Gap Group Declined For The First Time In The First Quarter Than Old Navy Comparable Sales For The First Time

Gap Inc. (Cape group), the US clothing company, released its first quarter financial data for the 2019 fiscal year, with sales and profits not expected.

The group's comparable sales decreased by 4% compared to the same period last year, and its three major brands, including Old Navy (Old Navy), Gap (Gai Pu) and Banana Republic (Banana Republic), declined by 1%, 10% and 3%, respectively.

Among them, the Old Navy brand has declined for the first time in three years, and Gap brand comparable sales is the most serious decline in four years.

After the news, Gap group's shares closed down 9.32% to 18.68 dollars on Friday.

As of Thursday, the Gap group's share price has fallen by 20% this year, becoming the fifth worst in the S & P 500 retail index.

Previously, Gap Inc. group announced that it plans to split two independent listed companies in 2020, splitting its brand Old Navy into an independent listed company, and the remaining brands as an independent listed company.

(see "ornate ambition" report: Gap group announces splitting of its brand Old Navy to set up an independent new company, shares rose 16%).

Art Peck, chairman and chief executive of Gap group, said in an official statement that it still has confidence in the 2020 Old Navy resolution plan and will work to establish two independent companies to promote long-term value creation and profit growth.

But analysts have expressed a different view:

Look at the decline:

Wedbush securities analyst Jen Redding said Old Navy, as the "gold brand" of Gap group, has been the main driving force for the group's profitability in the past few years.

But now that Old Navy is at its worst, it is inevitable that people question the possibility and value of splitting Old Navy.

Royal Bank of China capital market analyst Kate Fitzsimons lowered the target price of Gap group from US $26 to US $22. He believes that the opening of the new financial year of Gap group is unfavorable, whether it can successfully split up in the current environment and whether the group can turn the tide.

Bloomberg Intelligence analyst Poonam Goyal believes that although the colder weather and Easter delay are also part of the impact on sales growth, the Gap group's poor performance in the first quarter has raised doubts about whether the group has the ability to continue to rebound.

"Judging from the expectation of Gap group in the 2019 fiscal year, the group will continue to decline."

Promising:

Jefferies analyst Randal Konik continued to buy the rating, but lowered the target share price from $50 to $40. He said: "the management of Gap group has taken some measures on profitability. We expect sales and profits to improve in the second half of the year."

For the Gap brand, he believes that the brand will help increase brand profits when it closes hundreds of deficit stores. For Old Navy brand, he said it would maintain an evaluation of Old Navy, calling it the "pearl on the crown."

He believes that (if split into an independent listed company), the market value of Old Navy will be far higher than the current (Gap group).

Telsey Advisory Group analyst Dana Telsey lowered its target share price from $40 to $27. He said: "the disappointing performance of the group in the first quarter made it inappropriate to split Old Navy.

In addition, the increase in inventories may bring pressure on profitability in the next quarter. "

For the Gap brand, he believes that in the case of gross profit growth and cost control, the brand's profitability has "actually improved"; for the Old Navy brand, he said (if split up), the price earnings ratio of the brand will be higher than that of the Gap group which is not yet split, because the profits of Gap group are mostly from Old Navy.

"So we still think that splitting Old Navy will be a potential catalyst."

Neutral:

Nomura Instinet analyst Simeon Siegel lowered its target share price from US $32 to US $22.

He said: "in the current retail business environment is unfavorable, Gap group's performance in the first quarter has not been expected, and at the same time lowered the whole year's expectations, coupled with heavy inventory pressure, these factors will lead investors to carefully consider the Gap group's resolution plan.

Despite the fall in share prices, we remain neutral and see if it can stabilize and restore growth.

Susan Anderson, an analyst from B Riley FBR, gave a neutral rating and lowered its share price forecast from US $30 to $21. He said: "before we see that the core brand of Gap group is stable and improved, we will still take a wait-and-see attitude."

As of May 4, 2019, the key financial data for the first quarter of Gap Inc.2019 fiscal year are as follows:

Net sales fell 2% to 3 billion 706 million U.S. dollars over the same period last year.

Comparable sales fell by 4% compared to the same period last year (compared with 1% over the same period last year).

Gross profit fell 6% to 1 billion 340 million U.S. dollars over the same period last year.

Gross profit margin fell 140 basis points to 36.3%

Operating profit rose 240 basis points to 8.5% compared to the same period last year, and the adjusted operating margin dropped 260 basis points to 3.5% over the same period last year.

Diluted earnings per share were $0.60, up from $0.42 in the same period last year, and the adjusted diluted earnings per share were $0.24.

Merchandise inventories grew 10% to $2 billion 240 million.

There are 3849 stores in 44 countries, of which 3335 are straight stores

By brand:

Old Navy global net sales amounted to $1 billion 799 million, up from US $1 billion 745 million in the same period last year, and global comparable sales fell 1% compared to the same period last year (compared with 3% in the same period last year).

Gap global net sales amounted to US $1 billion 52 million, down from US $1 billion 204 million in the same period last year, and global comparable sales fell by 10% compared with the same period last year (compared with 4% in the same period last year).

Banana Republic global net sales amounted to $568 million, up from US $5.64 in the same period last year, and global comparable sales fell 3% compared to the same period last year (compared with 3% in the same period last year).

2019 fiscal year expectations

Adjusted diluted earnings per share were 2.05-2.15 dollars.

Comparable sales decreased in number of units.

Close 30 direct outlets.