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Author: Alan LittleDate: 2022-04-25

Gap (GPS) -18% on forecast for double-digit Q1 sales decline

Gap (GPS) shares closed 18% lower on Friday after the clothing company said that it expected sales to fall by a “low to mid-teens” percentage in Q1.

Gap Inc. (GPS) shares plummeted 18% on Friday after the clothing retail company said that its decline in Q1 sales would be larger than anticipated as it struggles to weather supply chain woes and rising inflation.

Gap said that there would a “low to mid-teens” drop in sales compared to the same period a year ago, which is down from its previous guidance of around a 5% to 9% fall communicated back in March.

In a new update, the San Francisco-based business also said that its Old Navy brand, which offers affordable clothing targeting families, would get a new CEO following the departure of Nancy Green.

Gap chief executive Sonia Syngal will fill the void in the short term as the company begins the search for a permanent successor.

Syngal said that it wanted the new leader to better leverage Old Navy’s “unique value proposition”.

The brand accounts for more than 50% of Gap’s total sales, but it has struggled recently against a backdrop of supply chain challenges and rising input costs.

Reacting to the news from Gap, BMO Capital Markets analyst Simeon Siegel opted to cut his price target to $13 and continue with a market perform rating.

He said that investors will be waiting to see how the latest update will impact its full-year earnings guide, which was previously set at $1.85 to $2.05 per share.

“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,” Siegel added.

Gap shares plunged during trading on Friday and eventually closed 18% down at $11.74, which extends its decline for the year so far to approximately 35%.

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