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Gap Shares Fall despite Second-Quarter Earnings Beat

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Gap falls despite earnings and revenue beat

Gap (GPS) shares have been falling on August 24 despite the company reporting better-than-expected sales and earnings for the second quarter, which ended on August 4.

The total sales increased 7.5% YoY (year-over-year) to $4.08 billion—$76 million more than the Thomson Reuters I/B/E/S Estimates. The EPS increased 31% YoY to $0.76—higher than analysts’ forecast of a 24% increase YoY to $0.72. The company reported its second-quarter results after the bell on August 23.

Management also reiterated its fiscal outlook. Gap still expects an EPS of $2.55–$2.70 for fiscal 2018.

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Why did the share price fall?

Gap shares fell more than 8% in the pre-market trading session and opened 8% lower on August 24. Gap was trading at $29.51 at 9:40 AM EST, which is 9% below the previous day’s closing price.

Behind the decline, investors have been disappointed due to a weaker-than-expected performance from Gap’s namesake brand. Same-store sales at the Gap brand fell 5% during the quarter—almost double analysts’ projections. The comps at Gap Global have been negative in 15 of the last 18 quarters. The brand’s failure to revive sales despite strong consumer spending and a recent change in leadership caused concerns.

“The Q2 comp trend in Gap brand was unacceptable, but it reflects a conscious choice to optimize margin dollars as we continue to manage through inventory,” said Gap’s CEO, Art Peck, during the second-quarter earnings call. He also said, “Quarter-by-quarter, we expect performance to improve, and we believe the worst is behind us.”

Old Navy, the company’s largest brand, continued its strong momentum and recorded comps growth of 5%. Banana Republic also stood firm on its revival path and posted comps growth of 2% during the quarter.

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