Gap Stock Plunges $10.25 a Share on Earnings Forecast
The Gap’s stock took a pummeling again on Monday following the fast-growing specialty retailer’s announcement that earnings would decline for the third quarter based partly on slow August sales.
Meanwhile, Wall Street spent the day beating up on specialty retailers’ stocks in general, including such big names as Neiman-Marcus Group and the Limited.
But Gap President Millard S. (Mickey) Drexler said the market is overreacting to one bad month of sales, adding that Gap’s business has picked up.
“We’re enjoying pretty good sales in September,” Drexler said.
Gap’s stock price plunged $10.25 to close Monday at $37 a share on the New York Stock Exchange. The San Bruno, Calif., retailer led the Big Board’s most active list with 3.6 million shares traded.
That followed a dismal Friday performance, when the Gap’s stock fell $8.625 a share. Only last month, the stock traded as high as $77.875.
The stock slump is quite a change for the Gap, which has been adding stores and watching its stock soar since Drexler joined the company in late 1983 and engineered a turnaround. At the end of the second quarter, Gap Inc. had 666 Gap stores carrying casual clothing aimed at the 20- to 45-year-old crowd, 78 Banana Republic safari clothiers and 16 GapKids stores.
Gap responded to the market slide by announcing Sunday that earnings for the quarter ending Oct. 31 could slip to between 40 cents and 50 cents per share. In the third quarter of 1986, Gap earned 60 cents per share.
Earnings and sales for all of 1987, however, will still be ahead of last year’s results, the company said. Last year, Gap earned $68 million on sales of $848 million.
Retail analyst Barry Bryant of Drexel Burnham Lambert said Gap’s slow August sales reflected consumer rejection of what he perceived as a new merchandising strategy featuring “full fashion” clothing at higher prices. Previously, Gap carried basic clothing with “hints of fashion,” he said.
But Gap President Drexler denied that the company has changed its merchandising strategy, adding that September sales have improved over August’s “very difficult back-to-school period.”
“Our merchandising is pretty fundamentally the same and we’re doing pretty well,” Drexler said.
Several other retail stocks also fell during the last two trading days. The catalyst for all the bad stock market news for Gap and other retailers was a sluggish increase in August retail sales as consumers spent stingily on back-to-school items, analysts said.
For example, Neiman-Marcus Group, the specialty retailer spun off recently by Carter Hawley Hale, sank $4 a share since Thursday, closing Monday at $35.875 on the NYSE. The Limited slid $3.25 during Friday and Monday, closing at $34.75.
