Wall Street's Reaction To Gap's Q1 Earnings
Here is how some of Wall Street's top retail analysts responded.
Topeka: Q1 As Expected
In a brief note, Dorothy Lakner said Gap's first quarter print came in as expected, with reaffirmed guidance a "testament" to the company's operational discipline. Lakner also noted that continued momentum at Old Navy is helping to offset Gap's product issues.
The analyst also noted that the company's upcoming analyst day in June may prove to be a "positive catalyst" when management is expected to detail plans to "reinvigorate" Gap.
Shares remain Buy rated with an unchanged $50 price target.
Mizuho: Remain Sidelined
Betty Chen commented in a note that the Gap and Banana Republic brands are expected to continue struggling as ongoing product adjustments and "lingering" inventory may not be fixed until Spring 2016.
Chen also stated that she is seeing "mixed results" from the new delivery from Marisa Webb at Banana republic as the team adjusts for the lack of color and fashion newness that weighted on overall brand performance.
On the other hand, Chen remains "encouraged" by Old Navy's continued momentum but the brand will see "increasingly difficult" comp and margin compares as the year progresses.
With that said, the analyst concluded there is "little forward visibility" and shareholders should remain on the sideline.
Shares remain Neutral rated with an unchanged $43 price target.
Credit Suisse: Core-Gap Continues To Struggle
Christian Buss commented in a note that "mounting evidence" shows the Gap brand is losing relevance with consumers.
Buss argued that the rise of low-cost and deep value retailers with efficient supply chains and lower markdown risk on core apparel product is "eroding" the value proposition of Gap. The analyst continued that Gap's supply chain is still reliant on long lead-times and design teams are isolated from production – serving as an indication that a focus on product won't fix Gap's underlying issues.
On the other hand, Old Navy posted a 3 percent comp in the quarter, marking the 13th consecutive quarter of positive comps. As such, Old Navy remains the "jewel" in the Gap Inc. crown given a better positioning relative to fashion-oriented concepts like Forever 21 and H&M.
However, Old Navy's positive momentum will be overshadowed by continued woes from Gap. As such, the analyst is speculating that comps and earnings power will remain under pressure.
Shares were reiterated with an Underperform rating with an unchanged $34 price target.
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