Please ensure Javascript is enabled for purposes of website accessibility

Why Gap Shares Fell 50.9% in March

By Adria Cimino – Updated Apr 3, 2020 at 7:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lackluster earnings and temporary store shutdowns weighed on the shares.

What happened

Shares of the Gap (GPS 3.90%) slid 50.9% in March, according to data provided by S&P Global Market Intelligence, after the company reported lackluster earnings and temporarily shuttered stores as the coronavirus outbreak deepened.

Gap reported a 1% decrease in fourth-quarter fiscal 2019 sales year over year, with three of its four brands reporting flat sales or a decline. Only Athleta saw a 2% increase in sales, but that still represents a slowdown from the 7% increase in the year-earlier period. The apparel retailer reported a diluted loss per share of $0.49 for the quarter.

Sweaters in gray, pink, orange and other colors are stacked on store shelves.

Image source: Getty Images.

As the coronavirus outbreak expanded -- now at more than 900,300 cases worldwide -- Gap announced on March 17 it would temporarily close its stores across North America. By the end of the month, the company said it was drawing down the entire $500 million on its revolving credit facility and taking other precautionary measures to strengthen its finances. Gap also is deferring payment of the first-quarter dividend and suspending the quarterly cash dividend for the rest of the year. The retailer has furloughed its store employees, is temporarily cutting executive pay, and will reduce corporate jobs worldwide.

So what

Gap has been struggling with flagging sales, often stemming from online retail competition and declines in malls, where many of its stores are located. The surprise departure of chief executive officer Art Peck in November left the embattled retailer without a permanent leader until Sonia Syngal, CEO of Gap's strongest brand, Old Navy, took on the role last month. Prior to the coronavirus outbreak, Gap was facing the challenge of a turnaround. Now, lost business from the health crisis and its financial impact will surely make recovery more difficult.

Now what

So far Syngal's decisions to cut costs and take precautionary measures to ensure the future are encouraging, even if they are weighing on the stock in the short term. That said, Gap has a long road ahead of it to recovery -- a road that will be bumpy even without the extra headwinds from the coronavirus outbreak. The length of the health crisis will determine the strength of those headwinds. Until Gap reopens its stores and Syngal outlines her recovery plan, it's difficult to be optimistic about this consumer discretionary stock.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Gap Stock Quote
Gap
GPS
$9.60 (3.90%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.