Gap Shares Plunge After Q3 Earnings Miss, FY21 Outlook Cut

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Gap Inc GPS reported a third-quarter FY21 sales decline of 1.3% year-on-year, to $3.94 billion, missing the analyst consensus of $4.44 billion. Adjusted EPS of $0.27 missed the analyst consensus of $0.50. The company is lowered its FY21 outlook citing ongoing supply chain disruption.

  • Net sales declined 1% compared to Q3 2019, with supply chain disruption driving an estimated 8% negative impact due to constrained inventory.
  • The company said significant supply chain constraints in the quarter impacted both comparable sales and net sales.
  • Comparable sales increased 5% versus Q3 2019. Online sales increased 48% compared to the 2019 quarter.
  • The gross profit rose 2.5% Y/Y to $1.6 billion with a profit margin of 42.1%, expanding 160 basis points.
  • The operating margin was 3.9%, and operating income for the quarter fell 12.6% to $153 million.
  • The company held $1.1 billion in cash and equivalents as of October 30, 2021. For nine months, cash provided by operating activities totaled $682 million with a free cash flow of $196 million.
  • The inventory at the end of Q3 declined 1% Y/Y.
  • Outlook: Gap sees FY21 sales growth ~20% year-over-year (prior view ~30% growth).
  • The company has cut FY21 adjusted EPS guidance to $1.25 - $1.40 (previously $2.10 - $2.25), versus the consensus of $2.20.
  • Price Action: GPS shares are trading lower by 20.1% at $18.78 in premarket on the last check Wednesday.
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