Gap Inc. Shares Plunge as March Sales Disappoint

After nearly two months of rally with general apparel stocks’ rebound, Gap Inc. (NYSE: GPS) shares plunged over 12% on Friday as the retailer reported another month of decline in same-store sales. 

Net sales for the five-week period ended April 2, 2016 were $1.43 billion, 6.5% down from the same period last year and missing analysts’ expectation of a 5% decline. Among the three global brands within the company, Banana Republic confronted the largest contraction of 14%, compared with 3% last year. Gap and Old Navy reported comparable sales decline of 3% and 6% respectively, comparing to 7% and 14% during the same period in 2015.

Gap’s shares are currently trading below $24, around 11 times of the company’s earnings, after climbing above $30 last month as investors gave credits to the management team’s previous promises that improvement could be seen in the spring. “I have strong conviction about the long-term growth prospects of this company and the work that we are doing to reestablish our dominance in key categories in our businesses, to reassert appropriate aesthetic expression of our brands, the continued growth across all of our channels and the broad-based geographic growth that we’ve put a structure in place to achieve,” said the CEO Arthur Pack during the earnings call in February.

Despite the optimistic expectation, the retailer continues to suffer from weak traffic. “The company noted that it is entering April with more inventory than planned which the company expects will pressure its gross margin rate for the first quarter of fiscal year 2016”, Gap Inc. stated in the press release on Thursday.

Previously, Gap’s stock price has dropped slightly in mid-March after Morgan Stanley downgraded the stock rating to underweight. “We think [Gap’s] value proposition is no longer competitive, and two of its major brands–Banana Republic and Gap–have lost relevance with consumers,” Morgan Stanley analyst wrote in a note, according to MarketWatch.

Meanwhile, several apparel peers turned red today including Abercrombie & Fitch (NYSE: ANF) down 2.3% and Ralph Lauren (NYSE: RL) dropping 4.1% as of this writing. 

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