Gap shares fall on weak quarterly outlook, retail sector pressure

Gap Inc. shares fell on Tuesday after the company provided a downbeat outlook for the current quarter, reflecting broader challenges in the retail sector.

The San Francisco-based retailer reported adjusted earnings per share of 22 cents for the first quarter, missing the consensus estimate of 25 cents. Revenue totaled $3.39 billion, slightly below expectations of $3.41 billion. Same-store sales, a key metric for retailers, declined 6% year-over-year, worse than the anticipated 4% drop.

Gap attributed the weak performance to softer-than-expected consumer demand, particularly in its Old Navy and Gap brands. The company also cited rising costs, including higher freight and labor expenses, as a drag on profitability. Chief Executive Officer Richard Dickson highlighted "persistent macroeconomic pressures" affecting discretionary spending.

For the second quarter, Gap forecast adjusted earnings per share of 15-20 cents, well below the analyst consensus of 34 cents. The company expects same-store sales to decline 5-7% year-over-year, further underscoring its cautious stance.

The stock, which had already been under pressure due to industry-wide headwinds, extended its decline following the outlook. Shares were down 4.5% at midday, bringing year-to-date losses to nearly 15%. The broader retail sector has faced challenges from inflation, high interest rates, and shifting consumer preferences.

Analysts at Jefferies downgraded Gap to Hold from Buy, citing "limited near-term catalysts" and "structural challenges" in the apparel market. The firm also lowered its price target to $12 from $18.

Gap’s struggles mirror those of other major retailers, including Macy’s and Kohl’s, which have reported weak sales and profit warnings in recent weeks. The company plans to focus on cost-cutting measures and inventory management to mitigate the impact of weaker demand.