Shares of Gap (NYSE:GPS) plunged by nearly 20% Friday morning as Wall Street frowns after the retailer took an axe to its financial guidance.
A day after San Francisco-based Gap forecasted 2011 earnings that would widely miss estimates, a slew of analysts downgraded their outlooks on the stock.
Piper Jaffray cut Gap to “neutral” from “overweight” and lowered its price target to $19 from $25.
Overshadowing a slight earnings beat, Gap said late Thursday it now sees 2011 EPS of $1.40 to $1.50. A profit in that range would badly miss the Street’s view of $1.83.
Gap blamed the new outlook on rising product costs, which it sees soaring 20% in the second half of the year and exceed retail price increases.
“While we acknowledge that costing pressure is impacting our business, we’re working hard to navigate this short-term macro challenge to our profitability in the current fiscal year,” Gap CEO Glenn Murphy said in a statement. “Our strategy remains the same – to deliver consistent, steady growth in North America while investing in our long-term global initiatives, especially in online and international.”
Even last quarter, Gap warned its same-store sales declined 3% amid a 6% drop in international sales and a 3% loss in Gap store North American sales.
Shareholders expressed their displeasure, sending Gap diving 15.97% to $19.58 Friday morning. The stock is now up just 5% in 2011 and 7% since a year ago.