Shares of The Gap, Inc. GPS, a premier international specialty retailer, have been losing ground for quite some time now. Year to date, this Zacks Rank #5 (Strong Sell) stock has lost approximately 33%. It is evident that Gap is no longer a favorite investor’s pick and let’s find out why.
Gap has been witnessing a dismal sales trend for a while now, mainly hurt by intensifying currency headwinds. Further, disappointing performance by its core Gap and Banana Republic Global brands are pressing concerns. In sync with this trend, the company reported comparable-store sales (comps) decline in the third quarter, primarily due to a double-digit decline in comps at its Banana Republic brand, weak Gap brand sales and negative foreign currency impact.
These headwinds are likely to hurt the company’s top line and also mar its overall performance. Further, port labor delays at the West Coast in the first half of this fiscal compelled management to slash its earnings projection for fiscal 2015. Gap also lowered its fiscal 2015 earnings per share guidance to $2.38–$2.42 from $2.75–$2.80 predicted earlier. This excludes the impact of strategic actions, which include estimated charges of roughly $130–$140 million.
Following Gap’s disappointing outlook, the Zacks Consensus Estimate witnessed a downtrend. Analysts polled by Zacks are now less constructive on the stock’s future performance. Over the past 60 days, the Zacks Consensus Estimate of $2.40 and $2.45 per share for fiscal 2015 and fiscal 2016 has declined 8% and 12.2%, respectively. Moreover, the consensus estimate for the fourth quarter has plummeted 22.2% to 56 cents over the same time frame.
Stocks to Consider
Better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. AEO, Express Inc. EXPR and Foot Locker, Inc. FL. American Eagle Outfitters sports a Zacks Rank #1 (Strong Buy) whereas Foot Locker and Express hold a Zacks Rank #2 (Buy).
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