The latest barrage of bad news from dying retailer Gap is making it impossible to handle the stock, analysts said Tuesday.
On Monday, Gap said CEO Sonia Syngal would step down after a “short” transition period. A source familiar with the company’s thinking tells Yahoo Finance that the board believes it’s time to make a change to the C-suite after another lackluster quarter and outlook.
The retailer warned that it expects sales to decline for the second quarter in the high single digit percentage range. Operating margins are pegged to land somewhere between zero to slightly negative. This marked the second consecutive material warning from Gap this year.
Shares fell 4% in afternoon trading on Tuesday.
“While the macro-environment is far from good today, most of these issues appear to be self-inflected and centered in the Old Navy,” Wells Fargo retail analyst Ike Boruchow said in a note to clients. The analyst lowered his rating on Gap in Equal Weight from Overweight.
Boruchow added: “While we remain cautious of our space, we cannot continue to recommend a name that is juggling with the company’s specific challenges over the growing macro pressure. Because the space is likely only in the early stages. of the main decrease, we just need to rethink any names marked overweight for which our thesis is not complete. “
Syngal was seen as a potential savior for Gap when he took over as CEO in March 2020 from interim CEO Robert Fisher, who in turn took over for ousted chief executive Art Peck.
Former CEO of Old Navy, Syngal was honored with reviving that important division, and quickly acted in his early days as Gap’s leader to inject fashion sense back into the company. That included signing Kanye West to an expensive and long -term deal in clothing design. Syngal also worked to improve the company’s supply chain and stores that don’t shutter work.
Unfortunately for Syngal, his time at Gap will be remembered for more commitment than delivery – a byproduct, in part, of Gap that lets customers in size and style. Additionally, West’s collection never made the splash expected, nor did it drive significant sales.
The onset of the COVID-19 pandemic did little to help Syngal’s return goal, which ended in a disastrous first quarter.
Gap said in late May first quarter sales at Old Navy and Gap fell 19% and 11%, respectively, from the same quarter last year. The company offered a full year revenue outlook that was approximately $ 1.00 below the consensus estimates at the time.
The poor first quarter for Old Navy led to the sudden departure of the brand’s CEO, Nancy Green. On Monday, Gap named former Walmart Canada CEO Horacio Barbeito to lead Old Navy.
BMO Capital analyst Simeon Siegel said after Gap’s latest warning: “The numbers are low as Gap continues to try to work through inventory in an increasingly deflationary environment.”
Siegel reduced his target price on Gap stock to $ 7 from $ 9.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.
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