Gap Inc. reported fourth-quarter earnings that beat expectations, but analysts say the coronavirus pandemic provides shoppers with one more reason not to head to the mall, where many Gap and Banana Republic stores are located.
The shift to e-commerce has already put the squeeze on mall operators and the retailers that have space in them.
But as social distancing and self-quarantining continue to ramp up in response to the coronavirus, Gap GPS, +6.70% chains could suffer further.
“In our view, mall store closures are possible given a need for social distancing policies to slow U.S. infection rates,” wrote Cowen analysts in a note.
“This would benefit the health and wellness of society, but be detrimental to mall store traffic and Gap’s revenues and margins. We are most cautious about Gap, as the brand did not do well in a great consumer environment, which is now getting worse.”
Cowen rates Gap stock market perform with a price target $14 down from $18.
Gap says it “is not currently possible” to offer guidance that takes coronavirus into account.
MKM Partners says there’s downside risk to Gap’s fiscal 2020 guidance due to the decline in mall traffic. Analysts also note that Athleta results weren’t as strong as expected.
“We made some design talent changes midyear that were intended to strengthen our operational discipline and aesthetic consistency,” said Teri List-Stoll, chief financial officer at Gap, speaking on the late Thursday earnings call, according to a FactSet transcript.
“During the quarter, we were light on bottom and a bit heavier on tops and outerwear. The mix challenges were then exacerbated by inventory delays,which left the business out of stock in key styles, ultimately impacting conversion.”
MKM rates Gap stock neutral with an $11 price target, down from $19.
Gap reported a 5% same-store sales decline at the namesake stores, and flat same-store sales at Banana Republic and Old Navy. Athleta, which usually isn’t included individually when Gap reports, experienced a 2% same-store sales increase. Sales in 2019 were just below $1 billion.
Gap focused on improvement at the Old Navy chain, a star of the company’s portfolio that had slipped in recent quarters, and on its efforts to cut unprofitable stores from its fleet. The company is looking closely at its flagship stores, which Gap says, have “declining importance as marketing and brand awareness tools.”
The company took a $296 million impairment charge during the quarter, most of that related to the operating lease assets for the Times Square Gap and Old Navy stores. Gap entered into those Times Square lease agreements in 2015 and extend through 2032, company executives said.
BMO Capital Markets said 31 Gap flagships account for about 3% of sales and were a 110 basis-point headwind to earnings before interest and taxes.
BMO rates Gap stock market perform with a $15 price target.
Gap stock has rallied more than 9% in Friday trading, but is down nearly 58% over the last year. The ProShares Decline of the Retail Store ETF EMTY, -2.49% is up 42.3% for the period. The S&P 500 index has fallen 8.4% over the past 12 months.