Gap Closing Stores, But There's No Catalyst

Although Gap Inc GPS reported its 1Q EPS in line with expectations, the company withdrew its FY16 EPS guidance.

UBS’s Michael Binetti maintains a Sell rating on the company, while lowering the price target from $18 to $16.

1Q And Updates

Binetti mentioned that Gap reported its 1Q EPS at $0.32, in line with expectations, while removing the FY16 EPS guidance due to lack of top line visibility.

The company also provided an update regarding an incremental store closure initiative, which the analyst believes represents $250 million in terms of lost sales.

Gap also provided an update regarding its cost restructuring, which is expected to lead to annualized savings of $275 million.

Related Link: Gap Q1'16 Earnings Conference Call

Binetti noted that 1Q was the first quarter since 2Q09 that Gap did not undertake any share buybacks.

Drastic Measures

“While the brands continue to evolve their product, the company is taking more drastic measures to accelerate improvement through 75 store closures,” the analyst stated, while mentioning that the closures included 53 Old Navy stores in Japan and 22 international Banana Republic stores.

In addition, the company cut capex by $125 million for FY16.

The 2Q EPS estimate has been lowered $0.50 from $0.53, while the FY16 estimate has been reduced from $2.00 to $1.84, based on expectations of same store sales declines. The FY17 EPS estimate has also been cut.