FBR Capital Remains Sidelined on Gap, Inc. (GPS) Following April Review
FBR Capital maintained a Market Perform rating and $27.00 price target on Gap, Inc. (NYSE: GPS) following the company's April review. GPS' SSS was –7%, missing the consensus estimates of /+1.1%. The company guided EPS to $0.31–$0.32, versus consensus of $0.44. Management indicated once again that elevated inventory levels weighed on GM.
Analyst Susan Anderson commented, "GPS reported an April SSS miss of –7%, versus FBR/consensus of +1.4%%/+1.1% and versus –12% LY. Adjusted 1Q EPS were guided to $0.31–$0.32, versus FBR/consensus of $0.45/$0.44. Management indicated once again that elevated inventory levels weighed on GM. Reflecting management guidance, we adjust our 1Q EPS estimate to $0.32, from $0.45, and GM de-leverage estimate to –400 bps, from –180 bps. The month's key themes: (1) SSS below expectations across all formats, (2) continued BR and ON pressure, (3) incremental improvements at Gap, (4) decreased traffic across all brands. In addition to ongoing changes in product at Gap and BR, GPS announced that it plans to better position the company to improve performance by streamlining its operating model, exploiting its scale advantage, and evaluating the BR and ON brands (especially international). GPS will provide more information on organizational improvements and initiate FY16 guidance when it reports 1Q16 EPS on May 19. We believe the potential for additional changes within the company pushes the time line for a potential turnaround further out. We remain on the sidelines and look for comp stabilization, inflection at BR and ON, or a more attractive entry point."
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Shares of Gap, Inc. closed at $21.81 yesterday.