Gap (GPS) Stock: Why The Price Dropped Today

By Amit Chowdhry ● Nov 24, 2021
  • The stock price of Gap Inc (NYSE: GPS) fell by over 19% pre-market today. This is why it happened.

The stock price of Gap Inc (NYSE: GPS) – a portfolio of purpose-led, billion-dollar lifestyle brands including Old Navy, Gap, Banana Republic, and Athleta and the largest specialty apparel company in the U.S. – fell by over 19% pre-market today. Investors are responding negatively to the company’s third quarter results.

These are the highlights from the quarter:

— Third quarter comparable sales increased 5% and net sales were down 1% compared to 2019 pre-COVID levels

— Significant supply chain constraints in the quarter impacted both comparable sales and net sales

— Online sales for the quarter increased 48% compared to 2019

— Gross Margin of 42.1% for the quarter represented the highest third quarter rate in over ten years

— The company is revising its full-year 2021 guidance as a result of ongoing supply chain disruption

— The company’s third quarter fiscal year 2021 net sales of $3.9 billion were down 1% compared to 2019 with supply chain disruption driving an estimated 8 percentage point negative impact due to constrained inventory.

— During the quarter, the company repurchased 2.9 million shares for $73 million and ended the third quarter of fiscal year 2021 with 374 million shares outstanding.

— The company paid a dividend of $0.12 per share during the third quarter of fiscal year 2021. And on November 10, 2021, the company announced that its Board of Directors authorized a fourth quarter dividend of $0.12 per share.

2021 Outlook

— The company now expects its reported full-year diluted earnings per share to be in the range of $0.45 to $0.60, which includes a $325 million loss on extinguishment of debt and approximately $120 million in net charges primarily related to divestitures and changes to its European operating model. And excluding these charges, the adjusted full-year diluted earnings per share are expected to be in the range of $1.25 to $1.40, which contemplates a range of on-time delivery rates for holiday flows and other supply chain challenges.

— This guidance includes an estimated $550 to $650 million of lost sales from supply chain constraints on available inventory, as well as approximately $450 million in total air freight expense for the year. The company noted that when adjusting for transitory costs and sales lost from the acute disruption, the business momentum is strong.

KEY QUOTES:

“While we entered the third quarter with growing momentum, acute supply chain headwinds affected our ability to fully meet strong customer demand. Still, we made an intentional investment in building enduring customer loyalty with accelerated use of air freight to serve them this holiday, choosing long-term growth opportunity over near-term impact to profitability. Current pressures have not distracted us from what matters: growing our billion-dollar brands, delighting our over 64 million customers with product and experiences that drive lifetime value and restructuring and digitizing our business with an eye on creating a better future, faster.”

— Sonia Syngal, CEO, Gap Inc.

“While there is still hard work ahead to navigate near-term challenges in the macro environment, the team has made tremendous progress, adapting quickly while never taking their focus off of our long-term objectives. We have strong demand for our brands and our fleet rationalization and divestitures are progressing well and adding value. Our operating margin remains on track to hit 10% by 2023, in line with our plan, even as we navigate these near-term disruptions. While our mitigation efforts are driving significant transitory costs, we view these as investments in preserving market share and driving overall health and relevance for our brands.”

— Katrina O’Connell, Executive Vice President and Chief Financial Officer, Gap Inc.

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.