By Davit Kirakosyan and Senad Karaahmetovic
Gap (NYSE:GPS) shares are down nearly 6% in pre-market Friday following the company’s reported Q4 results, with EPS of ($0.75) and revenue of $4.24 billion (down 6% year-over-year) coming in worse than the consensus estimates of ($0.47) and $4.36B, respectively.
Comparable sales were down 5% year-over-year. Store sales fell 3% year-over-year, while online sales drop 10% and represented 41% of total net sales.
Old Navy Q4 net sales fell 6% year-over-year to $2.2B, with comparable sales declining 7%. Gap net sales fell 9% to $1.1B, with comparable sales declining 4%. Banana Republic net sales of $578 million were down 6% year-over-year, with comparable sales falling 3%. Athleta net sales of $436M were down 1%, with comparable sales falling 5%.
"While we are better positioned as we enter fiscal 2023, we continue to take a prudent approach to planning and managing our business in light of the continued uncertain consumer and macro environment," said Katrina O'Connell, CFO of Gap.
For Q1/23, management expects net sales to decline in the mid-single-digit range year-over-year. For the full year, the company expects net sales to decrease in the low-to-mid single-digit range year-over-year. The company expects Q1 and full 2023 year gross margin expansion compared to the prior year.
The company also announced that Mary Beth Laughton, President and CEO of Athleta is exiting the business, effective today.
UBS analysts reiterated a Sell rating on GPS stock after a "weak Q4 report." They continue to see an unfavorable upside/downside skew.
"We remain bearish on the macro backdrop and the outlook for consumer spending. We think this amplifies the challenges GPS faces from ongoing share loss. Weak sales will result in fixed cost deleverage, which will more than offset GPS’ margin recapture benefit from easing supply chain costs, in our view. These factors should cause GPS to miss the Street's EPS forecast, causing downward revisions to the sell-side's estimates over the NTM," the analysts wrote.
Morgan Stanley analysts believe investors were primed for another disappointing report from GAP.
"The stock was already priced for a wide range of '23e outcomes pre-report. Limited EPS conviction remains post-report, and likely stays that way through '23e while GPS executes a turnaround and navigates the uncertain macro. To us, this means the stock likely remains range-bound until new initiatives show up in the P&L, which may take some time, if ever successful," the analysts noted.