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Why Shares of Gap, Inc. Were Slammed Friday

By Daniel Sparks - Updated Aug 24, 2018 at 12:08PM

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The company's flagship brand has some investors worried.

What happened

Shares of apparel retailer Gap (GPS 12.46%) fell sharply on Friday, falling as much as 11.2%. The stock was down 11% at 10:50 a.m. EDT.

The stock's decline follows Gap's second-quarter earnings release, which featured better-than-expected sales and earnings per share. But disappointing comparable sales for the company's legacy Gap brand may have spooked some investors.

A woman sitting on stairs with shopping bags

Image source: Getty Images,

So what

Gap reported earnings per share of $0.76, up from $0.68 in the year-ago quarter. On average, analysts had expected earnings per share of $0.72. Net sales increased to $4.09 billion, up 7.5% year over year. This put sales ahead of a consensus analyst forecast for sales of $4.01 billion. 

Overall, comparable sales during the company's second quarter increased 2% year over year -- on top of a 1% increase last year. Old Navy led the way with the highest global brand comps, growing 5% year over year. Banana Republic comps were up 2% and Gap comps fell 5%, despite a 1% decline in comps for the brand last year.

Now what

Importantly, management reaffirmed its guidance for the year, saying it expected full-year earnings per share to be between $2.55 and $2.70.

"Our balanced growth strategy supports continued growth and improved profitability, and our investments are focused on leveraging the advantages of our scaled operating platform and accelerating the impact of our significant data assets," said Gap CEO Art Peck in a press release about the quarter.

Regarding the company's poor comparisons at its Gap brand, Peck noted in the company's earnings call that management continues to expect improvement for the brand throughout the year. "Quarter by quarter, we expect performance to improve, and we believe the worst is behind us," the CEO said.

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