As Markets Crumble, These 2 Retail Stocks Are Sounding the Alarm

Stocks were broadly lower on Thursday, giving up early gains as investors began to worry more about looming macroeconomic data and the likely course of the U.S. economy.

A substantial drop in bank stocks reflected rising concerns in the face of high-profile bank liquidations and capital raising activity. By the end of the day, the Nasdaq Composite (^IXIC 0.10%) fell more than 2%, and the Dow Jones Industrial Average (^DJI -0.11%) and S&P 500 (^GSPC 0.02%) were down almost that much.

Data source: Yahoo! Finance.

After the closing bell, investors got even more negative news from the latest companies to report their financial results. In the apparel stock area, both Gap (GPS -3.83%) and Zumiez (ZUMZ 1.77%) came out with their performance from the holiday quarter, and both saw their share prices fall in response.

Below, you'll see more about what Gap and Zumiez said and what it could mean for the broader stock market.

Falling into the Gap

Gap stock fell 9% in after-hours trading on Thursday afternoon following the release of the apparel retailer's fiscal fourth-quarter financial results for the period ending Jan. 28. In addition to seeing more headwinds in its business, Gap said it would look to cut costs even further and made changes to its executive leadership team.

Gap's numbers weren't encouraging. Revenue fell 6% year over year to $4.24 billion, with comparable sales falling 5% from year-ago levels. The retailer suffered declines both at its physical store locations and with its online sales channel. Gross margin fell slightly, and Gap posted a loss of $273 million, or $0.75 per share.

Just about every store concept under the broader Gap umbrella struggled during the period. Old Navy comps were down 7%, while Banana Republic saw a 3% decline and Athleta's comps fell 5%. The namesake Gap stores were also weak, seeing a 5% drop in comps. The company noted a number of reasons for the decline, citing poor performance in kids' apparel and challenges in appealing to lower-income consumers.

Gap is now seeking to simplify its operations, eliminating its Chief Growth Officer position along with other cost cuts to save $300 million annually. Yet it also sees fiscal 2023 sales falling low-to-mid-single digit percentages, and that wasn't the kind of outlook that shareholders wanted to hear with all the troubles plaguing the broader economy.

Zumiez sees even bigger sales declines

Meanwhile, shares of Zumiez were down 11% after the market closed. The specialty retailer reported much larger declines in key business metrics during the fiscal fourth quarter that ended Jan. 28.

Revenue for the quarter dropped 19% to $280 million, closing a year that saw the same percentage decline on the top line. Net income of $11.4 million was down an even steeper 70% to $11.4 million, working out to $0.59 per share.

The beginning of the first quarter of the new fiscal year didn't show many signs of recovery. Comps were down nearly 17% in the first five weeks of the quarter, and Zumiez gave guidance for quarterly sales to be between $178 million and $184 million. It also sees losses of between $0.85 and $0.95 per share.

At least at these stores, consumers appear to have pulled back substantially in the latest holiday quarter after having released pent-up demand a year earlier. That doesn't bode well for the strength of the consumer economy looking ahead, and it could spell trouble for other retailers beyond Gap and Zumiez.