Gap (GPS) PT Lowered to $18 at Nomura

Nomura Securities analyst Simeon Siegel reiterated a Neutral rating and cut his price target on Gap, Inc. (NYSE: GPS) to $18.00 (from $19.00) following results and outlook.

Siegel commented, "Mgmt noted that they were "not reaffirming" FY16 EPS guidance, commenting that the consensus estimate of $1.92 "falls within a reasonable range of potential outcomes," but also noting that trends "would need to improve from 1Q16 in order to achieve this estimate." We have been discussing our concerns that the most alarming part of GPS' recent misses was the surprise in a lack of traffic recovery and in light of this pulling of guidance, we wonder if the business of specialty apparel retail has simply grown more difficult to forecast internally, a fact that can cause ongoing mismatches between inventory supply and consumer demand. As part of GPS' release, they outlined their plan to close 75 stores as part of a reorg including 53 ON Japan stores and primarily international BR stores. We do wonder at the company's decision to close Old Navy Japan when within Asia, Old Navy was the only one of the three concepts to actually show YoY sales growth (recognizing this is Asia, not just Japan), suggesting the ON stores were unprofitable. That said, there were an identical amount of BR Japan stores at year end, doing meaningfully less volume and with store closures coming in bullets, we would not be surprised if more closures across the globe are yet to follow. With the streamlining of the business and closing of stores, GPS noted it unlocked $275mn in annualized savings (~200bps of margin). That said, we believe this is more a function of finding dollars to offset the "natural upward momentum in SG&A", rather than simply expecting a 275mn reduction in expenses. FY16E EPS at $1.83; FY17E EPS at $1.82."

For an analyst ratings summary and ratings history on Gap, Inc. click here. For more ratings news on Gap, Inc. click here.

Shares of Gap, Inc. closed at $17.28 yesterday.

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