Apparel retail company The Gap, Inc. (GPS) offers apparel, accessories, and personal care products under the Old Navy, Gap, Banana Republic, and Athleta brands.

On July 11, GPS announced that Chief Executive Officer Sonia Syngal would step down from her position on the company’s board. Bob Martin, the company’s current executive chairman of the Board, was appointed interim and chief executive officer effective immediately. GPS also announced that Horacio “Haio” Barbeito would join as president and chief executive officer of Old Navy.

Since then, the stock has declined 2.2% to close its last trading session at $8.71. GPS has declined 71% over the past year and 50.7% year-to-date. Moreover, it is currently trading lower than its 50-day and 200-day Moving Averages of $9.71 and $15.39, signaling a downtrend.

Here are the factors that could affect GPS’ performance in the near term:

Bleak Bottom Line

For the fiscal first quarter ended April 30, GPS’ net sales decreased 12.9% year-over-year to $3.48 billion. Net income declined 197.6% from the prior-year quarter to a negative $162 million. EPS came in at a negative $0.44, down 202.3% from the same period the prior year.

Analysts Expect Downsides

The consensus EPS estimate of a negative $0.03 for the quarter ending July 2022 indicates a 104.3% year-over-year decrease. Street EPS estimate for the current year (fiscal 2023) of $0.05 reflects a decline of 96.5% from the prior year. Likewise, Street revenue estimate for the same year of $15.71 billion indicates a 5.8% year-over-year decrease.

Lean Profit Margins

GPS’ trailing-12-month EBIT margin and EBITDA margin of 1.99% and 5.17% are 77.7% and 56.7% lower than their respective industry averages of 8.92% and 11.94%. Its trailing-12-month ROTC of 2.09% is 70.8% lower than the industry average of 7.16%.

The stock’s trailing-12-month ROE and ROA of a negative 2.74% and 0.59% are significantly lower than their respective industry averages of 16.73% and 5.55%.

POWR Ratings Reflect Bleak Prospects

GPS’ POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

GPS has a Growth and Sentiment grade of F in sync with its bleak bottom line growth in the last reported quarter and bleak analysts’ growth expectations.

The stock also has a Stability grade of D, consistent with its five-year monthly beta of 1.73.

In the 68-stock Fashion & Luxury industry, it is ranked #65.

Click here to see the additional POWR Ratings for GPS (Value, Momentum, and Quality).

View all the top stocks in the Fashion & Luxury industry here.

Bottom Line

The company’s CEO stepping down seems to have weighed in on its stock. On top of it, GPS is struggling with bottom-line losses, and its low profitability is concerning. Moreover, with analysts expecting GPS’ EPS for the current year to decline, I think the stock might be best avoided now.

How Does The Gap, Inc. (GPS) Stack Up Against its Peers?

While GPS has an overall POWR Rating of D, one might consider looking at its industry peers, J.Jill, Inc. (JILL) and Hugo Boss AG (BOSSY), which have an overall A (Strong Buy) rating, and Chico’s FAS, Inc. (CHS) and Weyco Group, Inc. (WEYS), which have an overall B (Buy) rating.

GPS shares were trading at $8.75 per share on Wednesday afternoon, up $0.04 (+0.46%). Year-to-date, GPS has declined -48.66%, versus a -15.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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