Why Gap Stock Plummeted 28.4% in May
What happened
Shares of The Gap, Inc. (NYSE: GPS) fell more than 28% last month, according to data provided by S&P Global Market Intelligence, after the retailer reported weak first-quarter results.
So what
Gap's shares were under pressure even before it released its financial figures. Apparel stocks got hit hard in early May after China and the U.S. implemented a series of retaliatory tariffs that threatens to increase costs and dent profits for retailers.
Gap's stock price declined, then accelerated after its first-quarter results disappointed investors. The company's comparable sales fell 4% year over year, with even its strongest brand -- Old Navy -- experiencing declines. Gap brand stores were much worse, with comps plunging 10%.
All told, the company's adjusted earnings per share (EPS) decreased by 43% to $0.24. "This quarter was extremely challenging, and we are not at all satisfied with our results," CEO Art Peck said in a press release.
Now what
Gap expects to face more challenges in the quarters ahead. The company now anticipates a low single-digit decline in full-year comparable sales, down from its previous guidance for comps to be flat to up slightly. Management also reduced its adjusted EPS forecast to between $2.05 and $2.15, down from $2.40 to $2.55.
Peck said he remains confident in Gap's plan to separate Old Navy and its other brands into two independent public companies in 2020. Investors, however, may want to consider whether they'd want to own either company, with even Old Navy now suffering comp declines. The trend toward online shopping and away from mall-based retailers is likely to continue to weigh on all of Gap's brands in the coming years, making both of these soon-to-be separate businesses risky bets for investors.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.