What happened
Shares of the Gap (GPS 1.52%) 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.
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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.
