 numbers. Gap said it has adopted a more aggressive approach when it comes to balancing its merchandise collection at Old Navy, leading to increasing promotional levels.
Gap is set to publish an updated FY 2022 guidance when it reports quarterly earnings on May 26.
“As we look to seize Old Navy’s potential, particularly amidst the macroeconomic dynamics facing our industry, we believe now is the right time to bring in a new leader,” Syngal said, referring to Green’s exit from the company.
The retailer is searching for someone with “operational rigor and creative vision” to realize the company’s goals, she added.
BMO analyst Simeon Siegel cut the price target to $13.00 per share.
“With shares down meaningfully post-market, it remains to be seen how far management opts to reset the FY guide, but with a cut so soon to numbers that seemed so high, the burden of proof remains on management to execute,” Siegel wrote in a client note.
“This meaningful drop, along with a likely inflated inventory balance, is beginning to weigh meaningfully on GPS’ cash balance, likely hampering buybacks and potentially a capex recalibration.”
BofA analyst Lorraine Hutchinson also cut the price target to $12.00 per share from $14.00 to reflect lower estimates. The analyst also reiterated an Underperform rating as “we continue to see risk of downward estimate revisions.”
“Entering spring, ON’s assortment was out of balance, and was too focused on fleece, active and sleep at a time when the customer desired dresses and fashion tops in time for return to work and events. In addition, 1Q comps will be difficult as they lap the 2020 stimulus benefit. Chasing is nearly impossible in this supply chain environment, so we expect it to take several months to realign the assortment and for some pockets of markdown liability to continue through 1H,” Hutchinson told clients.
Gap stock price is down nearly 17% in pre-open Friday.
By Senad Karaahmetovic
