Gap's April Sales Were More Painful Than Expected

Bernstein analyst, Anne-Charlotte Windal, believes that Gap Inc

has not only reported disappointing sales for April but indicated that the sales were more painful than it would have expected. The most important of them was that April comparable store sales growth fell shy of the consensus for all three of its flagship brands. Thus it joined all other retailers in the America. The company blamed tepid macroeconomic demand for apparel retail for missing the consensus. The analyst said that Gap announced a -4% comp and Banana Republic a -7% comp. However, Old Navy's -10% comp was the biggest surprise as it came against an easy -6% compared to last year. Windal said that it signaled a sharp negative inflection in comp trend for the brand, which had been a relative outperformer in the portfolio. Bernstein pointed out that the retailer's management provided 1Q16 EPS guidance of $0.31-$0.32, which was substantially below the consensus estimates of $0.44. That suggested the gross margin compression was more than the expected levels. Windal said that "While it looks like April was indeed a horrible month for the entire Apparel category (with weather not cooperating and benefit from Easter shift not materializing), the GPS numbers are concerning. With Old Navy losing steam and no sign of improvement on the Gap brand (where turnaround efforts have focused), it is increasingly difficult to see what management can do to turn the ship around." As a result of the April sales, Bernstein said that it was adjusting its model to reflect Q1 results and a concerning deceleration in the comp trend. Therefore, the brokerage slashed its price target to $17 from $23 on the company's shares. The brokerage retained the rating of Market Perform on the shares of Gap. On Tuesday, shares of the company traded 12.24% down.