The Gap’s (GAP) stock is down 15% after the clothing retailer lowered its sales guidance for the year.
The San Francisco-based company announced fiscal first quarter earnings per share (EPS) of $0.38 U.S., which was slightly ahead of the $0.37 U.S. forecast on Wall Street.
Revenue totaled $3.50 billion U.S., which fell short of consensus expectations that called for $3.52 billion U.S. Sales were up 1% from a year earlier.
Management blamed the weak results on poor sales at the company’s Old Navy brand, which grew only 1%. Analysts expected Old Navy sales to grow 3% year-over-year.
As a result, the retailer cut its sales guidance for the remainder of the year.
Gap says it now expects companywide sales to grow between 1% and 2% this fiscal year, down from a previous range of 2% to 3%.
Old Navy caters to lower- and middle-income shoppers who have felt economic shocks like soaring gas prices more acutely than higher-income consumers, said Gap executives.
Old Navy is trying to boost sales with better price points and marketing and has seen trends start to improve but it will take more time, said management.
Old Navy accounts for 60% of Gap’s overall revenue, so any pressure on the brand impacts the entire company.
While Gap cut its sales outlook, it raised its profitability guidance. The company now expects earnings per share of $2.30 U.S. to $2.40 U.S., up from $2.20 U.S. to $2.35 U.S. previously.
Chief Financial Officer (CFO) Katrina O’Connell attributed the higher earnings forecast to tax rate favorability and interest income.
Gap expects an $80 million U.S. benefit from reduced tariff rates this year.
Prior to today (May 29), GAP stock had declined 10% over the last 12 months to trade at $25 U.S. per share.
