Gap's Weak Traffic Continues; Stifel Lowers Price Target To $28

Stifel says though near-term results at Gap Inc

will be "challenging," the company's leadership changes and merchandising efforts will help long-term growth. The apparel retailer, which was expecting the Spring collection to boost the results, reported 7 percent fall in April comps versus Stifel's (2 percent) and consensus' (0.8 percent). The company's comps fell despite a benefit from Easter and easy compares of down 12 percent in the prior year. All three brands were in the red, particularly Old Navy with comps down 10 percent in April. Comps at Gap fell 4 percent and Banana Republic declined 7 percent. Gap guided first quarter EPS in the range of $0.31-$0.32, well below Stifel's previous estimate of $0.43 and consensus of $0.44. "Margins will be pressured as the company entered April with more inventory than planned as a result of weaker than expected traffic which began in late March and continued into April. We anticipate challenges to continue," analyst Richard Jaffe wrote in a note. The analyst, who has a Buy rating on the stock, cut his EPS estimate for the first quarter to $0.32 from $0.43. For 2016, the analyst cut his EPS view to $1.75 from $2.17 and revenue estimate to $15.22 billion from $15.66 billion. Jaffe also trimmed his price target on the stock by $7 to $28. Street expects earnings of $0.43 a share on revenue of $3.54 billion for the first quarter, and $2.17 a share on revenue of $15.65 billion for the full year. "As visibility for substantial OM improvement becomes more evident, we believe the stock will trade up to our target price of $28 (approx. 12x our 2017E EPS of $2.25). However, given the recent sales weakness at each brand, the investment has become more speculative and necessarily longer term," Jaffe added. Shares of Gap plunged 11.92 percent to $19.21. The stock touched a new 52-week low of $18.98 following disappointing sales results from the retailer.