FBR Is Downgrading The Gap

In a report published Tuesday, analysts at FBR & Co downgraded

from Outperform to Market Perform. The price target was lowered from $48 to $40. The faster-than-expected deceleration in the Gap division led to negative AUR in 1Q15. "With a negative AUR in 1Q and significant fixed-cost de-leverage, we believe that 1Q gross margin could be below expectations." The analysts said. Also, given the higher inventories at the end of Q1, as well as higher promo levels, coupled with more difficult gross margin comps, the analysts expect the Q2 gross margin to come in below expectations. This, in addition to the accelerating deterioration in the Gap division is likely to push a turnaround potentially to mid-2016. "We continue to like GPS for its value as a global player, supply initiatives, Old Navy execution, refreshed initiatives under its new CEO Art Peck, and the potential for EBIT margin clawback longer term, but we move to the sidelines and look for signs of Gap stabilization or a more attractive entry point," FBR & Co added. The EPS estimates for 2015 and 2016 have been reduced.