What's Next For Gap After Its April Sales Miss?

In a report published Tuesday, Wedbush analysts maintained a Neutral rating on

, while reducing the price target from $45 to $41, after the company reported light April same-store sales. Gap reported its April SSS significantly short of expectations. SSS declined 12 percent, as compared to the consensus estimate of a decline of 7.4 percent. Part of the weakness is attributable to the shift of the Easter Holiday. In the report Wedbush noted, "Both the Gap and Banana Republic divisions comped down 15% for the month, well below consensus expectations. For the quarter, GPS reported 1Q comparable sales of (4)%, implying an 800 bps deceleration on a two-year stack basis compared to 4Q14. We remain hesitant to jump in front of a turnaround at the Gap division regardless of the compelling valuation, given ongoing softening of the Gap business and the recent downshift at Banana." Gap ended the quarter with a 4 percent increase in inventory, as compared to a -4 percent comp for the company during the quarter. This could result in "aggressive promotional activity" at the Gap and Banana Republic divisions during 2Q15. "Despite reporting downside to sales expectations, GPS guided EPS generally in line with consensus. Excluding a $0.02 benefit, management guided to an EPS range of $0.53-$0.54. The company noted its track record of controlling expenses in challenging environments," the analysts said. The EPS estimates for 2015, 2016 and 2017 have been reduced from $2.83 to $2.76, from $3.25 to $3.13 and from $3.74 to $3.61, respectively.