Gap's Wardrobe Malfunction: Analyst Unimpressed With Results As Brands Witness Double-Digit Declines

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Gap, Inc. GPS, lowering the price target to $11 from $13.
The company reported Q1 revenue of $3.28 billion, missing estimates of $3.29 billion. The Q1 adjusted EPS of $0.01 beat estimates for a loss of $(0.16).
While Q1 sales came in a touch light, Gap reported better-than-expected margin leverage that helped deliver the EPS beat, the analyst noted.
On the top line, all three major brands turned in lower sales, led by double-digit declines at Gap and BR, while Athleta also fell double-digits, as the brand continues to face product acceptance challenges amid a search for a new leader.
With ongoing macro uncertainties, GPS initiated second-quarter guidance below prior expectations.
The company expects macro and inflationary pressures to impact consumer spending patterns (particularly the lower-income Old Navy consumer), and visibility to improved sales and profitability challenging.
For FY23, the analyst reduced estimates reflecting a more conservative near-term outlook.
The analyst sees sales decline by 3.7% Y/Y, vs. down 3.4% Y/Y forecasted earlier.
On the bottom line, the analyst expects EPS of $0.70, down from the prior estimate of $0.80.
Price Action: GPS shares are trading higher by 10.8% to $8.23 on the last check Friday.