Earnings Results: Gap stock shoots higher after retail chain lost less than expected in holidays, predicts growth in 2022

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The Gap Inc. lost less money than expected in the holiday season and surprisingly beat analysts’ expectations with executives’ forecast for 2022, driving shares more than 15% higher in after-hours trading Thursday.

Gap
GPS,
-2.20%

reported a fourth-quarter loss of $16 million, or 4 cents a share, on sales of $4.53 billion, up from $4.42 billion a year ago in the holiday season. After adjusting for charges related to changes in its European businesses, the parent company of retail chains including Old Navy and Banana Republic reported a loss of 2 cents a share, after adjusted earnings of 61 cents a share a year prior.

Analysts on average were expecting an adjusted loss of 13 cents a share on sales of $4.49 billion, after Gap’s holiday forecast for losses led to a huge decline in its stock. Shares moved higher than $16.50 in after-hours trading Wednesday immediately after the release of the results, after closing with a 2.3% loss in the regular session.

Executives’ forecast for the current year calls for GAAP earnings of $1.95 to $2.15 a share, with international initiatives causing a reduction in adjusted earnings to $1.85 to $2.05 a share. Sales are expected to grow in the “low single-digit range” from the 2021 total of $16.67 billion. Analysts on average were expecting annual adjusted earnings of $1.76 a share on sales of $16.9 billion, and many were pessimistic that Gap would meet or beat those targets.

“We expect GPS provides EPS guidance below the Street’s $1.76 forecast,” UBS analysts wrote earlier this week in previewing Gap’s earnings. “We think the Street
is underestimating the impact of continued supply-chain costs into the first half of FY22 as well as some degree of more normalized promotions in FY22.”

Gap executives did say that they expect supply-chain issues to continue weighing on results in the first half of the year, but expect the second half to be a part of a long-awaited turnaround for the retailer.

“After two years of restructuring, including divesting smaller non-strategic brands, transitioning our European market to an asset-light partnership model and shedding underperforming North American stores, our core business is strong and we are poised for balanced growth across our $4 billion lifestyle brands,” Chief Executive Sonia Syngal said in a statement. “As our teams address near-term disruption from the acute headwinds that muted our fourth-quarter performance, we are confident in our ability to execute against our long-term strategy.”

Gap shares have fallen 44.7% in the past year, as the S&P 500 index
SPX,
-0.53%

gained 14.8%. Only three of 23 analysts tracking the company consider the stock a “buy,” with the majority, 18 of the 23, rating shares a “hold” as of Thursday afternoon.

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