This is one of the biggest drops in New York this Friday, at least among companies that have unveiled their quarterly performance. If the ready-to-wear group Gap will not publish its results until May 26, it is already lowering its sales forecast for the first three months of the year, citing in particular execution problems. of its Old Navy brand. On the stock market, the action fell by more than 12% in pre-market, opening, according to graphic analysis, what is called a “gap”, a hole in a series of quotation points. Since the start of the year, the stock has fallen by 30%.
Old Navy is the main brand of the sign. It accounts for half of its sales and is considered to be the company’s strongest growth generator for the years to come. The crisis is open, causing the departure of Nancy Green, head of the subsidiary since 2019. The recruitment of the new brand manager will be carried out outside the group.
Strategic errors
For this first quarter, ending at the end of April, Gap is now aiming for a drop in its turnover of 5% to 10%, against a decline of 0% to 5% previously.
Strategic errors were made at Old Navy, confesses Gap, with a bad product mix which led the brand to offer excessive promotional offers, with a direct impact on the volume of business. The group has set itself a sales target of 10 billion dollars by 2023 (just over 9 billion in 2021), in particular by expanding its range, towards larger sizes for example. Old Navy will also have to strengthen its positions in e-commerce and make its clothing production more flexible.
Athletica won’t be enough
Analysts are logically disappointed. Morgan Stanley is not a buyer of the title, only at “line weighting” with a price target lowered from 14 to 13 dollars. The broker expects multiple downgrades from consensus. For Corey Tarlowe, at Jefferies, to “keep” on file, Old Navy will no longer manage to regain its historical growth rates and margins, given increased competition.
Gap is also known for other brands such as Athleta (sports and technical clothing, or women’s clothing, for yoga in particular) or Banana Republic (urban ready-to-wear, modern and casual, for men and women). If the first is considered as a growth relay for the group, it will not be enough to compensate for the current setbacks of Old Navy, still judges Jefferies.